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14 Oct 2015

Real Estate and Construction

Government Aiming for Robust Property Market, Supply/Demand Balance (Current Issue No. 2666 Full Ed.)

Thailand is now experiencing a slowing residential property market that will probably continue amid an as yet slowly recovering economy. Consumers' power to purchase residences has diminished while financial institutions are now exercising extra caution in approving mortgages. Given these hitches, the residential property market has become somewhat bearish; market supply is rising since completed units and those under construction – in and outside of Bangkok – have piled up.
On October 13, the Cabinet approved real estate sector stimuli to help low-income buyers as well as to lessen adverse impact felt by the property sector. Initiatives includes: 1) financial assistance involving a relaxation of lending conditions for mortgage approvals; 2) fee reductions on homebuying transactions, e.g., lower ownership transfer and mortgage registration fees to 0.01 percent; and, 3) tax relief for first-time homebuyers on the condition that the property is purchased as their own residences and costs under THB3 million. This measure allows 20 percent of the property value to be deducted from personal income tax filings for five years.
Aside from a primary purpose to help shoulder low-income homebuyers' economic burden and allow greater loan access to them, KResearch believes that these stimuli will strike a balance within the property market facing uneven demand and supply, owing to a large inventory of unsold residential units.

With those initiatives in place, market sentiment in the real estate sector should improve as we approach the yearend. We foresee rigorous marketing being undertaken by project developers to quickly release unsold units. Meanwhile, buyers should be facilitated by faster property ownership transfers, thus reinvigorating ownership transfer activity. KResearch projects that some 35,900 housing units in the Bangkok metro area will be transferred during 4Q15, up 11.2 percent YoY, improving from the 8.0-percent contraction during 9M15 when transfers totaled 76,500. Over the entirety of 2015, however, the market will likely subside 2.7 percent with the help of government incentives, without which we would expect a 6.5 percent slump. In any case, if the economy turns around, buyers will naturally return to the market.

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