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15 Mar 2013

Real Estate and Construction

2013: Flourishing Year for Construction, Labor Shortages Loom (Current Issue No. 2335 Full Ed.)

The Thai construction industry saw impressive growth in 2012 with value of THB431.3 billion going to private construction, and THB469.63 billion to public construction, thus totaling THB927.94 billion – a gain of 12.8 percent YoY, against 1.6 percent growth in 2011. This is attributed to reconstruction of damaged property after the severe 2011 flooding, as well as soaring prices for construction work with regard to real estate, in particular, within Bangkok as well as in provincial areas. However, public sector infrastructure projects have led to greater urbanization, which encourages migration into cities for better living and working conditions.
Public sector construction is thus boosting the overall growth in construction work. The government's 2013 large-scale project plans include two items that have been statutorily approved: 1) a water resource management project under the Executive Decree authorizing the Ministry of Finance to borrow funds of up to THB350 billion for water management and future development – corporate groups that have won bids are now preparing to submit the Terms of Reference (TOR) and construction progress is expected to be visible within 2H13; and 2) a seven-year infrastructure development plan (2013-2020), valued at THB2.27 trillion – the government is in the process of enacting a bill authorizing the Ministry of Finance to borrow funds for transportation investment projects, thus construction under these projects will be minimal this year.
Given several ongoing public projects continued from last year, plus those to be bid on this year, e.g., an Orange-Line MRT route (running from the Thailand Cultural Centre to Minburi) valued at THB80 billion, we anticipate that the Thai construction industry will continue to grow. Expansion in private real estate investments will also be another push for the growth. KResearch's estimate for Thai construction work overall in 2013 is being set at 10.5-12.9 percent growth, valued at THB1,025-1,047.5 billion, versus growth of 12.8 percent YoY in 2012. The ratio of public construction to private is expected to be around 45:55.

However, trouble seems to be brewing for construction work vis-à-vis labor shortages amid a higher daily minimum wage and more costly construction materials. KResearch forecasts that the Construction Material Price Index will climb only 3.0 percent, thus not differing much from 2012. However, pre-fab components will no doubt be in high demand if marketed effectively, since they can help offset some labor shortage problems.

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Real Estate and Construction