Bangkok’s housing market forecast to continue shrinking this year
High levels of household debt, rising interest rates, and declining purchasing power are sending shivers through Thailand’s housing market.
Limited demand for housing will last for the rest of this year, a report by Kasikornbank Research Centre said. A 7.8% contraction in sales could occur in Bangkok and its suburbs this year, compared to last year, it said.
Housing sales have been on a downward trend since the beginning of the year, the research centre said. This has happened despite foreign nationals returning to buy condominium units, as well as a reduction in fees and mortgages for homes priced below 3 million baht.
The market has already absorbed pent-up demand from the pandemic, especially when the loan-to-value criteria were relaxed.
Consumer purchasing has yet to fully recover from the pandemic, household debt remains high and interest rates on housing loans are rising. This means higher monthly instalments and tighter credit limits, the research centre said. Rate rises from September 2022 to July of this year have led to an average increase in monthly instalments of about 13%, it said.
During the first seven months of 2023, booking purchases for residential properties in the Bangkok metropolitan area contracted by about 12% from 2022, while property transfers during the first half of the year contracted by about 3% year on year.
The research centre said it expected the housing market to stabilise next year, and that property transfers could expand between 1.2%-4.6% from this year in Bangkok and its vicinity.
It recommended keeping an eye on the details and timing of the new government's economic stimulus measures, which will focus on assisting lower to middle-income groups, and will include policies that will affect the real-estate market. If efficiently implemented, these stimulus measures are likely to increase sales in the housing market next year, the centre said.
It identified three key challenges in the property market.
1. The imbalance between supply and demand in the housing market in Bangkok and its vicinity. More than 200,000 unsold housing units have been on the market for more than six years. In the first half of 2023, there were 220,000 unsold units in Bangkok and its suburbs. It may take over three years to clear these units if no new housing developments are introduced.
2. The continuous increase in the cost of doing business pushes up housing prices (per unit prices may remain the same, but space is reduced) and may make it more difficult for some developers to raise funds. Land prices and the cost of construction materials continue to rise, with the latter getting more expensive due to the trend towards environmentally-friendly housing. Labour costs, marketing expenses, property taxes, and financial costs are also rising.
3. A declining population and an ageing society. The population of Bangkok (excluding the migrant workers) has been declining for three years by an average of 0.2% per year. The suburbs, however, have seen an average increase in population of about 0.6% per year during the period.