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22 Dec 2010

Real Estate and Construction

Construction in 2011 Continuing Growth, Govt. Projects Up 7.5% (Business Brief No.3011)

The construction industry in 1H10 recorded healthy performance despite domestic political unrest. Private sector construction was primarily supported by real estate tax incentives. Nonetheless, it began to slow down in 2H10 due in part to a high base from last year and severe flooding in several provinces.
In 2011, the construction industry overall may continue to show promising trend thanks mainly to solid growth in public sector construction projects. Progress has been seen in many government mega-projects of which the construction will start around the same period. They include mass transit rail lines and infrastructure projects under the State Railway of Thailand (SRT) investment plan. Other smaller-scale projects would include road construction, water management and repairs of flood-ravaged infrastructure and public utilities.
Looking ahead into next year, private sector construction should achieve slower growth YoY due in part to a high base from this year. Other negative factors would include less vibrant housing construction after the end of real estate tax incentives, excess supply, a rising interest rate trend as well as the Bank of Thailand's vigilant stance against bubble risks. Nonetheless, industrial construction will likely show continued bright prospects in line with increased domestic investment for expanded production and the relocation of foreign factories into Thailand. In addition, stalled construction projects in the Map Ta Phut area will likely resume operation with increased volume after the regulatory impasse was addressed. However, restrictions on industrial construction may arise from civic protests vis-à-vis rising environmental and health concerns.
Meanwhile, commercial construction may continue to have a bright outlook due to expansion of retail outlets more accessible to residential communities in line with changing consumer behavior. Thus, focus may be on the launch of new smaller outlets and community malls that are now gaining popularity. Investment may also abound for more large retail outlets and department stores in metropolitan areas, along with an increased number of new branches in provincial areas, including provinces along our borders. However, attention should be paid to progress on a Retail and Wholesale Business bill, and more intense competition in the retail market, especially among large operators.
Also, the political situation will need a close watch as it may affect public sector construction, the government's budgetary disbursements and private sector confidence. Other downsides include domestic and global economic slowdowns, rising construction costs in line with a bullish trend in prices of oil, commodities and construction materials as well as interest rates. Labor constraints may become more evident due to rising demand for workers.

Overall, KASIKORN RESEEARCH CENTER (KResearch) forecasts that the value of construction investment (at constant prices) in 2011 may grow 4.0-6.5 percent, attributed largely to public sector construction growth of 4.5-7.5 percent. Private sector construction will likely record growth of 3.5-5.5 percent. The market value of construction (at current prices), is set to rise 7.0-9.7 percent to THB865-886 billion, up from THB807.50 billion in 2010 (representing a 9.1 percent increase YoY over 2009).

Real Estate and Construction