Housing Starts Contract Ahead of Expected Rebound
According to data released by the Bank of Thailand and reported on the Trading Economics website, housing starts across Thailand decreased to 6,227 units in February this year, down from the 7,211 units which commenced in January. That equates to a drop of almost 14 percent from the previous month and is the lowest figure registered in Thailand since the beginning of 2013.
Even so, these numbers are a long way from the record low of just 1,267 units started in December 1999. Equally, they are also quite far away from the record high of 24,699 units, reached in June 1997.
Of course, that record high figure was achieved just one month before the infamous start of the Asian Financial Crisis. That economic implosion began in July 1997 and became known as the Tom Yum Goong Crisis.
At the time, the Thai baht was pegged to the US dollar, but external pressures on the currency had led the Bank of Thailand to begin spending billions of dollars of its foreign reserves in May 1997 to defend the baht against speculative attacks.
In July, the government took the decision to float the baht, but this simply saw the currency go into freefall, reaching levels that have never been seen since. That triggered a wave of currency devaluations across the Southeast Asian region as the Malaysian ringgit, Philippine peso and Indonesian rupiah all suffered heavily.
The crisis widened over succeeding months, dragging down the Hong Kong stock exchange and weakening the South Korean won. The Russian economy was also affected, as was Japan, which went into a deep recession, and there were fears a worldwide economic slump would be the end result.
Intervention by the International Monetary Fund (IMF) and the World Bank eventually helped to avert a complete meltdown.
For Thailand, the economic landscape effectively changed post-1997. Any economic data records registered prior to July 1997 should arguably now be looked at with a more historical perspective.
The question is, how have housing start numbers recovered in the post-Asian Financial Crisis period? The answer, according to the long-term data appears to be ‘quite well’.
Looking at the past 12 months, housing starts peaked at the start of October 2014 at a very healthy 20,127 units. That was the highest monthly start level this decade.
Among the factors impacting the demand for housing is the level of benchmark interest rates. The cost of loans to customers obviously has an impact on the amount they can borrow and the level of the debt they are able to service.
Between 2000 and this year, the benchmark interest rate has averaged 2.43 percent. It reached a high of five percent in June 2006, which was up from a record low of 1.25 percent exactly three years earlier.
Once again it is starting to drift lower, although this is in line with most other major nations around the world. The benchmark interest rate was at two percent in January 2015. Since then the Bank of Thailand has lowered this progressively and at the start of May it is now at just 1.5 percent.
As the Bank of Thailand noted in its statement reducing the interest rate, ‘The Thai economy is projected to recover at a slower pace than [previously] assessed.’
According to Chatchai Payahanaveechai, an executive vice-president of Kasikornbank, low interest rates can help residential demand. There is a belief that a one percentage point drop in interest rates increases purchasing power by six to seven percent and helps to lift the housing market by around 1.5 percent.
Total launches within the popular condominium marketplace hit a peak back in 1994 as the Southeast Asian market hit its high as the so-called Tiger economies attracted enormous external investor interest.
Yet within three years the entire marketplace had collapsed, with the impact on condo development being particularly acute. As the figures show, the condo market didn’t really begin a proper recovery until as late as 2002. The figures remained fairly stable and steady from 2004 until 2010 when, despite ongoing political tensions, the market saw a resurgence.
There was a belief that once a stable government was once again in place in Bangkok, the market would see further recovery. Yet housing starts have not been as robust as might have been predicted a year or so ago. Of course, Thailand is also suffering a fairly marked labour shortage, and skilled tradespeople are in heavy demand. So, while many developers may be keen to expand and add to their projects, they are hampered by being unable to recruit sufficient numbers of skilled workers such as carpenters, plumbers and electricians as well as unskilled labourers.
The question now for potential investors in the Thai housing market is what does the future hold? While events outside Thailand’s national borders can and do impact on what takes place within, the Trading Economics website forecast is suggesting housing starts will see an increase in 2016 to an average of almost 9,000 units per month. This may well be based on a belief there will be a surge on the back of the planned start of the Asean Economic Community (AEC) at the end of this year.
Over the far longer term, Trading Economics says housing starts in Thailand are projected to trend around 7,839, 7,483 and 7,464 units in the years 2020, 2030 and 2050 respectively.
Naturally, most people are not looking much beyond the next four to five years, as anything beyond that could be seriously compromised by events unfolding across the globe which no one can predict with any certainty.
The point is, Thailand’s housing starts numbers are predicted to be in a stable if no longer spectacular range into the future and it does appear as though the historical lessons of the 1990s have been learnt, at least into the foreseeable future.
 http://www.tradingeconomics.com/thailand/housing-starts, accessed 12/5/15
 http://www.pbs.org/wgbh/pages/frontline/shows/crash/etc/cron.html, accessed 12/5/15
 http://www.tradingeconomics.com/thailand/housing-starts/forecast, accessed 12/5/15