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Thailand home prices to rise 10%
Thailands residential property market will remain flat or show only a slight improvement this year, according to TRIS Rating in its latest research covering the sector. Prices, however, are expected to rise by between 5 percent and 10 percent during 2015.
Declining interest rates, stable costs for labour and construction materials, and an improving political situation are positive factors however the major concerns for the year according to the agency are the slower-than-expected growth in the domestic economy, high levels of household debt, and increasing inventories of housing units.
Late last month the Bank of Thailand (BOT) lowered its 2015 Gross Domestic Product (GDP) growth rate forecast from 4 percent to 3.8 percent. The drop reflects a slower-than-expected recovery in the export sector. Private consumption and investment is expected to grow more slowly than forecast earlier in the year.
The main economic drivers will be government spending and the tourism industry and as a result, TRIS said there is no catalyst to boost demand for housing.
According to the Agency for Real Estate Affairs (AREA), in 2014, the number of housing units launched in Bangkok and the vicinity dropped by 13 percent year-on-year (y-o-y), however the number of housing units sold dropped by 22 percent, increasing the number of unsold housing units in Bangkok and the vicinity at the end of 2014 by 16 percent y-o-y.
Concerns over the rising level of household debt and the expected slowdown in the economy may cause the homebuyers to postpone the decision to buy a new home, it said.
Despite the weakening market conditions, the operating performances of most residential property developers rated by TRIS Rating remain acceptable.
As of 2014 TRIS Rating rated 17 residential property developers. The combined sales of these 17 developers and their subsidiaries accounted for between 60 percent and 65 percent of housing sales in Bangkok and the vicinity. Pre-sales at these developers grew strongly during 2012 and 2013 and operating performances of most rated developers in 2014 were in line with or better than the projections made at the beginning of 2014.
Most rated developers achieved better operating profit margins in 2014 than in prior years. Operating profit margins were higher because marketing expenses. The developers launched fewer new projects in 2014. However, the average debt to capitalization ratio of the 17 rated developers increased to 52.9 percent during 2014, up from 50.3 percent in 2013. Leverage rose because the combined value of the investments in land, inventory, and projects under construction at these 17 developers increased by almost 20 percent.
The investment value was equal to 3.19 times the three-year average cost of goods sold, up from 3.16 years at the end of 2013.
The slowdown in the domestic economy caused the presales of the 17 rated developers to drop by 16 percent y-o-y in 2014. Presales, in aggregate, fell to around THB 201 billion, compared with THB240 billion in 2013. Presales in the condominium segment fell the most, dropping by 34 percent y-o-y to around THB84 billion. In contrast, presales in the low-rise housing segment grew by 5 percent y-o-y in 2014.
Despite the drop in presales, the backlogs at the 17 rated developers remained sizable. At the end of 2014, the aggregate backlog at the 17 rated developers stood at THB230 billion, down by only 7 percent from the previous year. Most of the housing units in the backlogs will be transferred and generate revenue during 2015 and 2016.
The size of the aggregate backlogs is almost equal to one year of revenue summed across these 17 developers. The sizable backlog will help sustain the operating performance of most rated developers in 2015.
Housing prices are not expected to decline, according to TRIS. Housing prices, especially the price of condominiums, have increased significantly over the past few years. Rising land prices, especially the prices of land plots along mass-transit routes, have pushed housing prices higher.
According to the housing price index created by the BOT, the prices of condominiums tend to track land prices. Condominium unit prices rose by between 40 percent and 50 percent over the last five years as land prices climbed. Despite the significant drops in the prices of key construction materials and fuel, and a sharp rise in land prices are predicted to drive housing prices higher by between 5 percent and 10 percent this year.
Andrew Batt, International Group Editor ofPropertyGuru Group, wrote this story. To contact him about this or other stories emailandrew@propertyguru.com.sg
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