Is Thailand’s Property Market on the Slide?

Is Thailand’s Property Market on the Slide?

Bangkok City Skyline

Thailand has been a popular destination for tourists and expatriates for over three decades.  Over this period  it has experienced an extended property boom, which has been particularly concentrated in the Bangkok Metropolitan Region (BMR).  The BMR contains 17% of Thailand’s population and accounts for 44% of its GDP.  Household incomes there average 42, 000 baht, nearly double the Thai national average, and demand has grown along with supply as Thailand urbanized.

The recent trend has been for developers to look further out from the centre of Thailand’s economy, finding provincial sites.  One reason for this could be a slowdown in the BMR property market as it reaches saturation.  Typically 80-100, 000 new units are sold each year, but the absorption of new housing units has flattened off at 35-40% and inventory levels are struggling.

As in many Asian markets prices are rising faster than income growth.  Although Bangkok is no Hong Kong in this regard, it is experiencing an affordability problem.  As in Hong Kong the response from developers has been to downsize already small living space, but many Bangkok apartments are already 20-30m2.  Additionally, a smaller number of condominiums than expected were built in 2012 and the numbers are expected to fall further this year.  Of those built, 54% were in suburban areas of Bangkok and the trend for decentralisation is expected to continue both locally and nationally.

While the mass market may be saturated there is still strong demand for highly desirable locations along the proposed skytrain route, and competition in this market is intensifying.  As it does so, developers are climbing aboard the bandwagon and presenting their products as tailored to a luxury-oriented foreign market, in line with the conclusions on the importance of branding drawn by Rinchumphu et al in the International Real Estate Review.  Other developers devote themselves to the foreign market which they claim is booming.

Another reason for the withdrawal of developers from the BMR could be the blows to consumer confidence caused by the 2011 monsoon floods and the recent political unrest in Thailand.  The floods in particular pointed up a key concern for the BMR area: it’s located around the mouth of the Chao Praya River and is very vulnerable to flooding.  It’s also built on an alluvial flood plain.  As a result of aggressive groundwater extraction, Bangkok was sinking at a rate of 10cm yearly in the 1970s, and even now is sliding into the Gulf of Thailand at about 1-3cm yearly.

Additionally the sea level in the Gulf is expected to rise between 19 and 29cm by 2050 as a result of global warming, leaving BMR residents with the unwelcome prospect of a 4m descent by 2050.  The World Bank expects Bangkok’s flooding risk to increase fourfold by mid-century, and experts agree.  ‘In 50 years,’ according to Mr. Anond Snidvongs, a climate change expert at Chulalonkorn University, ‘most of Bangkok will be underwater.’

There are further troubles ahead for the Thai contruction industry, too.  The Thai government is currently drafting the third round of the country’s zoning laws.  Based on information collected in 2004, these reallocate much suburban land to agricultural purposes, and have been attacked for being out of date and restrictive to development.  The Thai Industry Minister Prasert Boonchaisuk said at the start of the month that he had asked the Interior Ministry to reconsider its plans.  In an especially harsh blow for urban Bangkok the new plans will include restrictions on the height of new buildings, slowing condominium production further.

The Stock Exchange of Thailand (SET) has risen recently and there are other promising signs including the Thai government’s commitment to a gigantic, nationwide infrastructure project that will see $77m spent in the next decade and will include several new mass transit systems, opening suburbs to development.  However, the old model of strongly centralized urbanization in the BMR is probably gone permanently, despite sales talk to the contrary.  David McCauley, the ADB’s chief climatologist, puts it more bluntly: ‘There is no going back.  The city is not going to rise again.’

Photo credits: Mike via Flickr