Thailand’s High-rise oversupply set to crash down
Editorial Bangkok Post editorial column
Talk about a possible bubble in Thailand’s property market has been something that has been making its rounds for the past few years, but thankfully none of the market talks have yet materialised.
The property market, which had been blamed for the 1997 financial crisis, has been one of the hot topics of discussion among bankers and potential buyers alike.
Bankers have, over the past 12 to 18 months, started to become more stringent in their lending to property projects and potential homeowners alike.
Data from the Bank of Thailand has shown mortgage lending has seen a decline as many banks are reluctant to lend to potential customers. Rejection of mortgages for the lower segment of the market stood at around 30% during 2017, against a mere 10% seen during 2013. The lower segment is not the only one that is affected; even the high end has seen the rejection rate increase, although one must admit that many high end condos are paid for in cash by the rich and famous.
This is a sharp contrast to what one would expect especially after the country’s thinktank, the National Economic and Social Development Board, came out to announce that the country’s gross domestic product (GDP) rose by as much as 3.9% during the past year.
To cement the good news of the GDP data was the fact that, for the month of January, exports rose by 17.6% year-on-year to US$20.1 billion, the highest level of growth since November 2012.
The upbeat economic data also helped the Thai Industries Sentiment Index reach its highest level in 36-months amid optimism about stimulus measures and increasing consumer confidence.
With all the good news coming out of the country, one would expect that the property market would be doing well, but that is not the case. At the end of 2017, the country had surplus residential units that would take nearly 18 months to be absorbed by the would-be buyers, if no new units are to be built. This would mean that if no new units come to the market, the demand for new units to be built would be needed in August 2019.
But, alas, that is not the case, every developer has announced new projects worth tens of billions of baht which would mean the country is going to see an addition of at least 100,000 units coming into the market.
Although the takeup rate during the last two quarters have been good and has helped spur the feeling that the worst for the property market may be over, there are those who are still feeling the pinch of the slowdown.
Buyers who have been speculating on their ability to turnaround and make a quick buck on their ability to be able to book units ahead of the mortal masses, are starting to see that their slyness in making quick returns are starting to evaporate. Some are having to look at ways to exit as the projects come due and, by law, the buyers would have to take possession of the unit.
Some of these units where potential buyers have paid the down payments but failed to take up possession have started to come out in the market as developers look to liquidate the units they have at hand.
On the other hand, there are those who have been looking to rent their units also starting to feel the pinch as rental yields have gone down by around 15% from their levels seen just about a year ago.
The decline in the yields have been attributed to the continued rise in supply of units in the market.
Developers who have been coming out with bullish notes each time they come out to speak to the public, have been in the background looking at ways to stabilise their recurring income and have been shifting to focusing on generating income from retail, hotels, offices and even renting some of the units they are building.
Ask any industry expert and they will tell you that the shifting of the developers to create a recurring income is a sign that they are looking for ways to have a stable income flow amid possibilities that there could be some disruption to their revenues in the near future, although none of the developers would admit to this fact, for the fear that it may impact their overall sales.
The fact that every Tom, Dick and Harry is now launching new brand and projects is in itself a scary feeling and it is the job of the authorities to nip this in the bud before it is too late.
Not too long ago, the Bank of Thailand had come out with measures for property buyers in the high end, a move it had initiated to control the speculative buying of property in that segment.
With the middle and lower segment of the market now feeling the pinch, it may be the right time to come out with some measures to slow the supply side of the equation as it could help limit the adverse impact to the property sector.