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18 Jan 2010

Real Estate and Construction

Construction 2010: Public and Private Investment supports Market Expansion to THB800+ Billion (Business Brief No.2733)

Thailand's construction industry in the beginning of last year contracted steadily over the preceding year mainly due to recession and political problem. However, the government's effort toward pushing small scale projects across the country via the stimulus package phases 1 and 2 (or Thai Khem Khaeng Plan 2012: SP2), boosted public construction healthily in 2Q09, 3Q09 and will likely continue so throughout 2010.
In 2010, with the construction industry tending to grow better on government investment, it is hoped that total construction will improve. Private construction in the housing and commercial categories should also get a boost from amendments to some existing regulations and laws, e.g., an amendment to the BOI home project requirement where townhouses or single detached homes priced at not more than THB600,000 were allowed in BOI-approved projects before, but now that limit has risen to THB1.2 million, or condominiums not exceeding THB1 million per unit. This should lower the average prices of BOI-home projects to a degree, and spur the low- to medium-priced housing segments for townhouses, single detached homes and condominiums.
Meanwhile, an amendment to the Wholesale and Retail Business Act may result in large retail businesses expediting branch expansion before the Act comes into effect. Industrial sector construction also needs time to recover because excess production capacity is still high and some industries face uncertainty in government rules and regulations pertaining to projects that may affect the environment, health and communities.
Concerning public investment, it is projected that small scale projects ready to carry on will be a driving force for construction business in 1H10. However, the commencement of new mega-infrastructural projects will likely start at the earliest in 2H10 because they have to undergo specific procedures first. Mass transit systems such as the Purple Line (Bang Sue-Bang Yai) would likely start first.
Political stability remains a risk to construction business. The government investment projects will still be needed until economic growth is more stable, and then private construction should improve. Moreover, we should monitor continuity in both the Thai and global economic recoveries, which will impact consumer confidence and private investment.

Therefore, KASIKORN RESEARCH CENTER (KResearch) projects that public construction investment in 2010 may grow in a range of 3.5-8.0 percent (at constant prices), while private construction may grow 2.5-5.0 percent, resulting in the total value of construction (at constant prices) to grow in a range of 3.0-6.5 percent, from the projected growth of 1.2 percent in 2009. The main boost would come from the public construction growth. For the market value of construction in 2010, it may increase to a range of THB819,000-847,000 million (at current prices) due to the possibility that construction costs may rise substantially this year, or grow 10.0-14.0 percent from the investment value of THB743,000 million (at current prices) in 2009, falling 5.5 percent from the preceding year.

Real Estate and Construction