REIC warns of ‘worse than Covid-19’ era for property sector while analysts remain ‘underweight’ on the sector

Amid the continued decline in demand for new properties in the real-estate sector, the 2^nd hand market seems to be witnessing a surge as demand for used homes continues to remain strong in provinces that are of economic importance despite the ‘worse than Covid-19’ slump in industry.

The Real Estate Information Center (REIC) recently came out with 2 recent reports with one stating the rise in demand for 2^nd hand properties and the 10 provinces they are witnessing a surge, and the 2^nd report that said that the demand for new properties is among the worst in years.

According to the Real Estate Information Center (REIC), the Thai real estate market is experiencing its most severe downturn in recent history, exceeding even the slump observed during the COVID-19 crisis.

Data reveals a significant decline in both the number of property units transferred and their cumulative value. This paints a bleak picture for the industry, highlighting the challenges faced by developers, investors, and potential buyers.

The REIC said that total value of low-rise housing transferred in the first half of 2024 plummeted 33.2% year-on-year (YoY) to 158.90 billion Baht. Similarly, the transfer value of condominium units dropped 20.8% to 101.20 billion Baht. These big drops underscore the severity of the market slowdown, Nathavut Shivaruchiwong, sector analyst at TISCO Securities said in a note to clients.

REIC said that the root causes of this market downturn, are a combination of economic and financial factors. A sluggish economy, escalating household debt which has been rising over the past few years, and tightened lending regulations have all dampened buyer sentiment.

As households grapple with increasing financial pressure, their willingness to invest in real estate has been significantly diminished. A recent data revealed by Center for Economic and Business Forecasting at the University of the Thai Chamber of Commerce showed that household debt is currently at its highest level in 16 years, averaging over 606,000 Baht. This figure is based on a survey of 1,300 people conducted from September 1-7.

The survey reveals that 99.7% of households carry debt, a figure consistent with 2023. The average debt amounts to approximately 606,378 Baht, with 69.9% categorized as formal debt and 30.1% as informal. Monthly repayments average 18,787 Baht for formal debt and 6,518 Baht for informal debt.

The rise in debt is attributed to insufficient income, unexpected expenses, high living costs, and increased financial burdens. As a result, 71.6% of individuals face difficulties with repayments, and 34.2% anticipate ongoing issues over the next 6-12 months due to economic strains and high interest rates.

In light of these developments, the REIC said that it has adjusted its 2024 projections, anticipating further declines in both supply and demand within the market. This suggests that the industry’s challenges are far from over, and a recovery may be a longer and more arduous process than initially anticipated.

The agency added that Thailand’s real estate sector faces a complex and challenging landscape. Overcoming the current downturn will require a multi-faceted approach, potentially involving policy interventions, economic stimulus, and adjustments to lending practices.

While the road to recovery may be long and winding, understanding the root causes of the slowdown and taking proactive measures can help steer the market back towards stability and growth.

Nathavut says that while industry statistics point toward a slowdown, his observations reveal an interesting dynamic of market consolidation. Key listed developers are gaining market share at the expense of non-listed players.

“The overall market has witnessed a decline in launches, resulting in low inventory levels with limited activity from only a few active listed players. This consolidation presents strategic opportunities for well-positioned developers. Despite the broader industry slowdown, certain companies are outperforming their peers, notably our top picks, AP (Thailand) and Sansiri Plc (SIRI),” he said.

He said that the Thai property market pointed to a slowdown in its Q2 results with concerns now on inventory levels and a shift towards cash flow prioritization. Developers are responding by reducing capital expenditure and focusing on inventory sales. New housing projects are targeting specific niche markets, and banks are becoming more selective in their lending practices.

Panjapon Taensricharoen, property analyst at Bualuang Securities says that from the signals they have picked up from the quarterly meetings, Bualuang is starting to see a more intense competitive landscape.

For instance, LH plans to increase price promotions to clear its significant inventory buildup. This may pressure the residential gross margin percentage to remain below normal levels and not differ significantly from H1 2024, where the gross margin was only 26.7%. Meanwhile, Pruksa Holding Plc (PSH) has shifted its focus to launching high-end projects due to the weakening demand for mid- to low-range housing. This has caused issues with backlog transfers, as we’re seeing higher rejection rates in this segment.

“We maintain our UNDERWEIGHT industry view and believe the sector’s valuation looks stretched on current fundamentals. As disappointments on property sales, policy execution or macro data could drag down sector share prices, we suggest investors wait for better entry points. We stick with our preferred plays SIRI and LH at this stage,” Panjapon said.

Meanwhile REIC also released the data on the top 10 provinces with the highest value of 2^nd hand residential properties for sale as of Q2 2024:

The top list includes

1. Bangkok with 42,377 units (30.1%) worth 386.19 billion Baht (53.8%), with most priced above 10 million Baht.

• Nonthaburi follows with 10,895 units (7.7%) valued at 48.38 billion Baht (6.7%), mostly in the 3.01–5 million Baht range.

• Chonburi has 9,229 units (6.6%) worth 43.93 billion Baht (6.1%), mainly priced between 3.01–5 million Baht.

• Samut Prakan lists 9,613 units (6.8%) valued at 43.03 billion Baht (6.0%), with most between 3.01–5 million Baht.

• Pathum Thani has 10,250 units (7.3%) worth 28.17 billion Baht (3.9%), primarily in the 2.01–3 million Baht range.

• Chiang Mai lists 4,508 units (3.2%) valued at 23.30 billion Baht (3.2%), with most priced between 5.01–7.5 million Baht.

• Phuket offers 1,818 units (1.3%) worth 15.01 billion Baht (2.1%), with most priced between 7.51–10 million Baht.

• Nakhon Ratchasima has 2,745 units (2.0%) valued at 9.44 billion Baht (1.3%), primarily in the 3.01–5 million Baht range.

• Rayong lists 4,062 units (2.9%) worth 8.08 billion Baht (1.1%), mostly priced between 1.51–2 million Baht.

1. Nakhon Pathom has 2,296 units (1.6%) valued at 7.7 billion Baht (1.1%), with most around 3.4 million Baht.

REIC said that the 2^nd hand residential property supply remains highest in Bangkok and nearby provinces (except Samut Sakhon), with many listings in major cities and tourist destinations. The top 10 provinces account for 69.5% of total listings and 85.4% of total market value in Q2 2024.