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12 Feb 2014

Real Estate and Construction

2014 Property Market: Investment and Purchasing Power Jeopardized (Current Issue No. 2464 Full Ed.)

Overshadowed by political turmoil continuing from last year, the property market has not begun 2014 with a great start. Politics have weighed largely on the real estate sector, particularly right now as the situation seems at a low point, leading to decreasing investments and transactions, especially in Bangkok which is being directly affected. The property sector will be facing factors hurting growth such as rising overhead costs. Faced with a number of hindrances – including land prices, wages, and an uptrend in energy costs – developers will find it hard to maintain selling prices or limit increases in them, making effective marketing strategies a very challenging task.
Also, the property market in some locales is now saturated with oversupply following mushrooming projects launched while growth momentum was still felt in the market. These excessive projects triggered soaring land prices and operating costs, thus increasing home prices and lowering affordability. Financial institutions, meanwhile, have become cautious toward home loans as well as lending to property developers, since risks are growing amid economic and political tension.
However, amid these many challenges, the 2014 housing market may see some promise with such factor as eased MPC monetary policies. With current economic and political situation, interest rates may remain low, enhancing business opportunities for the property sector. For now, since developers have decided to delay investment plans, risks from oversupply may be reduced to some extent.
BMA Property Business Indicators
2013
2014
1. Existing unsold units
% YoY
143,543
11.3
130,000-140,000
(-9.4) - (-2.5)
2. Ratio of unsold units to units transfered*
0.9
1.0
3. Total number of newly launched units
% YoY
131,550
28.9
75,500-85,500
(-42.6) – (-35.0)
4. Number of units with bank loan approvals
% YoY
71,701
-5.4
68,450-70,250
(-4.5) – (-2.0)
5. Housing completion (registered)
% YoY
125,900
0.7
100,500-115,000
(-20.2) – (-8.7)
Source: BOT, Real Estate Information Center, Agency for Real Estate Affairs; forecast by KResearch
* Higher ratio of unsold units to units transferred means higher number of unsold units
** 2013 estimates by KResearch

During 2014, it is believed that the real estate market will be slowed by the aforementioned challenges, reflected in shrinking performance in the above gauges. These softening indicators, nevertheless, are due in part to developers having put on hold plans for further investment. This may adversely affect short-term business, but otherwise will prompt a supply-demand rebalance within the sector, especially in areas where an oversupply jeopardizes consumers' buying decisions. The real estate market is forecast to become vigorous again once the economy starts to perform normally and consumers regain confidence.

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