Thai property market faces protracted downturn, analysts warn

 

Thailand’s property sector is grappling with persistent challenges, as analysts forecast a prolonged downturn in sales and prices.

 

Industry experts underline structural issues as the primary cause and emphasise the need for robust long-term solutions.

 

KKP Research has drawn attention to the risk of Thailand mirroring Japan’s “lost decade” and urged policymakers to prioritise economic reforms that boost income levels and attract foreign investment to avert a similar crisis.

 

For its part, SCB Economic Intelligence Centre (EIC) highlights access-to-finance barriers for middle- and lower-income buyers as a major obstacle, although the rate of contraction has slowed.

 

 

Oversupply threatens market stability

Oversupply remains one of the critical challenges, particularly in low-rise housing such as detached houses and townhouses.

 

With more than 200,000 surplus units on the market, experts predict it could take up to six years to clear the backlog.

 

Property developers are criticised for their sluggish adaptation to evolving market dynamics, as new housing continues to flood the market despite diminished demand.

 

 

Demand stifled by economic concerns

Weak demand is further exacerbating the sector’s struggles.

 

While most analysts anticipate modest economic growth of 2.6%–2.7%, KKP Research projects a lower figure of 2.3%, cautioning that global trade tensions could reduce this even further.

 

Tourism recovery has been driving post-pandemic growth, but key sectors like manufacturing have experienced nine consecutive quarters of contraction, pointing to an underlying economic recession that has dampened purchasing power.

 

 

 

Household debt undermining purchases

The ballooning level of household debt is another significant barrier.

 

Household debt now exceeds 90% of GDP, up from 60% before the 1997 Asian financial crisis.

 

Real wages have stagnated over the past decade, rising by just 1.6% annually despite GDP growth averaging 3.5%.

 

High debt levels and cautious bank lending, especially in the mid- to lower-priced housing segments, compound the sector’s woes.

 

 

Short-term stimulus measures: limited impact

The government has introduced short-term interventions, including adjustments to loan-to-value (LTV) ratios by the Bank of Thailand, aimed at boosting sector confidence.

 

However, KKP Research notes that these measures disproportionately benefit high-end buyers while offering minimal relief to middle- and lower-income groups due to stringent lending practices.

 

SCB EIC agrees, asserting that the LTV relaxation primarily facilitates investor activity and second-home purchases below 10 million baht without significantly boosting broader market demand.

 

 

Outlook bleak but recovery possible

The outlook remains challenging, with house prices likely to decline further.

 

Signs of increased price competition are evident, with developers reducing profit margins. Similarities to Japan’s economic stagnation, such as credit tightening and an ageing population, are cause for concern.

 

However, analysts argue that Thailand's current slowdown stems from gradual economic deceleration, presenting opportunities for structural adjustments rather than a speculative bubble collapse.
 

 

 

Prescriptions for long-term growth

KKP Research outlines two major policies to address systemic challenges:

Boosting income levels: Economic recovery, paired with wage growth, would reduce household debt and revive consumer purchasing power.

 

Attracting skilled foreign workers: Revamping real estate ownership policies to draw talented global professionals could stimulate demand while addressing demographic shifts.

 

Controlled foreign ownership liberalisation, coupled with taxation measures to fund affordable housing for lower-income Thais, could mitigate adverse effects on domestic property prices.

 

Additionally, SCB EIC advocates for reduced transfer and mortgage fees, lower land tax rates, and expanded loan accessibility for middle-income groups as practical short-term strategies to reduce unsold housing stock.

 

Thailand’s real estate sector accounts for a substantial portion of GDP and employs millions of workers, making its health integral to the broader economy. Policymakers face the critical task of deploying targeted measures to navigate the current slump while laying the groundwork for sustainable, long-term recovery.