Thailand's real estate market has changed rapidly over the past 10 years. This is partly due to the development of its urban environment, which resulted in new projects, a growth in supply, and developers beginning to compete for the attention of potential buyers.
What problems did the market face and what happened thereafter? This article will discuss how the situation has changed and what to expect in the next decade.
Content:
- A retrospective of the last 10 years
- 5 factors contributing to Thai real estate growth in 10 years
- Real estate prices are higher than economic growth and salaries in the country
- Limiting the introduction of new projects by developers
- Features of the current housing sector
- What is the future of Thai real estate?
A retrospective of the last 10 years
The active development of the real estate market and construction of condominiums on the island began with the introduction of high-speed transport, in particular, electric trains.
There was a growing demand for housing and investment. What happened following this?
Lifestyle changes
In the last 10 years, the central part of Thailand’s capital and its largest city, Bangkok, has had condominiums and townhouses built along the subway that house the city’s working population. The expansion of the electric train network has made land and housing more expensive, forcing low-income people to move to suburbs that are less densely built-up than cities but have more affordable housing.
Over the past 10 years, land prices have grown by an average of 8% per year while consumer incomes have increased by only 3%. This means that incomes are not keeping up with land and housing prices. Many people cannot afford spacious housing and live in condominiums with small apartments of at least 21 sq. m. per room.
Government measures to stimulate the real estate market
The development of the real estate sector in Thailand was based on measures taken by the state in partnership with the Central Bank of Thailand. However, the effect was contradictory. Long-term housing support measures were beneficial but the market adapted too slowly, gradually increasing household debt.
According to the Office of the National Economic and Social Development Board (NESDB), average mortgage debt accounts for about 33% of total household debt.
Here are some market features and financial strategies by year.
2011-2012:
- The Ministry of Finance proposed tax cuts for first-time buyers. Property values did not exceed ฿5,000,000 ($148,500). The buyer could bear the costs of deducting NPFL up to a maximum of 10% of the value of the house;
- For the first house project, the price was no more than ฿1,000,000 ($ 29,700) and the interest rate was 0% for 3 years;
- A super-low interest rate loan or a soft loan of ฿300,000,000 ($8,900,00) from the Bank of Thailand to support people repair old homes or buy a new one at an interest rate of 3% for 5 years;
- Major developers started to build new housing in the provincial districts of Chonburi, Khon Kaen, Nakhon Ratchasima, Chiang Mai, Phuket, Hat Yai, Udon Thani, Ubon Ratchathani, etc.
In 2015-2016, the Government of the National Council of Peace and Order (NCPO) took the following measures:
- Financial measures. The State Housing Bank (GHB) took measures to promote housing loans for low- and middle-income people. The loan term did not exceed 30 years and was calculated for people with an income of ฿30,000 ($890) or less.
- Fiscal measures. Reduction of the transfer registration fee and real estate mortgage registration fee from 2% of the estimated value in transfer and 1% of the collateral value to 0.01%.
- Exemption from income tax when buying a property worth up to ฿3,000,000 ($89,100) for use as a home for 20% of the property value. It had to be the first purchase and used for residence. The buyer was entitled to an income tax exemption for 5 consecutive years.
In 2018-2019, the Government strengthened credit controls:
- In 2018, tax measures were introduced for the purchase of a first property. Housing worth up to ฿5,000,000 ($148,000) could be used as an income tax deduction from individuals.
- In the first quarter of 2019, the Bank of Thailand introduced a credit limit for lending per asset (LTV), which was reduced to 80%.
Over the past 10 years, Thais have been buying more houses. The proportion of people with housing debt is increasing across all age groups. According to the Office of the National Economic and Social Development Board (NESDB), most Thais buy their first home between 31 and 40 years old.
5 factors contributing to Thai real estate growth in 10 years
According to data provided by the Non-profit Analytical Center for Thailand's Socio-Economic Development Policy, the "S-shaped curve" has become an important factor in increasing demand for real estate.
Between 2007 and 2017, 5 S-shaped curves contributed to real estate growth in Thailand:
S-curve 1: Urbanization growth
2007 - rental housing in the country amounted to 18.08 million households divided into 5.76 million in urban areas and 12.31 million in rural areas.
In 2017, rental housing in cities increased to 9.99 million households while rural households decreased to 11.39 million.
Thailand’s population is aging and the situation is predicted to worsen in the next 10 years. The aging population has led to a decline in demand for housing and is one of the risk factors for Thai real estate.
S-curve 2: Real estate growth along the railway
The introduction of electric trains created a high S-shaped curve for the real estate business. As a result, the cost of condominiums on public transport lines increased significantly.
S-curve 3: The tourism sector
Over the past 10 years, the number of foreign tourists in Thailand has increased from 14 million to 37 million.
However, will Thailand’s tourism sector be able to sustain this growth in the future? Various tourism sectors are now reaching their limits in resources and the complex environmental situation caused by pollution.
Consequently, if the government does not manage this, Thailand’s tourism sector would be at risk in the next 10 years.
S-curve 4: Trading
The volume of trade increased significantly 20 years ago (1999-2008), averaging 15.8% per year. However, over the past 10 years, the growth rate has decreased to 6.4% per year.
S-curve 5: Real estate sales abroad
The sale of real estate to foreign buyers is one of the most important factors in the growth of the Thai housing market. Buyers from China and the United States had the highest purchasing power.
Real estate prices are higher than economic growth and salaries in the country
Over the past 5 years, the prices for detached houses, townhouses, and condominiums have risen above average salaries and exceeded current economic growth. This problem worsened in 2019 during the economic downturn. Household debt was still high and the Bank of Thailand's measures to regulate housing lending intensified the purchasing power regression. Unrealized offers started to accumulate on the market.
Limiting the introduction of new projects by developers
When real estate sales decline, developers adapt to the situation by limiting the launch of new projects to build as much ready-made housing as possible. Most of them are in the price range below ฿3,500,000 ($103,900). Discounts and hot offers are often used to boost buyers' interest.
Features of the current housing sector
Condominiums are now the most common type of real estate, accounting for 91% of the total market. The highest cost of properties in the price category is up to ฿3,500,000 ($104,000). The three major districts of Bangkok have a lot of condominiums: Wattana, Khlong Toei, and Huai Khwang.
Wattana, Lat Phrao, and Prawet have many townhouses while detached houses are located on the outskirts of central business districts such as Prawet, Khlong Sam Wa, and Sai Mai.
In 2022, business projects in central and suburban areas will keep developing. It will focus on horizontal development.
What is the future of Thai real estate?
TDRI predicts that the incentives driving the real estate sector will decrease in the next 10-20 years.
What areas will benefit Thailand's real estate market?
Transport sector
The government plans to expand the road and rail network.
Thailand now has 200 km of motorway but plans to expand it to 6,000 km over the next 20 years. The railway length will be increased from 4,000 km to 7,900 km.
These new motorways will boost real estate development along the roads.
Tourism sector
Special attention should be paid to the tourist provinces, especially in the northeast of the country as they have great potential.
Purchasing power abroad
This is one of the most important factors to develop the real estate sector – the activity of foreign buyers. However, there is a need for strict enforcement of property ownership rules and laws.