Wage hike to push up home prices

The rise in the daily minimum wage that comes into effect on April 1 is expected to contribute to a rise in home prices of at least 3 per cent in the second quarter of the year. Because of this and other factors, by the end of the year prices are anticipated to rise by 5-7 per cent.

However, rising labour wages and salaries should also increase purchasing power, especially for lower-priced homes, developers point out. Higher incomes will also make more people eligible for mortgages from commercial banks.

According to a survey by The Nation of leading property firms on the expected impact of the increase in the minimum wage in Bangkok from Bt213 to Bt300 per day, most accepted that their construction costs would rise, as labour accounts for about 20 per cent of those costs.

Many developers have tried to revamp their construction process to reduce the number of workers they need.

Pruksa Real Estate president and chief executive officer Thongma Vijitphongpun forecast that residential prices would increase by 3-5 per cent, depending on the size of the home, after the wage hike.

Quality Houses executive vice president Saenphin Sukhee said the two factors together – the rise in the minimum wage and increases in construction cost – would push up residential prices by 5-10 per cent depending on the location and the competition in the area.

SC Asset Corporation chief operating officer Kree Dejchai said labour accounted for about 20 per cent of construction costs, so the company would need to find ways to reduce this component. 

 

New construction process

“We are starting to use prefabrication to build our new homes priced lower than Bt5 million, which will reduce the requirement for labour,” he said.

He added that although prefabrication did not reduce costs in terms of construction materials, the company could reduce the number of labourers needed to build each home as well as reduce construction time from an average of eight months to between four to four and a half months. This will help the company cut labour costs and speed up sales.

Sansiri president Srettha Thavisin said the company had budgeted Bt600 million to build a prefabrication plant to support its business growth this year. This system will help the company to reduce the number of labourers and speed up its construction process.

“The rise in the daily minimum wage will directly affect our construction cost, and as a result we have to redevelop our construction process to reduce our costs or maintain them at last year’s level,” he said.

The Confidence Co, a subsidiary of Quality Houses, has also moved towards a prefabrication system for both low-rise and high-rise projects. This speeds up construction and helps the company deliver its homes to customers on time, managing director Pirot Wattanawarodom said.

He added that this also helped the company manage its labour costs better and deal with the current labour shortage.

Contractor and property developer Pre-Built, which holds a major stake in PCM Construction Material Co, a manufacturer of prefabricated concrete slabs, believes that the demand for prefabricated slabs will rise as developers revamp their construction processes in favour of this technology.

Currently, labour accounts for about 20 per cent of the cost of constructing residential projects, while 30 per cent of the overall cost is from materials, 30 per cent from land, and the rest from operations and management.

 

Higher wages, higher demand 

However, property firms continue to believed that despite its impact on their costs, the rise in the minimum wage will increase purchasing power for homes priced lower than Bt1 million.

LPN Development managing director Opas Sripayak said the government’s increase of the minimum salary for university graduates to Bt15,000 per month for state agency staff in January and the coming increase in the labour wage would both increase purchasing power.

“Although the rising minimum wage will affect our expenses, if we can manage our costs, we will [see a positive] impact from this policy. We believe that this rising purchasing power is a business opportunity, especially for homes priced lower Bt1.5 million. The higher salaries and new minimum wage will increase people’s opportunity to get a mortgage from the commercial banks to buy a home,” he said.