Thai real sector faces prolonged property slump and energy pressure

Thailand’s real sector faces mounting pressure as a prolonged property downturn, weak purchasing power, tight credit and higher energy costs continue to weigh on production, investment and employment.

The broader picture of the Thai economy points to a recovery that remains concentrated in limited areas, with several key industries still showing few clear signs of a rebound. Property and automotive businesses, in particular, are facing severe challenges as household debt stays high and consumer demand remains fragile.

Developers are rushing to clear old stock to generate cash flow, while financial institutions have become more cautious in approving loans. The strain has spread across the real sector, which directly affects production, jobs and household income.

Domestic vehicle production has dropped sharply. The Federation of Thai Industries (FTI) has estimated Thailand’s vehicle output in 2026 at 1.50 million units, compared with 1.94 million units in 2016 and more than 2 million units in both 2018 and 2019.

The downturn began after the Covid-19 pandemic in 2020, when Thailand and its trading partners were hit by economic disruption and supply-chain problems. Pressure became more visible in 2023, when financial institutions slowed hire-purchase lending as household debt rose.

The property sector, which has a long supply chain covering construction materials and related industries, is also weakening. Transfers of low-rise homes nationwide fell for three consecutive years from 2023 to 2025, dropping to 215,111 units in 2025 from 285,731 units in 2022. Condominium transfers nationwide also declined again in 2025.

In Bangkok, new condominium launches have fallen for four straight years from 2022 to 2025. New launches stood at 16,704 units in 2025, the lowest level in more than a decade. By comparison, launches peaked at 66,226 units in 2018.

Uneven growth leaves smaller firms exposed

Pranee Suthasri, senior director of the Macroeconomic Department at the Bank of Thailand, said the Thai economy was still expanding, but the recovery was not broad-based.

She expressed concern over groups already affected by weaker competitiveness, as well as businesses hit by conflict-related pressures in trade, hotels and transport. Small businesses and SMEs were especially vulnerable because they found it harder to adjust and faced more difficulty accessing credit as credit risks increased.

The labour market was broadly stable from the previous month, reflected in steady numbers of insured workers under Section 33. However, some sectors had started to feel the impact, particularly hotels and transport, where employment had declined.

Data on factory openings and closures also suggest that new factories are increasingly using machinery and automation. This could become an additional source of pressure on the labour market in the period ahead.

Energy costs continue to weigh on production

Dr Yunyong Thaicharoen, chief economist and sustainability officer at SCB Economic Intelligence Centre, said SCB EIC had raised its 2026 Thai economic growth forecast to 2%.

However, the economy is expected to slow in the next phase as higher energy and raw material costs from earlier intense conflict begin to feed through to production costs, inflation and purchasing power.

The recovery is becoming more clearly K-shaped. Growth drivers are concentrated among large companies and industries linked to technology, including AI, data centres, electronics and digital infrastructure. However, many of these sectors rely heavily on imports, limiting the wider benefits for domestic supply chains, employment and income.

Low- and middle-income households and SMEs remain vulnerable as incomes recover slowly, production costs and living expenses rise, and debt burdens stay high. This is limiting consumption and putting pressure on businesses that depend on domestic purchasing power, especially smaller firms and parts of the service sector.

These businesses are facing pressure on sales, liquidity and debt repayment capacity.

Property recovery may take another two years

Dr Kobsak Pootrakool, senior executive vice-president at Bangkok Bank, said the property sector had not yet recovered and remained a serious concern.

He described real estate as one of the weakest business groups, with no clear sign of a short-term turnaround.

The most worrying issue, he said, was the high level of caution among financial institutions in lending. Banks remain concerned about household debt, which has directly affected loan approvals across all categories, from personal loans and car loans to mortgages, which have not grown as they should.

Beyond credit conditions, consumers now have less purchasing power, or almost none in some cases. Businesses are also worried about global conditions, making it difficult for them to invest or move forward with new plans.

“Looking ahead, I believe the property sector will need more time to recover. It may take up to two years before the market truly improves, because property follows the broader economy. The overall economy must improve first before the property sector can follow,” he said.

