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18 Jul 2008

Real Estate and Construction

Housing Market, 2H08: Numerous Downsides Affecting Recovery (Current Issue No.2084)

KASIKORN RESEARCH CENTER (KResearch) estimates that investments in real estate during 2008 may grow 0.8 percent versus the contraction seen in the year before. We also forecast that the number of housing completions in Greater Bangkok in 2008 may total around 67,600 units, plummeting 7.2 percent from the 72,808 units in 2007. The decrease stems mainly from a shrinkage in housing estate projects due to the huge supply in the market. Therefore, the launch of new projects, especially by small developers, is expected to see a slowdown. Likewise, custom-built houses are expected to experience a contraction as higher construction costs and the soaring cost of living may prompt some consumers to put off any decision to commission home construction. Completely-built condominiums, meanwhile, have grown steadily this year after a large number of newly-launched projects entered the market.
KResearch views that the condominium market is likely to fare well this year, thanks to demand for dwellings and as long-term investments. Amid spiraling inflation but low deposit rates, some consumers have shifted to property investments that offer higher rates of return. High demand has been evident for condominium units in central business district (CBD) areas or along mass-transit routes. Most of them are for rent to local or foreign tenants or resale upon project completion.
However, KResearch takes the view that if construction costs continue to escalate, developers of condominium projects with lengthy construction periods may be vulnerable to liquidity problems, putting those projects at risk. As a result, completely finished condominium units may prove to be more popular with consumers. This situation offers a golden opportunity to developers with large supplies of completed or nearly-completed units to hasten the decisions of prospective homebuyers.
Townhouses may gain greater popularity. Demand may come from those who are in need of a residential unit that offers more usable space than a condominium, but cannot afford a pricey single detached home.
Meanwhile, custom-built houses may face a bumpy road ahead over the remainder of this year. Among the hindrances are falling consumer purchasing power, problems related to home contractors, e.g., abandoning work as well as the prevailing bullish loan rate trend. Worse, consumers who opt to custom-build their own homes are not eligible for the latest real estate incentives offered by the government. This may prompt some consumers to postpone their decisions until the economy emerges from the doldrums.

For single detached house development projects – especially those located in high competition areas aimed at the same customer groups – they are likely to see their sales falling short of target. Sales promotions have been launched in earnest to win customers, leading to heavier operating cost burdens for them.

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