At the seminar titled “Lower Interest Rates: Aiding Economic Recovery, Real Estate, and Capital Markets” organized by Fullmax News Agency, experts and financial gurus gathered to analyze the current Thai economy's impact on the real estate business, particularly the noticeable decline in consumer purchasing power. Most consumers still lack confidence and face liquidity issues amid a sluggish economy. Many believe that the escalating household debt problem is becoming a significant concern, urging the Bank of Thailand and commercial banks to collaborate on reducing interest rates to support small borrowers in accessing funding and stimulate purchasing power. Without cash flow in the real estate sector, the entire industry could collapse.

Buyers Lack Confidence; Strict Measures Limit Access to Credit

Dr. Vichai Viratakapan, Inspector of the Government Housing Bank and Acting Director of the Real Estate Information Center stated that interest rates significantly impact housing transaction changes. Ultimately, when purchases are made but transfers fail, it reflects a lack of confidence in income generation and a desire to avoid long-term debt, affecting businesses as purchasing power diminishes in the market, leading to reduced project expansions.

“The key to the real estate sector is increasing income to boost purchasing power. The real estate sector is like land deprived of water, which used to be a source of irrigation to nourish the economy. Now, it needs water for recovery, as all the leaves have fallen. Thai citizens lack the funds to engage in various activities. The 70 billion baht home loan from the Government Housing Bank was quickly exhausted, along with the 20 billion baht Happy Home loan, indicating that the market demands purchasing power,” Dr. Vichai remarked.

Currently, housing loan rates are relatively low, with some financial institutions offering loans at rates below 50% of the MRR, averaging below 3.5% over the past three years. If the MRR is reduced by 0.25%, it could increase new loan values by 4.4 billion baht, adding 5,000 transfer units and a transfer value of 35 billion baht.

Therefore, if commercial banks nationwide reduce interest rates by 2.5%, it is expected to increase transfer units by 372,877, or a 1.6% rise compared to last year, with a transfer value of 1,078,080 million baht, expanding by 2.6% year-on-year. New loan disbursements could increase by 678,151 million baht, or a slight decrease of 0.03% compared to last year.

Currently, customers still want to buy homes but struggle to access credit due to stringent criteria, leading to a contraction in purchasing power. This rapid market contraction could have a cascading effect from lower-income individuals to higher-level businesses, contrasting with the 1997 crisis that impacted from top to bottom. A severe impact on the real estate sector will affect crucial mechanisms driving the economy.

Moreover, the group of investors, accounting for 20-30% of the market, or approximately 200-300 billion baht, has diminished due to housing loan-to-value (LTV) regulations, resulting in reduced investment returns and a shift towards other investment avenues.

Call for Interest Rate Cuts and Structural Financial Reforms

Mr. Isara Boonyang, Chairman of the Real Estate Business Trade Association noted that the current economic crisis differs significantly from the 1997 Tom Yum Kung crisis. Post-COVID-19, Thailand's recovery will follow a K-shaped pattern, where those minimally affected by COVID-19 and wealthier individuals recover quickly, while SMEs and lower-income groups gradually decline, exacerbating economic inequality. Additionally, the ongoing war complicates recovery efforts.

Thus, addressing the real estate sector's issues, reducing interest rates is essential. High interest rates lead to increased transfer costs. Since the beginning of 2024, state banks have pioneered interest rate reductions in the real estate and SME sectors, yielding significant results, with loan amounts quickly exhausted. Consequently, interest rate cuts can resolve economic issues more swiftly than other approaches.

The government must intervene with low-interest policies through state banks, such as the Government Housing Bank and the Government Savings Bank, to provide low-interest loans, enabling businesses and citizens to access funding, alleviate debt burdens, and address financial issues.

2024: A More Severe Real Estate Crisis than COVID – Developers Adapt by Offering Home Sale-leaseback

Mr. Pornnaris Chuanchaisit, President of the Thai Real Estate Association stated that in 2023, the real estate sector began facing difficulties in sales, although the top 10 large companies still performed well. Regional sales have worsened, and in 2024, the situation is expected to deteriorate further as banks report non-performing loans reaching 6%, making it increasingly difficult to extend credit, especially in industrial cities in the eastern region where factory closures are rising, leading to a continuous decline in loan disbursements and a significant drop in real estate sales.

“In the past, during a booming factory period with high sales and exports, banks only considered the reputation of the borrowing company. Now, as factories reduce overtime, cut salaries, and even close down, banks are reluctant to lend to these borrowers,” he added.

This situation has forced many developers to shift from selling homes to engaging in sale-leaseback businesses, leading to significant growth in this sector. However, these developers are merely sustaining themselves, as the operational costs of sale-leaseback or rental businesses are high, and the primary goal remains to build homes for sale. Nevertheless, there is still considerable foreign demand, particularly from Chinese buyers, although Thai laws impose many restrictions, leading to a surge in hidden nominee arrangements.

Developers Reassess Projects, Downsize, and Halt Competition for Cheap Locations

Asst. Prof. Dr. Kessara Thanyalakphak, Managing Director of Sena Development Public Company Limited stated that if the Bank of Thailand reduces interest rates alone, it may somewhat stimulate the real estate sector, as most people are still hesitant to buy. However, if both the Bank of Thailand and commercial banks work together to lower interest rates, it will alleviate the burden on borrowers, encouraging them to purchase real estate with long-term financing.

Sena believes that the solution for businesses in this economic climate is not to engage in price wars but to assess the potential of their products. If a product is competitive and profitable, they will proceed; however, if a project is in a good location with a promising future but lacks purchasing power, they will pause sales. Prime locations are scarce, and selling at low prices would mean losing opportunities. For products that are less competitive, they will be sold off to maintain cash flow.

The Crisis Begins with Overwhelmed Small Borrowers; Thais Shift Investments to Land and Condos

Mr. Somsak Sirichainarumit, Chairman of the Securities and Exchange Club of Thailand (IB Club) stated that Thailand currently faces a high household debt problem, contrasting with declining incomes that are insufficient to cover expenses. Many people have extravagant spending habits, exacerbating the debt situation. Additionally, Thais struggle to compete with foreign capital and rely heavily on foreign labor, intensifying these issues.

“The purchasing power of Thais has significantly decreased, forcing a shift from buying homes to renting instead. Meanwhile, purchasing power in real estate has shifted to foreigners, as foreign investments have increased. However, the income generated from these investments reaches Thais very little. If this issue is not addressed, it will become increasingly difficult for Thais to access real estate,” Mr. Somsak stated.

Furthermore, the Thai tendency to invest in land and real estate for speculation has diminished, leading to a significant reduction in purchasing power from this group. New technologies have made it easier to invest in other areas with better returns, such as foreign stocks, gold markets, or digital currencies.

“In this situation, everyone must adapt. Every crisis presents a turning point that opens new business opportunities. It requires mindfulness to find new paths without merely copying others. Entrepreneurs must understand their strengths and expertise, leverage these advantages, and use their experiences to define new strategies that reflect their identity,” Mr. Somsak concluded.