Tuesday, August 04, 2020

Nexus analyses pros and cons for property sector

Aug 27. 2019
Nalinrat/Photo by Nexus Property Marketing Co Ltd
Nalinrat/Photo by Nexus Property Marketing Co Ltd
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By The Nation

Nexus Property Marketing Co Ltd is advising property developers to adjust their investment strategies in the second half of this year since both local and foreign investors are focusing more on the recurring income sector.

It notes fluctuations in the global economy, lower investor confidence and the government’s LTV measures introduced this year. 

But Nexus also pointed out positive factors including the reduction of the policy interest rate, transfer fee and specific business tax, which is to boost demand in the last four months of 2019.

Managing director Nalinrat Chareonsuphong said this week the firm’s analysis of data in the property market indicated it has to cope with uncertainties for the remainder of this year. 

The US-China trade war has caused the renminbi’s depreciation, which affects overseas Chinese investment, including in Thailand. The political chaos in Hong Kong has also affected investment sentiment in Thailand. And the baht’s appreciation has hiked property prices for foreigners. 

However, Thais remain the main buyers of Thai property, while the global market might affect only 10-15 per cent of the overall property market here. Although it does not impact much on the property market, it definitely impacts on Thai capital market.

In addition to the global negative factors, there are some domestic factors including LTV measure and higher household debt are causes for concern. 

Once the government announced the LTV measure to prevent speculation among real estate investors, mortgages shot up before it could take effect. The result was a drop in loan approvals in the second quarter. Unless this measure is eased, the sector might be unable to grow at the same pace as in the past few years.

Since LTV measure was effective, Nexus has found that residential property sector in all price ranges has been slowed because buyers have to reconsider their ability to retain mortgages. This is the reason mid- and large-sized developers have called for the government to alleviate such measure. 

To cope with this issue, a lot of projects that were launched in second quarter have adjusted their marketing strategies.

However, the Bank of Thailand cut the policy interest rate by 0.25%, causing a positive effect for developers who can apply for loans with lower investment cost, while individual borrowers can retain mortgages at the lower rate. 

Another positive factor is the new government is the same group as served in the previous military government, so they can carry on their investment policies including infrastructure, mass transit and the special economic zone.

“Although the market has some positive factors, the impact from negative factors is more solid,” said Nalinrat. 

“Therefore, some measures to boost demand for the remainder of this year are advised. For example, a reduction of property transfer fee and specific business tax for the projects that are ready to transfer this year can help reduce cost for buyers who meet LTV conditions. The government can also give more discounts for such fees to help developers reduce their inventories, as well as consider privileges for the second-hand or resale market. 

“In Bangkok, the second-hand market is not growing as much as it should, although buyers can get larger properties than in new projects at the same price and same location. If the government issues these measures, the market should be better.”

Nexus forecasts that developers will speed up release of their inventory according to real demand. Demand from foreigners might not be as high as the past two to three years, particularly from China and Hong Kong. 

Developers tend to shift their investment into the long-term recurring income property businesses, for example, hotels, office buildings and investment in overseas. 

Developers might sell off land that’s not generating income for them or switch from residential to recurring income-based projects.

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