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31 Oct 2006

Real Estate and Construction

Bangkok Housing Demand…Steady Buying Seen(Current Issue No.1912)

KASIKORN RESEARCH CENTER (KResearch) has recently conducted a poll to study the residential real estate market trend and housing demand in Bangkok. Most respondents, when asked about the right timing for home purchases, mentioned it was 2006, 2007, 2008 and afterward. Additionally, the survey studied housing demand, classified by type of residence, pricing and style of homes desired by each target group as well as their sources of funding. The poll, entitled ;Housing Demand in 2006-2008”, was conducted between September 28 and October 18, 2006, using a sampling group of 695 persons in Bangkok, specifically targeting career people. The key findings from the poll included:
v Housing demand will continue from the rest of this year into 2008
The survey found that demand for homes would persist over the next few years. According to the poll, 69.7 percent of the respondents were potential homebuyers. Of this, 10.5 percent cited that they would buy or build a home this year, 43.1 percent said that they would do so in 2007 and 23.9 percent mentioned 2008 or later. Remarkably, the number of those who want to purchase a home in 2007 was quite high. This may be attributed to deferred decisions on home purchases this year as the Thai economy has been slow since early in the year, blamed on such negative factors as steep oil prices, rising interest rates and political uncertainties. The dust seems to have settled in the final quarter of 2006 as oil prices decline, stable interest rates are poised to ease in the year to come and a clearer political situation has emerged, which has thus resulted in restored consumer confidence. Thus, potential homebuyers who have postponed decisions may resume their interest in home purchases in 2007. However, the reasons cited by those who are seeking to purchase homes in 2007 or thereafter rather than this year are that available residences do not meet their needs in such matters as location, style, price, etc.
v Location of the project a key factor in choosing a home
The survey shows that 64.4 percent of potential homebuyers are seeking completed units, 27 percent are looking at new projects under construction, and 8.6 percent are looking at newly launched projects where construction has not yet commenced. In addition, one vital factor 21 percent mentioned in decision-making on a home purchase was ‘location'. Other secondary factors mentioned were the prices of the home – by 18.2 percent, commuting time or proximity to commuter train stations or tollways – mentioned by 13.9 percent, reputability of the project owner – mentioned by 13.2 percent, style – mentioned by 11.8 percent, and quality of construction – mentioned by 8.9 percent.
v Residential units priced between THB1-3 Million are still in demand
The poll also shows that the price ranges most in demand were between THB1,000,000-2,000,000 and THB2,000,001-3,000,000, which accounted for 38.1 percent and 27.2 percent of the respondents, respectively. Most respondents who want to buy a house at these price levels earn an income between THB20,000-50,000 per month – which determines the affordability of this customer group; 14.7 percent want a home priced at between THB3,000,001-4,000,000, 11.2 percent want a home priced at lower than THB1 Million, and 8.9 percent want a home priced higher than THB4 Million. On funding a purchase, 92.3 percent would use their own savings along with loans from financial institutions.
Conclusions and Suggestions
From the poll, KResearch has reached the opinion that demand still exists but growth in real estate business and purchasing power will still largely depend on the economy. The 2007 economy should be on an upward trend because factors that would influence buying decisions, e.g., the probability of falling inflation and interest rates in 2007, politics, etc., have relieved into a better direction. However the economy is still gradually recovering, therefore, demand will still rely on those who have a basic need to buy and have the purchasing power. These buyers will be the first to reenter the housing market. However, if the economy in 2008 exhibits better recovery than in 2007, this could encourage other groups of buyers to enter the market, e.g., those expecting higher income in the future along with a more clearly recovered economy, and those in the market for income property.
Housing affordability remains an important factor to gauge the quantity of units to be sold. However, factors that determine affordability include not only the interest rate on a mortgage, but also the price of the home. If the prices of house rise faster than income increment, the home buying decision will be affected. This is because the purchasing power will drop against the required price of house despite stable interest rate. However, interest rates are maintaining the status quo at this time. Housing may get more expensive next year because of price mechanisms such as costlier land and construction materials. Previously, most construction materials rose in cost (except iron products) due to oil prices affecting production and transportation costs. The construction material price trend will move upward again if oil prices and production costs rise next year. On land, costs are expected to rise, particularly on land in excellent locations. Locations that offer good transportation links will get more expensive, an example being land in Bang-Sue because of the new mass transit project. Another factor that affects housing prices, particularly for housing in Bangkok, is the new BMA City Plan, which was put into force on May 17, 2006, as some statutes in that new zoning regulation drive up construction costs and thus housing in some areas will have higher price tags.
In order to develop the quality of life for the people over the long-term, KResearch is of opinion that the government should launch programs supporting home ownership, particularly for those with low incomes such as reduced land registration fees on transfers and other juristic acts, and income tax deductions on housing expenses. Such initiatives could help those who have low-to-middle incomes to own their first house.

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