If the government can drive investment, it would help create a new economic base, improve household income and gradually reduce household debt as a share of GDP. Once that happens, banks would regain confidence and resume lending, creating momentum for a property recovery.

Four risks dragging on real estate

Dr Amonthep Chawla, executive vice-president and head of the Research Office at CIMB Thai Bank, said the property industry in the second quarter remained clouded by several risks, especially the Middle East conflict, which had created knock-on effects for construction material prices through higher energy and transport costs.

The sector also faces rising financial costs, a major obstacle for new project development and debt management.

He identified four key risks for the property industry in the second quarter:

1. Developers are struggling to survive. Thai property developers have faced continued pressure for three to four years from a slowing economy and weaker housing demand. Demand from foreign buyers, especially Chinese buyers who were once a major force in the condominium market, has clearly declined.
   
   Developers that have managed to hold on are mostly mid- to upper-tier players, some of which are still launching new projects. However, their strategy has shifted towards clearing old projects to generate cash flow. This has led to a price war, with signs of price dumping in some units or buildings where developers are trying to close sales quickly.
    
2. Bond and debenture risks remain. The level of risk varies by developer group. Large listed companies with strong credit profiles, particularly mid- to upper-tier firms, can still issue debentures to raise funds as usual.
   
   The more worrying group is made up of unlisted developers and companies with higher credit risk, which face greater difficulty accessing loans and issuing debt instruments.
    
3. Property weakness affects the wider economy. Thailand’s broader economy relies heavily on construction and real estate, meaning a slowdown or disruption in the property sector can affect the macroeconomic structure.
   
   “Although first-quarter figures showed some signs of recovery in property-related construction, uncertainty in the second quarter from war-related factors and the costs mentioned earlier remains an issue that all parties must monitor closely,” Dr Amonthep said.
    
4. Tighter bank lending and household debt remain key constraints. Banks continue to apply careful and strict lending criteria because of concerns about borrower credit risk. This caution has become more important in the second quarter as living costs have increased while household incomes have not kept pace with expenses.
   
   The hardest-hit groups are low-income earners and borrowers with high existing debt-service ratios, who will find it much harder to access credit. However, in the longer term, if the Thai economy begins to recover and household debt declines, borrowers with strong credit profiles could still have opportunities to access housing loans.

Property weakness remains persistent

Dr Kanchana Chokpaisansin, head of research at Kasikorn Research Centre, said Thailand’s property sector was in a worrying position and likely to remain weak.

Retail housing loans, or post-financing, grew by about 1% in the first four months of the year. However, she said this could not be considered genuine growth because it was measured against a very low base last year.

Much of the increase came from refinancing of existing debt rather than new borrowing to buy homes. This indicates that new purchasing power in the property sector remains highly fragile.

Kasikorn Research Centre has taken a cautious view of housing loan growth this year, estimating it at between minus 0.5% and 0%, or only marginally positive at best.

Developers are also under pressure. Pre-financing loans for project development remain in negative territory, showing that new investment in the sector has not returned.

The debenture market is another obstacle. Although developers can still raise funds, the process has become more difficult. Long-term debenture issuance by property firms has fallen sharply, while many developers have turned to short-term debentures because the cost of long-term fundraising has risen and become a heavy burden.

In the first five months of the year, property companies were able to raise only about 75% of their targeted debenture issuance. This was below the overall market average and showed that investors had become more selective, focusing mainly on issuers with strong credit profiles.

Bad loans and overdue property debt rise

On asset quality, non-performing loans among developers appeared stable or slightly lower in the first quarter. However, this was partly because of debt restructuring designed to prevent loans from being downgraded to NPL status.

The more worrying sign was the rise in Stage 2 loans, or loans overdue by no more than 90 days. These rose to 8.66% in the first quarter from 8.61% at the end of last year.

This compares with an average Stage 2 ratio of 6.95% for the overall banking system, showing that property loans carry a clearly higher risk than the broader bank portfolio.

For retail housing loans, NPLs rose to 3.79% in the first quarter from 3.76% at the end of last year. Stage 2 housing loans fell to 5.70% from 5.95%, but the decline was not necessarily positive because some borrowers had already moved from Stage 2 into NPL status.

Source: Bangkokbiznews