Real Estate Business Trend 2020

The real estate business in 2020 has faced challenges caused by several factors. These include challenges from slowdown of domestic purchasing power, resulting from increases in household debts by 79.1% of the Gross Domestic Products (GDP) as of the end of the third quarter of 2019, according to the Bank of Thailand report. In addition, private investments have tended to slow down, disbursements of the 2020 Budget have been delayed and the political situation within the country has been unstable. In the same way, the export and tourism sectors in 2020 have been on the decline since 2019, due to the outbreak of the Coronavirus disease 2019 (COVID-19). Later on, the pandemic has resulted in the Chinese economy likely to grow below 6% for the first time in the past 10 years. Under these circumstances, the World Bank had to adjust the global economic growth forecast in 2020 down from 3% to 2.5%. The Bank of Thailand has estimated that the Thai economy in 2020 would see a growth rate of less than 2.8%. For the real estate business, the Bank of Thailand has adjusted the loan to value (LTV) ratio from the previously specified conditions. The adjustment allows financial institutions to release a loan at 100% of the collateral value for the first home loan applications and to increase the loan limit by an additional 10% for furnishing of the first home. However, the Bank of Thailand has maintained stringent measures on loans for the second and third houses. This was due to concerns over the non-performing loan of 3.49% in the third quarter of 2019 which increased from 3.34% in the second quarter of 2019, as reported by the Bank of Thailand. Consequently, the rate of loan rejections by financial institutions has increased from 20% in 2018 to 40% in 2019 in order to reduce the risk of possible increase of bad debts. The LPN Wisdom, a real estate research center of the L.P.N. Development Public Company Limited has predicted that financial institutions would tend to reject more loan requests. This is due to the impact of the new policy direction on Debt Service Coverage Ratio (DSCR) that the Bank of Thailand planned to announce in 2020. This policy direction will reduce the ability of the borrowers to take loans. At the same time, the inventory for sale in Bangkok and the peripheral markets as reported by the Real Estate Information Center of the Government Housing Bank and by the survey of L.P.N. Wisdom at the end of 2019 have been estimated at 196,000 units, an increase of 4% from 2018. Out of this amount, 89,000 were condominium units, which has increased by 6% from 2018. This has resulted in a decline in the launch of new real estate business projects in 2020 because entrepreneurs must focus their efforts on liquidating existing inventory in the market. Furthermore, the land and building tax law which will be enforced in 2020 will have a direct impact on ownership of land and buildings, especially among real estate investors who will be subject to tax on holding a second home at the rate of 0.02% to 0.1% according to the price level of the property being held. This has increased the costs of holding residential properties for investors. When considering the purchasing power from aboard, it has been found that the Thai Baht has appreciated by 6.7%, strengthening its value of 32.54 Baht per US dollar on January 2, 2019, to 30.35-30.50 Baht per US dollar in December 2019. It is likely that the value will further appreciate in 2020, when the Federal Reserve of the United States of America plans to cut the standard interest rates by another 0.25-0.5% in 2020 to stimulate the economy of the United States. In effect, the purchasing power of foreign real estate investors in Thailand has therefore decreased continuously. According to the Bank of Thailand report, the volume of international transfers for purchase of real estate projects in Thailand during the first 8 months of 2019 ending August 31, 2019 was at 30 billion Baht, a decrease of 50% from the 60 billion Baht of ownership transfers during the same period in 2018. It was forecast that by the end of 2019, international transfers for real estate purchase in Thailand would not be more than 50 billion Baht or 50% decrease from the 100 billion Baht in 2018. Under this situation, the real estate business in 2020 will tend to slow down further from 2019 when the overall market outlook was negative by 15%, according to the research findings of the LPN Wisdom, a real estate research center of the L.P.N. Development Public Company Limited. This is regardless of beneficial factors for real estate business in 2020 such as the Bank of Thailand’s low-interest rate policy and stimulus measures announced in October 2019, two measures of which have remained valid in 2020: Decrease of ownership transfer fees from 2% to 0.01% and decrease of mortgage fees from 1% to 0.01% for residences with value not more than 3 million Baht, effective until December 24, 2020. There is also a project on returning down payments to buyers, entitled “Good House with Down Payment”, which return a down payment of 50,000 Bath to home buyers whose income does not exceed 100,000 Baht per month or 1.2 million Baht per year and who bought houses between November 27, 2019 and March 31, 2020. Based on this trend, LPN Wisdom predicts that in 2020, there will be new launches of real estate projects in Bangkok and its peripheral area by 100,000-110,000 units. This represents a decrease of 5% when compared to 2019. The new residential home projects will include 50,000-55,000 units, an increase of 10-15% from 2019 because there is still absorbing capacity in the market. Regarding residential condominium projects, 50,000-55,000 new units are expected to be launched, a decrease of 5-10% from 2019, with an emphasis on liquidating ready-forsale products. Transfer of ownership is forecast to go down to the level similar to that of 2018 due to high levels of ownership transfers in the third and the fourth quarters in 2019, resulting from ownership transfers under the Baan Eua Arthorn Project of the National Housing Authority as well as from the acceleration of ownership transfers under the project “Good House with Down Payment.” Therefore, it is expected that in 2020, ownership transfers in Bangkok and its peripheral area will amount to 180,000-185,000 units, a decrease of 2-5% when compared to 2019.