News In-depth – Property sector to report better Q2 revenues, cautious on H2 outlook

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Thailand’s property sector is set to report better revenues for their performance for their 2nd quarter although they remain cautious about the prospects for the remainder of the year as many risk factors continue to haunt the industry.

“Key sector downside risks: stiff competition, weaker-than-expected presales, increase in inventory sales/price discounts, interest rate hikes, uncertain demand following inflation and economic slowdown, and new investment strategies which may erode residential business cash flows,” Nathavut Shivaruchiwong, sector analyst at Tisco Securities said in a report to clients late on Friday.

Despite the not so bright outlook for the sector due to uncontrollable factors that may impact the industry in the next couple of months, Nathavut and other analysts says that the sector’s Q2 earning are likely to be stronger than those seen during Q1 of this year.

“We expect Q2 earnings to grow YoY (year-on-year) and QoQ (Quarter-on-Quarter), supported by stronger revenue (up 6% YoY and 8% QoQ with higher growth from condo revenue (up 15% YoY and 9% QoQ) and margin expansion,” Jiraporn Linmaneechote, analyst at Phatra Securities said.

Both Phatra and Tisco see that although revenues of Asian Property Development Plc (AP) topping the market, the net profit winner for the 2nd quarter would be Land & Houses Plc (LH).

Home Prices Rise

The aggregate net profit for the sector should see a double-digit increase, a sign of relief for the industry that has seen a big impact from the economic slowdown due to the outbreak of Covid-19 and the shutting down of the borders as nearly a third of the sale of the units in the condominiums are catering to foreign tourists.

Tisco’s Nathavut anticipates that earnings of companies under his house coverage is likely to rise by as much as 12.8% QoQ and as high as 14% YoY, numbers that are very similar to those projected by Phatra’s Jiraporn.

The stronger demand has prompted the prices of homes to rise by as much as 4.3% according to data released by the Bank of Thailand (BoT), on the back of rising cost of material and transport.

The BoT’s data showed that Residential Property Price Index (RPPI) was at a decade high during the Q2 2022 and expectations are that the prices will rise further as many of the rising cost of construction materials and other related products will likely be accounted for in Q3 2022.

The Bank of Thailand’s RPPI for Q2 2022 was 171.9, up by 4.3% YoY and 1.4% QoQ (the Q1 2022 RPPI rose 3.7% YoY), reflecting higher construction material costs in Q1 2022. The increase was broad-based but led by higher prices in the single detached houses (SDH) category. The SDH price sub-index marked a decade-high of 152.6 for Q2 2022, up by 5.2% YoY and 1.8% QoQ.

Year-to-date for the SDH sector price hike has been as much as 2.3%.

The Townhouse price sub-index was 169.9 (also a decade-high), up by 4.3% YoY and 1.5% QoQ.

Year-to-date for the townhouse sector price hike has been as much as 2.6%.

The condo price sub-index was 185.3 in Q2 2022, up by 3.6% YoY and 1.8% QoQ (but below its decade-high of 185.4 for 3Q21). Lastly, the land price sub-index was 179.6, up by 4.3% YoY and 0.4% QoQ.

Year-to-date for the condo sector price hike has been as much as 2.9%.

“Momentum looks set to continue for at least another quarter (Q3 2022), as home prices typically lag construction cost increases by 3-6 months. We expect govt incentives for the residential property sector to continue into 2023—low loan-to-value (LTV) ratios for home mortgages and cuts to transference and mortgage fees,” Phoowadol Phoosodngern, analyst at Bualuang Securities said.

Uneven Demand

The economic realities on the ground have made it to the real-estate sector with high end segment continuing to see demand remain stable. Phoowadol of Bualuang says that in its talk with various developers it is clear that the developers are more optimistic about high-end segment who have been booking new units in anticipation of a possible price rise in 2023. This is the segment that is likely to continue to see sales during the 2nd half of 2022 as well.

Those leading the segment that have the highest average mean portfolio value/unit that is available for sale is SC Asset Plc (SC) followed by LH and AP. The data by Bualuang shows that SC has average price of 9.2 million Baht/unit that is available for sale, while LH has for 8.8 million Baht/unit and AP is 5.6 million Baht/unit.

Rate Hike to Impact

The planned meeting of Monetary Policy Committee (MPC) that is set to take place on Wednesday August 10 is bound to see the interest rates rise and a move that would likely dampen the sentiment of the buyers in the real-estate sector.

Thailand, which has kept its rates at 0.50% since December 2018 and then there is every likelihood that the MPC will raise rates, but the debate rages on by how much.

Although the consensus is for at least 0.50% or 50 basis points rise, there are those who have also come out to say that the rate hike may be as high as 0.75% while others say that the MPC may ‘test’ the market with just 0.25% hike.

There is no doubt that no matter if the rate hike is by 0.25% or as high as 0.75%, the bottom line is that the rates will rise for sure, and this may not be a very good news for the real estate sector which is very sensitive to rate hikes.

The property sector, which has recently been a bigger contributor to the economic activities in the country, has already been reeling from the slower economic activities and the fallout from the Covid-19 outbreak, could suffer more with rise in interest rates.

But Tisco’s Nathavut adds that the rate hike is unlikely to have any major impact on the plans for purchasing real-estate by buyers.

“If you take a look at the impact then you will see that for every 1% rise in interest rate, the monthly payment rises by 600-700 for every 1-million of loan,” he said adding that this is not a big deal for middle and high income segment, although for the lower market, this could be a much bigger impact.

With the country’s household debts at 11th highest in the world running at 90% of the GDP, a rise in interest rates could also be detrimental to the sector as cost of mortgages will rise and thus lower the spending power of the population.

But the government is already said that it was looking at possibly implementing some measures that could help keep the interest of the buyers intact although these measures of lowering the transfer fees and other are yet to be implemented.

Despite the possible hiccup in the industry with rising interest rates and global recession knocking on the doors, most analysts believe that the Thai property market still offers a good buying opportunity and therefore has ‘Buy’ rating on many of the stocks.

Tisco Securities’ Recommendations on Thai Property stocks
Bualuang Securities Recommendations on stocks in Property Sector

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