Thailand’s residential market has faced challenges due to external and domestic factors, including a downturn in global construction demand and the country’s high household debt.
Key takeaways
- Thailand’s residential market faces pressures from both the slowdown in China’s real estate sector and domestic economic strains, leading to reduced consumer spending and high mortgage rejection rates.
- Nationwide land permits fell 14.7% YoY in H1 2024, with severe drops in construction approvals, especially in Bangkok and the Northeast region, reflecting the broader industry slowdown.
- Developers are focusing on luxury properties as lower-income buyers struggle to qualify for mortgages, signaling a potential K-shaped recovery.
The slowdown in China’s real estate sector led to a drop in global construction demand, flooding markets in Southeast Asia with surplus materials like steel.
This influx intensified price competition, forcing some Thai businesses to close. Domestically, Thailand’s household debt reached 89.6% of GDP in Q2 2024, straining consumer spending.
Mortgage rejections for loans below 3 million baht surged to 70%, further stifling demand. Additionally, the country’s aging population—20% of citizens are now over 60—hints at slower future population growth.
Land allocation permits nationwide dropped 14.7% YoY in H1 2024, with the Northeast region seeing the steepest decline at 67.1%. Similarly, construction areas approved nationwide fell 14.9% YoY, with Bangkok and its vicinity experiencing a 24.8% decline.
While 32% of potential buyers cited homeownership as a primary goal in Q2 2024, many face financial challenges.
Those aged 25-34 made up the largest group of buyers, with 35% earning monthly incomes between 15,001-and 30,000 baht.
The government has responded by taking measures to stimulate the sector. In April 2024, the Government Housing Bank introduced a fee reduction of 0.01% for ownership transfers and mortgages for homes under 7 million baht.
The Bank also launched the “Happy Home” project, offering low-interest loans for properties under 3 million baht.
Additionally, the Bank of Thailand implemented debt consolidation programs, easing loan-to-value ratios for housing and personal debt.
Foreign ownership of condominiums has also seen a decline, with a focus on the high-end market and an increase in units priced at 10 million baht and above.
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.
Deloitte Thailand audit note
Foreign investment in condominiums saw a 6.2% decline in Q2 2024, with 3,342 units transferred, valued at 14.87 billion baht—a 17.7% drop.
Chonburi led in foreign ownership, followed by Bangkok. Properties under 3 million baht remained the most popular, though high-end units (10+ million baht) saw increasing demand, growing 12% annually since 2019.
Developers are shifting their focus to luxury markets. Land allocation permits in Bangkok fell 27.3% year over year but saw a 43.8% surge in value.
The residential sector is adapting, but challenges persist for lower-income buyers, potentially leading to a K-shaped recovery. The middle-income trap and limited purchasing power remain critical obstacles to sustained growth.
Developers may need to rely more on higher-income buyers, while those with lower purchasing power may continue to face challenges. The future trend of the real estate sector in Thailand remains uncertain and dependent on factors like purchasing power improvement.
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