Article by Samma Keetsin, Director and Independent Director of Sena Development Public Company Limited

The Gross Domestic Product (GDP) of Thailand grew by approximately 3.3-3.5% throughout 2022 compared to 2020, which grew by 1.6%, and compared to 2019, which contracted by as much as 6.1%. Therefore, it is anticipated that the Thai economy will return to pre-COVID levels around mid-2023. Typically, the real estate market grows in correlation with the country's GDP, so it is expected that the real estate market will continue to improve in 2023 and return to pre-COVID levels around mid-2023 as well.

The volume of housing loans from financial institutions saw significant growth in 2022, increasing by 12% from a total of approximately 437.6 billion baht to about 490.3 billion baht. This comparison is made between the first three quarters of 2022 and the first three quarters of the previous year. The total new loan volume for 2021 was approximately 612 billion baht, similar to 2020 but less than 2019, which had a volume of about 640 billion baht, and compared to the peak record of approximately 702 billion baht in 2018.

State-owned banks significantly increased their lending due to the Million Houses policy and the focus on providing loans to support government policies aimed at assisting low to middle-income earners. The two main state banks that provide housing loans hold more than 40% of the housing loan market share, which is a significantly higher proportion than in the past.

The outstanding value of individual housing loans at the end of the third quarter of 2022 was approximately 4.662 trillion baht, compared to approximately 4.5015 trillion baht at the end of 2021 and about 4.255 trillion baht in 2020. The figures for 2020-2021 likely reflect debt moratoriums or debt restructuring, with repayments at a reduced rate, resulting in unchanged old debts while new loans from new housing loans partially filled the gap. In 2022, new housing loans grew at a higher rate than outstanding housing loans, indicating a significant improvement in the housing market in 2022.

In addition to residential real estate, commercial real estate was also severely impacted during the COVID outbreak, including retail properties (due to social distancing measures, time, and service limitations), hotels (due to the outbreak and travel difficulties), and office rental spaces (due to business closures or downsizing). However, in 2022, the occupancy rate of large hotels in tourist provinces increased significantly, large and new shopping malls showed good recovery, while some older malls in provincial areas closed due to inability to compete. Meanwhile, the supply of office rental spaces continued to increase as new spaces gradually opened.

The overall real estate market showed significant recovery in 2022 as anticipated, with new risk factors including the ongoing war in Ukraine (which is expected to extend into 2023), leading to soaring oil prices (although oil prices began to stabilize in the last quarter of 2022). Since oil prices are a crucial cost in transportation and production, along with supply chain disruptions caused by the war, consumer goods prices increased both domestically and internationally, leading to inflation. This has caused global interest rates to rise, posing risks to economic growth in both the world and Thailand, affecting consumer purchasing power. Increased energy and transportation costs have also raised the prices of construction materials, particularly steel and steel products.

The household debt situation in Thailand remains high, although it has decreased from 89.3% of GDP at the end of the third quarter of 2021 to about 88.2% at the end of the third quarter of 2022. The quality of housing loans may deteriorate in the future. The average debt service ratio (DSR) of Thai households has been around 30% since 2019 and increased above 30% after the COVID outbreak, as households borrowed to compensate for lost income.

Household debt affects the potential for purchasing housing. Notably, housing loans account for only about one-third of total household debt, compared to many countries where housing loans make up about 40% of total household debt. This indicates that household borrowing in Thailand is primarily for consumption purposes, such as credit card loans, car loans, and various personal loans, at a high proportion that prevents them from obtaining loans for housing purchases due to excessive debt burdens relative to income.

Most operators in the real estate business managed to survive through 2022, and the real estate market is expected to recover more clearly in 2023, with the number of new housing units for sale in the market (considered upstream) and new housing loan volumes (considered downstream) both significantly increasing. This is because operators generally delayed launching new projects in 2020-2021, particularly condominiums, which saw only about 51,000 units launched in those two years, leading to a reduction in the remaining new housing units available for sale. This presents an opportunity for new housing units to be launched, with approximately 50,000-51,000 new condominiums for sale, close to the number launched in 2020 (29,500 units) and 2021 (21,500 units) combined, along with a similar volume of new single-family homes for sale. Overall, the number of new housing units for sale in Bangkok and its vicinity in the first three quarters of 2022 exceeded the total number of new units for sale throughout 2021 across all types of housing, including condominiums, single-family homes, duplexes, or townhouses, aligning with new sales trends.

However, there are still risk factors for the real estate market in 2023, including the household debt situation and the cessation of relaxed loan-to-value (LTV) ratio measures, which were relaxed from October 2021 and will end at the end of 2022. The end of the LTV relaxation measures will lead financial institutions to tighten their lending criteria for housing loans, especially for the purchase of second homes and beyond. There may be adjustments in the loan screening criteria, focusing on customers purchasing housing in projects from major developers.

The emergence of various projects under the government's transportation infrastructure development plan has led to labor shortages, while suitable land for developing residential condominiums in appropriate locations, prices, and sizes is becoming scarce or only available at prices too high to develop projects that meet the primary target groups. Competition in the real estate business has led to competition among operators for land purchases, especially in central Bangkok or areas along mass transit systems or major roads.

The construction of key mass transit rail projects, which have been delayed beyond schedule (the Pink Line and Yellow Line have postponed their service opening until around mid-2023, and the Orange Line may open in 2028), has resulted in missed opportunities to stimulate the real estate market along those routes, with only the Red Line suburban train from Taling Chan through Bang Sue to Rangsit station currently in operation.

On the positive side, there are also measures to reduce the transfer fee for ownership to 100 baht per million (from the usual 20,000 baht per million) and mortgage registration fees to 100 baht per million (from the usual 10,000 baht per million), which have been extended for another year until the end of 2023.

The general election, expected to take place in the second quarter of 2023, will help stimulate the economy in the first half of the year through campaign spending by political parties, particularly in areas surrounding Bangkok and in provinces.

The reopening of the People's Republic of China to allow Chinese citizens to travel abroad will further stimulate Thailand's tourism sector, which has already improved in 2022, and is expected to perform even better in 2023, potentially leading to GDP growth exceeding the anticipated 3.4%.

However, when considering the real estate market, whether residential or commercial, it cannot be viewed as a whole. It is necessary to segment by area and price level. A good market for one operator may not be a good market for another, and a favorable location or price for one consumer may not be the same for another.