Property Developers Asked To Slowdown On New Developments By Banks
Source: Thailand Condo News Sep 19, 2019
Thailand property developers are being asked by banks and financial corporations to slow down new supply of residential launches in 2020 as the sluggish global economy will still persists next year with a global recession imminent. The global economy is not expected to improve till 2021.
Banking analysts are saying that the absorption rate is slower as residential and demand dropped after the loan-to-value (LTV) limits took effect. In the residential market, around 30-35% of demand was from investment buyers. With the LTV limits and economic slowdown, these buyers have left the market. The office sector is also starting to face the same problems as a result a slower economy and excessive supply.
The impact of the LTV limits was reflected in SET-listed residential developers' combined revenue and net profit in the period April to June 2019 which dropped to Bt 49 billion and Bt 6 billion, respectively, from Bt 65 billion and Bt 10 billion in the first 3 months of 2019. Their combined presales in the period April to June 2019 also continued decreasing to Bt 66.2 billion from Bt 69.1 billion in the period January to march 2019 and 72.4 billion in the period October to December 2018. The highest presales were in the period July to September 2018, at Bt 107 billion, while average quarterly presales are around Bt 80 billion.
Early in the year, 16 listed firms' presales were estimated to total Bt 350 billion this year, flat from 2018. But their first-half performance was not as good as expected. It is expected that 2019 presales for listed firms will decline for the first time in three years to Bt 310 billion as developers cut project launches from 290 worth a combined Bt 440 billion to 238 worth Bt 370 billion. The slowdown in new supply should continue into 2020 as economic and market sentiment are unlikely to be favourable as the markets will remain sluggish with consumer confidence down.
As of the first half, the 12 listed developers who reported had a combined housing stock of Bt 570 billion. If this amount is combined with the new supply launch, the cumulative total will be Bt 900 billion which will take almost three years to absorb. A healthy absorption rate is no longer than two years. Developers should continue slowing new supply to balance shrinking demand. This demand is only domestic, not including Chinese buyers and other foreigners, who have also slowed purchases.The Thailand Condo market is extremely affected at the moment as they as a huge oversupply and coupled with the fact that many units that were initially booked cannot be transferred due to a high bank loan rejection rate. The problem is further being excaberated with foreign expats and retirees leaving the country in droves due to immigration policies and are selling their properties cheaply, creating an oversupply of condo in Thailand second-hand property markets.
Despite an upward trend in residential stock, listed developers' financial status and liquidity were not a worry as their net gearing was only one time. About 60% of their debt was long term or from debentures and bills of exchange.
Banking analysts are saying that the world's economy will be gloomy until 2021,as the US and China Trade war will still continue and also the global economy is heading into a recession cycle which no one can prevent. Property developers need to rethink their strategies and also adapt to the market cycles.