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Doubts over effect of govt stimulus

Doubts over effect of govt stimulus

THURSDAY, October 15, 2015
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PROPERTY firms expect to reap windfalls from the government's new measures for the real-estate sector, while economists have cast doubt over the overall effectiveness of the programme in boosting the economy.

Developers are happy that their customers will benefit from the measures that reduce transfer and mortgage registration fees and allow first-home buyers to deduct property purchases from their taxable income for a five-year period.
This is expected to encourage buyers to complete their purchases, thus helping to absorb a residential-property inventory valued at more than Bt45 billion.
Meanwhile, buyers of residential units in Bangkok and peripheral provinces due to be transferred to customers in the current quarter – estimated by the Thai Condominium Association to be valued at about Bt120 billion – will also benefit. 
Pruksa Real Estate’s managing director for condominiums, Prasert Taedullayasatit, said the company’s inventory was currently worth Bt25 billion.
“Buyers of these units will benefit from the measures,” he said. 
Meanwhile, at Ananda Develop-ment, the inventory is worth around Bt3 billion.
“Thanks to the measures, our sales should rise in the next six months,” said chief executive officer Chanond Ruangkritya.
According to a survey by The Nation, until next April 30, when the fee reductions expire, the number of units that Sansiri will be able to sell and transfer to customers is worth Bt9 billion. 
AP (Thailand) sits on 1,750 units of inventory worth Bt4.34 billion, LPN Development’s inventory of 6,000 units is valued at Bt8.8 billion, and Supalai’s stock is worth Bt4.6 billion – all of which should also benefit from the programme.
Under the measures, until April 30 next year, home-buyers will pay only Bt200 in transfer and mortgage fees for every Bt1 million, saving Bt29,800, Pruksa’s Prasert estimates. 
Nevertheless, economists have cast doubt over the effectiveness of the measures, which they believe are unlikely to spur new demand. 

Doubts over effect of govt stimulus

In a research note, Tisco Securities said the measures would spur short-term speculation rather than help low-income earners, as intended by the government.
It noted that sales would rise, as the measures would make it easier for potential buyers to close deals, and low-income earners would benefit from the anticipated cut in transfer and mortgage-registration fees.
However, tax rebates are likely to boost short-term investment among upper-middle-income earners, rather than helping low-income earners, according to the securities house.
Tisco Securities estimates that to buy a Bt3-million residential unit, the buyer should earn at least Bt60,000 a month and, with that level of income, he or she could not be deemed a low-income earner.
Subject to the 15-per-cent income-tax bracket, low-income earners would save tax expenses to the tune of Bt12,000 a year, while higher-income earners, if making use of the tax measures, could save up to Bt36,000 a year on their tax bill. 
Under the government’s package, buyers can deduct 20 per cent of the purchase value from taxable income. 
Meanwhile, Siam Commercial Bank’s Economic Intelligence Centre (EIC) agrees that while the measures will speed up the decision process of home-buyers, they are unlikely to entice many new purchasers. 
The measures are expected to help absorb the supply of units priced below Bt3 million. Of some 150,000 condominium units launched during 2013 and 2014, 70 per cent were priced below Bt3 million, it said.
Of a total of 32,000 detached houses and townhouses put on the market this year, about 67 per cent are priced below this figure.
While the EIC expects the measures to boost short-term demand, it does not expect them to boost the industry fully, as house purchases depend mainly on purchasing power and confidence. 
While Kasikorn Research Centre expects the measures to allow lower-middle-income earners to gain easier access to home loans, the EIC doubts whether banks will relax lending restrictions in light of the high level of household debt.
“It is worth noting that household debt may rise due to the measures, which will boost the economy in the short term and help people to get their first homes. Long-term impacts on higher household debt should be monitored,” said the Siam Commercial Bank unit. 
KResearch expects the transfer of 35,900 residential units in the current quarter, an 11.2-per-cent increase from the same period last year.
The transfer rate dropped by 8 per cent year on year in the first nine months, to 76,500 units. 
The property-sector measures follow a government stimulus package worth more than Bt120 billion aimed at boosting jobs and providing an improved loan-guarantee programme for small companies.