Real estate market to pick up in second half of 2020

The coronavirus pandemic has led to a drop in the demand for housing but experts say that sentiment is likely to rise in the second half of 2020.

The Real Estate Information Center’s data show that there were over 175,000 house and condominium units worth more than 765 billion baht left unsold at the end of 2019.

Of that figure, more than 76,000 were condominium units and about 19,000 had already been built. With the lowered demand, developers had been trying to sell what they have leftover but experts say that demand will pick up again before long.

Lowered Demand due to Covid

“The [46 per cent] drop in the new supply of condominium units… from around 13,000 unit in the first quarter of 2019 to about 7,000 units in the first quarter of 2020 was… huge,” Issara Boonyoung, the honorary president of the Housing Business Association, told Thai Enquirer.

“The drop was caused by the outbreak but the slowdown in new supplies of condominium units was already apparent since last year from around 70,000 units in 2018 to around 55,000 in 2019. This shows that the developers were being cautious,” he said. 

Aliwassa Pathnadabutr, the Managing Director of CBRE Thailand, said last week that the condominium market has been affected by the strong baht and the new loan-to-value (LTV) measures in 2019. 

There were signs of market recovery and a better understanding of the new Land and Building Tax regulations, but the arrival of the pandemic has derailed that development, especially during March and April, Aliwassa said.

Artitaya Kasemlawan, the CBRE’s Director, said that the number of foreign buyers, especially Chinese, has been declining even before the outbreak due to the currency rate.  

Chinese buyers accounted for 70 per cent of demand in 2018 and 2019. 

“The slowdown is actually a positive development since oversupply will lead to a lot more problems,” he said.

Aliwassa said that even without the outbreak, the condominium market was going to develop an equilibrium while the supply gradually slowed down any way.

“The good news is almost no new supply is coming in to compete with the existing ones. The developers have turned their focus on selling their unsold properties and completing existing projects,” she said.

Both Issara and Aliwassa said the single-detached housing market is less affected in comparison to the condominium market. 

Issara said the normal amount of supply of new single-detached homes are around 40,000 units per year and it has been like this for the past decade. The outbreak has yet to affect that prospect for this year, he added. 

Aliwassa said the overall housing market has no speculative demand as most buyers are end-users who want to buy for their own living.

“After the Thai government relaxed its lockdown measures in the second phase, we now see more buyers visiting sales galleries and the sales performance is almost at the same level as it was before the outbreak,” she added.

Prapansak Rakchaiyawan, the Managing Director of Lumpini Wisdom and Solutions (LWS), said that while the market was down, the real estate sector was doing better than other industries.

He said that most listed real estate providers’ first-quarter results showed that they can still make money with an average net profit of 13.47 per cent.

“The first-quarter results of 10 SET-listed real estate providers have shown combined revenue of 59.63 billion baht, down 31.12 per cent year-on-year and their combined profit is also down by 42.1 per cent to 8.04 billion baht,” he said.

“However, their net profit margin was still at 13.47 per cent which is considered to be high when compared to other industries,” he said.

Increasing prospects

Issara said demand for house and office real estate has been picking up since the easing of the lockdown in the second quarter as businesses activities are resuming and confidence is returning.

However, new constructions will likely be put on hold as developers adopt a wait and see approach.

“For supply, the recovery will not be as fast as not many developers dare to push out new supplies in the second quarter due to economic uncertainties and they are waiting to see effects from the government measures first,” he said.

Issara said the most important driver for the real estate sector right now is public spending on investment and the government has yet to cancel any major transport projects that are related to the sector.   

“Government spending will keep on going but the private investment will not recover as fast and everyone is worried which leads to companies’ concentrating on selling the units that they have to limit outflow and increase inflow,” he said.  

Issara added that the low-level of interest rates is another positive factor for developers and buyers.

For 2020, he expects the combined new supply of single houses and condominium units to be around 80,000: 40,000 single houses and 40,000 for condominium units. This would represent a 20 per cent drop from nearly 100,000 units in 2019. 

Issara also anticipates the total value of housing transfers in Greater Bangkok to drop by 15-20 per cent in 2020. The total value was worth 536 billion baht in 2019. 

LWS also anticipates new supply of condominium units to be around 50,000-55,000 in 2020 with a combined value of 175-190 billion baht based on the assumption that there will be no second wave of coronavirus outbreak in the country. 

“With leftovers in stock worth 582 billion baht as of March 31, representing an increase of 6.7 per cent from the end of 2019, it would take them at least 36 months to sell and with the work-from-home trend, selling offices will be harder as well,” he added.

China factor

CBRE said they have witnessed an increase in Chinese buyers interested in the luxury condominium market compared to 4-5 years ago when they were buying units in the range of 3-10 million baht. 

They said Chinese buyers consist of 20-25 per cent of the total number of buyers prior to the outbreak. 

As things have slowed since the pandemic has started, Chinese overseas buyers have had more time to consider various offers. In response, more developers are unveiling special offers. 

After the lockdown was lifted, the demand from this group has recovered very quickly, CBRE added.

Buyer’s Market

Aliwassa said it is now a buyer’s market, whether it be real estate or consumer goods. 

However, property is a product with a number of factors to consider including each area’s demand and supply, location, design and sales performance of individual projects and promotions, especially discounts that are not offered at the same rate. 

Buyers will, therefore, require a considerable amount of time to compare and the sales will gradually progress.

She said the recovery of the residential market will be divided into two phases. 

The first is when business operations resume normally, as many have already begun to do. This period will depend on demand from domestic buyers who are expected to take approximately 1-3 months to decide.

The essential factor for the first phase is the overall sentiment of the business sector. If there are stimulus measures to boost spending, the market will recover faster – perhaps in the third quarter.  

The second phase of the recovery would take place once international travel reopens, beginning with business trips followed by leisure travels, which could be seen in some fourth-quarter forecasts.

That should resume demand from abroad, she said.

Banking hurdle

One possible hurdle for the real estate sector in the coming year is whether banks are ready to take risks. There are signs already that commercial banks are worried about non-performing loans.

For buyers, banks will look more into their ability to repay the mortgage and that could mean longer time for the approval process.

For developers, banks also could not have the appetite to lend to large scale projects if sentiment does not resume.

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