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24 Sep 2013

Real Estate and Construction

Condominium Market Anticipating More Projects amid Challenges (Current Issue No. 2407 Full Ed.)

Early in 2013, Thailand's condominium market was extremely vigorous. The upbeat trend was evident not only in the Bangkok Metropolitan region, but also upcountry where development has gained momentum in both large and small provinces. However, surrounding factors in the market have now changed. Daunting business challenges have emerged due to several economic issues, e.g., weakening macro-economic performance expected through to the yearend, rising prices and increasing household debt hurting consumer purchasing power.
A stern test has also arisen from problems within the real estate sector that will affect future growth. Problems include fierce competitions, rising overhead affecting unit prices, e.g., due to higher costs for construction materials, land and wages. Developers also face an imbalance between supply and demand in some areas, a lack of skilled workers causing construction delays and low quality, as well as legal issues, e.g., urban zoning and environmental laws. Market sentiment is also marred by the fact that financial institutions have become more prudent toward financing developers and homebuyers.
Believing that the market still has room for growth from existing demand, real estate developers continue to go on with projects that have already been included in their 2013 business plans. KResearch projects that the total new condominium units available will reach 62,500-65,000, rising 4.9-9.9 percent YoY. Most projects will be concentrated along rapid transit system routes or within convenient distance to the BTS and MRT stations. In the Bangkok Metropolitan areas, developers will likely face more formidable challenges due to mushrooming projects from new participants, creating supply-demand imbalance in certain localities – a factor affecting developers in achieving a full sellout.
Upcountry, prospects for the market to the yearend will likely be relatively good, but slower than early in the year when many developers rushed to begin new projects in potential areas. Despite a satisfactory outlook, developers in the upcountry should bear in mind that many constraints prevail, for example, the rural economic size. An economic boom may be apparent in some provinces and that should bolster housing demand, but most developments concentrate in municipalities while the majority of the local population are farmers. This restricts demand for condominiums to a minority. Oversupply could then become a problem, especially if there are too many developers.

In some fast-growing provinces, intensifying competition has led to even more projects, driving up overhead costs such as those due to land prices. Amid other alternatives like low-rise housing, upcountry consumers may be influenced by rising unit prices, triggered by higher business costs.

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