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26 May 2005

Real Estate and Construction

Household Expenses Highest in 10 Years: Housing Market Affected

In the midst of steadily rising prices of goods at home, Thai consumers have inevitably borne the brunt of a surging cost of living. The National Statistical Office has recently reported on a Social and Economic Survey for 2004 (preliminary data). Kasikorn Research Center (KRC) takes the view that there are some interesting points in it concerning changes in the structure of consumers' income and expenditures that may affect consumer behavior toward their home buying decisions. Meanwhile, businesses may also take this into consideration when mapping out strategies for their specifications on units offered to consumers. Based on our analysis, we have come to some major conclusions, as in the following:
  1. Thai household spending behavior has been changing in the midst of recent hikes in oil prices. In 2004, Thai household income averaged Bt14,617 per month, rising by 6.4 percent over the Bt13,736 recorded in 2002. Meanwhile, Thai household expenses stood at Bt12,115 per month in 2004, compared to Bt10,889 per month in 2002, representing a rise of 11.3 percent. Over the past couple of years, household expenses rose almost twice as fast as household income. This escalating expense burden has caused the ratio of household expense to income across the country to increase to 82.9 percent, against 79.3 percent in 2002. Vehicle-related expenses rose remarkably, accounting for 17.1 percent of total household expenses nationwide in 2004, up from 13.9 percent seen in 2002. As a result, consumers have cut their spending on other goods.
  2. high as 91.6 percent.




The higher cost of living burden means a shrinkage in expendable income that consumers can spend on other non-essential items to maintain their lifestyle, including falling savings ability. And, if prospective homebuyers are using their expendable income to make mortgage installments, that would mean that buyers' ability to make those installments will further drop. In the other words, the affordability of homebuying will also drop. These factors will reduce growth in the housing market this year. KRC expects that in 2005, the number of finished houses in Bangkok and the suburbs will be around 63,000 units, close to 2004, when the number of finished houses were around 62,796 units. However, the market value is likely to drop, as well, because entrepreneurs are now offering lower average prices than in many past years. Moreover, pressure in both demand and supply may will force housing entrepreneurs to face more difficulties in laying out strategies on unit specifications and target customer groups to conform with present market conditions, which are tending toward slowdown and higher construction costs.

Real Estate and Construction