Costs, inflation put property demand at risk

Costs, inflation put property demand at risk

Developer also warns of interest rate hikes

The property market will continue to be challenged by inflation, higher development costs, and rising interest rates in the second half, which will take a toll on housing demand, says residential developer Frasers Property Home (Thailand).

Saenphin Sukhee, chief executive of the company, said Thailand's inflation rate of 7.6%, the highest level in 13 years, would lead to stricter criteria for mortgage lending.

"The Russia-Ukraine war has caused higher development costs with a year-on-year increase of 17% in fuel prices and 25% in steel prices. They have had a 10% impact on housing development costs," he said.

Due to these negative factors, home purchasing power is set to drop as consumers face surging costs of living while their income is frozen by the economic situation.

Mr Saenphin said housing demand had shifted to low-rise homes, which made up 68% of the total last year, up from 64% and 48% in 2020 and 2019, respectively, while condo demand dropped to 32%, from 36% and 52% in 2020 and 2019, respectively.

"According to those changes, residential supply also shifted towards single detached houses and duplex houses from townhouses," Mr Saenphin said. "Units priced 10 million baht and over were on the rise as demand from lower-income earners slowed."

He said an increase in interest rates in the second half would have an impact on home purchasing power as every one percentage point increase translates to an 8% rise in monthly mortgage instalments.

Chatchai Sirilai, president of state-owned Government Housing Bank (GHB), said an increase in interest rates in the second half of the year was unlikely to worry homebuyers as the new rates would still be lower than in the past.

"The interest rate is now 0.5%, compared with 1.5% in 2015-16," he said. "But the perception may be different as a rise this year to that level [1.25-1.5%] is in an upward trend, while the 2015 rate was in a downward trend."

GHB remains the key mortgage player in Thailand, providing 160 billion baht of new home loans in the first half.

It is expected to outperform last year's 260 billion baht in mortgage loans, while that of commercial banks has dropped.

"If the central bank's Monetary Policy Committee raises the interest rate at its next meeting in August, commercial banks will immediately raise the rate, but GHB can delay such an increase for three months," Mr Chatchai said.



Do you like the content of this article?
COMMENT
TRENDING

Indonesia president wants Tesla to make EVs in country

Electric vehicle (EV) maker Tesla must make its cars - not just batteries - in Indonesia, the country's president said on Thursday.

08:44

Jab centre to stay open extra month

Bang Sue Grand Station's Central Vaccination Centre (CVC) will remain open another month until the end of September as the country works to meet the target of providing first booster shots to at least 60% of the population.

08:01

2,110 new Covid inpatients, 27 more deaths

The country registered 27 more Covid-19 fatalities and 2,110 new cases admitted to hospitals during the previous 24 hours, the Public Health Ministry announced on Friday morning.

07:49