Sector in survival mode this quarter amid political woes, economic slowdown
March 14, 2014 00:00
By Supitcha Chaipipat
The business gloom triggered by negative political factors that have clouded the country since late last year has resulted in home-builders holding back their investment in marketing and advertising.
The decreasing demand in home-building business has shrunk sales volume by up to 30-40 per cent – a painful figure for the sector.
The modest forecast is that the closing figure for home sales in the first quarter will decrease by between 20 and 30 per cent compared with the same period last year.
This is despite positive signs and hope following the anti-government People’s Democratic Reform Committee’s decision to merge its rally sites into one place and return the traffic lanes in the city centres.
Home-builders and developers have seized this opportunity to make a big market push by jointly organising the “Home Builders Focus 2014” and the “30th Condo Expo” at Queen Sirikit National Convention Centre from yesterday to Sunday.
The hope is that the dual events will at least help stimulate demand for home-building in Bangkok and surrounding provinces.
In the remaining three quarters of the year, business operators will have to focus on customers with stable purchasing power, in order to offset the losses incurred from shrinking demand in the customer segment for homes priced from Bt2 million to Bt5 million.
This group includes those who are not seriously affected by the political turmoil, such as the segment buying houses priced between Bt5 million and Bt10 million, and even higher, as well as customers in the provinces.
As I have mentioned a few times in previous articles, the economic slowdown that started off in mid-2013 has negatively affected demand from customers in the Bt2-million-to-Bt5-million segment, who account for 44 per cent of the market.
They are the most sensitive to economic conditions and are generally first-home customers such as government officials or company staff – or what we term “salarymen”. Demand from this group, which relies on credit, has dropped by 40-50 per cent because of a lack of confidence in the economy and their insecure earnings.
The overriding factor is that most of their mortgage applications have been rejected by the banks, partly because their first loan was spent under the government’s first-car project, or on other costly purchases.
Therefore, the focus should be on those who want a home priced between Bt5 million and Bt10 million, as people in this group generally neither need a loan nor are affected by the economy. They continue to have purchasing power and want to purchase a house. This is also a good time for them to buy. They have more time to do so as a result of the economic slowdown, on top of which construction costs have not yet been adjusted upwards. Growth in this segment can obviously continue uninterrupted.
As for customers in the provinces, those living in major cities close to Bangkok and in major towns in the Northeast, demand for house-building continues to grow.
This group has high purchasing power and, therefore, their houses are priced accordingly.
Also, in the past few years, quality home-building businesses have been expanding more into the provinces. This is quite a contrast with the past, when provincial markets were dominated by small subcontractors and could only accommodate homes priced below Bt1 million.
The more recent entry of home-building companies into the provincial market has, therefore, made the business more known among the public, which has resulted in its growth.
Another segment that has increased is that for second- and third-home customers in Bangkok and accessible towns and provinces such as Pak Chong, Nakhon Nayok, Chachoengsao, Hua Hin and Pattaya.
I strongly recommend that home-builders with capacity and experience reach out to this customer segment, since it comprises well-to-do people who need a customised home with an identity. Moreover, each home will be valued at least at Bt10 million.
In conclusion, the current crisis should be presented as an opportunity for business operators to adjust themselves in accordance with a fast-changing environment. If they can do this, then everyone will survive.
Home-building community and friends, you have my moral support and I wish you good luck.