Rising rates hit lower-income home buyers hardest, developers say
Rising interest rates are posing a challenge for the real-estate market, especially for sales of homes priced below 3 million, Pruksa Real Estate Plc CEO Piya Prayong said.
Rising rates are leading to a higher rejection rate for mortgage requests from banks, especially for houses and condos priced between 1 million and 3 million baht, Piya said.
However, his company has been shifting towards mid-to-high-priced properties over the past three years in anticipation of rising lending rates and now focusses on luxury homes priced between 10 million and 30 million baht.
Previously, 70% of Pruksa Real Estate’s portfolio comprised houses and condos priced below 3 million baht. Therefore, they have shifted their attention to lower-tier real estate properties, Piya said.
He said that the Thai real-estate market usually expands by 5-7% if the country's gross domestic product rises 3% in a year.
Piya said the company’s strategy has shifted to focus on “horizontal development”, with condominiums accounting for about 20%. Even in the condominium segment, the company is opting for low-rise buildings. “They provide faster returns on investment compared to high-rise condos that require two to three years of construction," Piya explained.
Kessara Thanyalakpark, managing director of Sena Development Plc, said recent rises in interest rates may not have as significant an impact as they previously did because they were expected to rise sooner than they did.
Kessara agreed with Piya, however, that higher rates have the biggest impact on lower-income buyers.
"If there is another rate hike without new government stimulus measures, it will significantly impact the real-estate market,” he added.