Thai Housing Market Faces Challenges, Future Trends to Monitor

Author: Nisakorn Songmanee
Partner | Audit & Assurance
Deloitte Thailand

Tasada Sangmanacharoen 
Senior Consultant | Clients & Markets
Deloitte Thailand

Over the past year, Thailand's residential market has faced significant headwinds, primarily driven by external factors such as the downturn in China's real estate sector. This slowdown led to a decrease in global construction demand, resulting in the diversion of excess materials, such as steel, to overseas markets, particularly Southeast Asia and Thailand. This influx caused intense price competition and forced some Thai businesses to close. Additionally, domestic factors such as Thailand’s household debt, which stood at 89.6% of GDP in the second quarter of 2024, have strained consumer spending. Moreover, the rejection rate for home loans below 3 million baht has surged to 70%. Furthermore, the fact that Thailand has already entered the aged society stage, as the Department of Older Persons Thailand has reported Thailand's population aged 60 and over has already reached 20%, suggests that the country's population growth will no longer be as rapid as in the past. Data from the Real Estate Information Center (REIC) reveals that in the first half of 2024 (January-June), the number of land allocation permits nationwide decreased by 14.7% YoY. A closer look at the data shows that the Northeast region experienced the most significant decline at 67.1%, followed by the South at 36.5%. Meanwhile, the Bangkok and vicinity saw a 5.1% decrease. Moreover, the total construction area permitted nationwide decreased by 14.9% year-on-year, with every region experiencing a decline. The Bangkok and vicinity saw the most significant decrease at 24.8%.

When examining the reasons for purchasing property, the REIC reported that in the second quarter of 2024, over 32% of prospective buyers were looking to own their own home. Meanwhile, approximately 18% were looking to invest or rent out their property. Notably, respondents aged 25-34 made up the largest group at around 49%. Additionally, a significant 35% of respondents had a monthly income between 15,001 and 30,000 baht, suggesting that a substantial portion of the working population desires homeownership but may be facing challenges due to the aforementioned factors.

To stimulate the real estate sector, the government has implemented various measures. In April 2024, a reduction in transfer of ownership and mortgage fees to 0.01% each was introduced for residential properties priced below 7 million baht. Additionally, the Government Housing Bank has launched low-interest rate loan programs such as the Happy Home project, offering a 20 billion baht fund for homes priced under 3 million baht to improve accessibility to financing. Additionally, in September 2024, the Bank of Thailand introduced a debt consolidation measure for housing loans and personal loans. This measure encouraged financial institutions and specialized financial institutions (SFIs) to relax loan-to-value (LTV) ratio restrictions for debt consolidation cases, allowing them to exceed the specified ceiling. However, the debt consolidator must ensure that the borrower's debt burden is reduced after the consolidation. This measure is set to expire in 2025.

For the transfer of condominium ownership by foreigners nationwide in the second quarter of 2024, it was found that there were 3,342 units, a decrease of 6.2%, with a total value of 14.874 billion baht, representing a decline of 17.7%. Chonburi province accounted for the largest proportion at 38.4%, followed by Bangkok at 36.4%.

In the second quarter of 2024, condominiums transferred to foreign ownership with a price of no more than 3 million baht accounted for the highest number at 1,737 units, representing 52% of the total units. This price range has been the most popular among foreign buyers since 2019. Additionally, it is noteworthy that the proportion of condominiums priced at 10 million baht and above has been increasing both in terms of proportion and number of units in recent years. The compound annual growth rate (CAGR) of the number of units between the second quarter of 2019 and the second quarter of 2024 was 12%. Although these units only accounted for 7% of the total number of condominiums transferred to foreign ownership units in 2Q2024, their have the highest proportion in value at 32% or 4,810 million baht, with an average price of over 19 million baht per unit.

In terms of government initiatives, the possibility of allowing foreigners to lease property in Thailand for up to 99 years to stimulate the real estate sector remains a point to observe. In the first half of 2024, Chinese nationals were the largest group transferring condominium ownership nationwide, with 2,872 units, accounting for a significant 39.5%. Myanmar nationals followed with 638 units (8.8%), and Russians with 567 units (7.8%). The average unit price for Chinese, Myanmar, and Russian buyers was 4.6 million, 5.1 million, and 3.3 million baht, respectively.

Developers are increasingly focusing on the high-end market. Data from the second quarter of 2024 shows that the number of land allocation permits in Bangkok and vicinity was 16,442 units which declined 27.3% YoY but valued at 184,790 million baht, which surged 43.8% YoY.

The residential real estate sector can still move forward, but developers may have to rely more on higher-income buyers. Additionally, we may see more aggressive promotional activities for completed units to reduce inventory. Meanwhile, potential buyers with lower purchasing power may face ongoing challenges in acquiring property. Therefore, we may see a K-shaped recovery in the future if Thailand's overall purchasing power does not improve or if the country remains confined in the middle-income trap.