New residential supply in Greater Bangkok is expected to increase for the first time in three years in 2017, but according to Kasikorn Research Center (K-Research), property developers need to be more cautious due to high household debt, consumer's delayed purchasing power and a rise in housing price.
According to K-Research, the number of new residential units being launched in Greater Bangkok will amount to 107,000-109,000 units this year, up 5-7% from 2016.
Nonetheless, the think tank said investment activities and residential sales may slow down in the first quarter this year, especially when compared with the same period in 2016 when the market was stimulated by property tax incentives.
"Property developers this year will still be challenged by household debt, which stays relatively high, and weak consumer purchasing power," said the research house.
"In 2017, interest rates are expected to be hiked, which will also crimp the ability of potential borrowers to gain access to mortgage loans. In addition, homebuyers' interest burden for mortgage payments will be also higher."
K-Research urged developers to come up with new promotional activities and campaigns to attract homebuyers in addition to partnering with financial institutions to offer low-interest rate promotions or zero interest for limited periods.
Multiple factors will influence the homebuyer decision-making process this year. Unless developers can boost the outstanding number of residential units by 4-8% by the end of 2017, the residual supply will approach similar levels as in 2015, it said.
Despite the growth in new residential supply being launched this year, K-Research also predicts developers will find more difficulties in selecting market segments and locations for new project development. Investment and sales activities will stay mostly in potential segments and popular locations.
The research centre expects a rise in housing prices in the upper-end market in condo and low-rise segments, particularly for condo in central business districts, driven by higher land prices.
According to the Bank of Thailand, the land price index in November 2016 rose 3.8% from the same period last year.
Condo prices in the central business district locations will rise, driven by real demand and investors, said K-Research, with the increase in the average price of condos in central business district locations higher than that of condos in other Greater Bangkok locations.
Selling prices for middle to lower-end projects will be flat as household debt remains high and financial institutions are likely to stay cautious with mortgages for homebuyers in the lower-end market, said the research house.
Housing demand in the middle to lower-end segments will be limited as homebuyer's purchasing power has yet to recover.
However, a rise in housing prices is still possible, notably for projects in the middle to lower-end market located in Bangkok's outskirts, where an extension of the mass transit lines will run, said K-Research.
Amid the property market slowdown this year, large developers will shift to other businesses, while mid-sized developers will join foreign partners to adjust strategies, it said.
Big developers have greater portfolio flexibility compared with medium and small ones and are better able to adjust to uncertainty in the residential market this year, the research house said.