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NPLs, lower spending hit realty business

Developers need to stimulate market, restore consumer confidence: seminar hears

High household debt, increased risk of non-performing loans (NPLs), and lower domestic consumption due to the prolonged political dispute are hurting the real-estate business, a seminar heard yesterday.

Sluggish economic growth has led Phatra Securities to believe that the property industry will see lower growth than in previous years.

Speaking at a Kiatnakin Bank annual seminar, Supavud Saicheua, emerging Asia economist at Phatra Securities, said he expected gross domestic product to grow by just 2.8 per cent this year if a new government is put in place by midyear. He said domestic demand was not in good shape and expected private consumption to grow by 1 per cent this year.

Jiraporn Linmaneechote, research analyst at Phatra Securities, said home-sales growth was determined by GDP growth, and 2014 was a "year of uncertainty for real-estate business".

In 2012, when GDP was able to grow by 6 per cent, presales for low-rise homes and condominiums combined jumped by 31 per cent. Last year, the economy grew by only 2.9 per cent, and presales growth was 8 per cent. Taking the GDP growth prediction of 2.8 per cent for 2014, Jiraporn expects presales growth to be lower than last year as well.

Apart from the political uncertainty that has hampered consumer confidence, another factor that pulled down sales was stabilisation of the condo market after two or three years of high growth.

"Since the fourth quarter of 2013, the cancellation rate for condominium purchases has increased considerably, and this trend will continue until the end of 2014," she said.

Another factor is high household debt, with commercial banks being more careful on approving mortgages.

Sarawut Charuchinda, managing director of corporate lending at Kiatnakin Bank, said it had lowered its loan-growth target from 20 per cent to 10 per cent because of the prolonged political situation. He added that Kiatnakin would concentrate on existing customers. New loans will be concentrated on mechanical businesses and construction because they can see long-term potential.

Banks wary of bad debts

Kiatnakin has outstanding major loans of Bt49 billion, 26 per cent of its loan portfolio. Total NPLs are 3.8 per cent, while the bad-loan rate for major deals is 5-6 per cent, he said.

Jiraporn said that since banks are more wary of NPLs, real-estate operators should also beware of their customers' purchasing power and increase down payments to counter the problem.

She said high household debt had changed the behaviour of buyers as evidenced by the increase of sales of smaller houses. Meanwhile the shortage of unskilled labour had changed the way operators built their products, as shown by the increased usage of prefabricated materials.

Prasert Taedullayasatit, director of Pruksa Real Estate, said real-estate operators could no longer wait and see if the political situation would get better.

"It is time for real-estate dealers, especially large operators, to stimulate the business and bring back the consumers' confidence," he said.

Prasert said he would be happy if total real-estate sales in metropolitan Bangkok reached Bt300 billion this year even though that would mean a 10-per-cent decrease from last year's Bt348 billion, since 2013 was a golden year for the property business.

Faced with lower demand, real-estate dealers, large and small, should try to stimulate the business through new projects and promotions, he said. They should also consider downsizing the size of their projects and be careful with liquidity management in order to carry themselves out of this tough time.

Prasert said it was also important during this time of high household debt and economic uncertainty to conduct background checks and supervision to make sure potential customers can really manage to buy a home.

He warned that although raising down payments might prevent NPLs, this could also deter buyers, so the margin should be within the regulation policy of 10-12 per cent.

He added that the Bank of Thailand's decision to lower the policy interest rate from 2.25 to 2 per cent had increased people's purchasing power, but its impact on buyer behaviour was still marginal, since the problem is more associated to the lack of confidence than to finance.


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