Published on July 25, 2006 - Stock analysts anticipate the property market will grow 5 to 7 per cent this year with developers of single houses and condominiums in the middle and lower price range seeing the largest gains.

Siam City Securities Co Ltd stated in a recent report that rising interest rates since the fourth quarter of last year as well as high oil prices had affected consumer spending power and reduced demand in the property market, particularly when it comes to speculative property. Last year the market grew about 10-12 per cent from 2004.

The securities brokerage has reduced its 2006 GDP growth forecast from 5.5 per cent to 4.5 per cent.

Last year, 72,072 units - or 6,006 units per month - sold in 2005. In the first quarter of this year, buyers registered 20,394 new homes, or 6,798 units per month. Of that amount 73 per cent were single houses and town houses and condominiums accounted for the rest.

Newly registered residential units grew 10 per cent quarter on quarter. Sales of mid- and lower-priced homes will continue to grow as will the condo market, according to Siam City Securities.

The brokerage predicted that 7,000 new condominium units would be completed and sold in the second and third quarters of 2006 combined. Last year, however, few new condominiums hit the market.

However, there will be no rapid growth in the town house market.

Competition in the middle and lower market where demand is still high will intensify this year.

KGI Securities (Thailand) Plc said in a report that the earlier rapidly rising interest rates had brought about the expectation that rates would climb at a slower pace in the future and were likely to peak in the second half of this year.

This should boost investor confidence as well as help consumers adjust their spending to the new rate levels. For now though, homebuyers will settle for smaller and cheaper homes to fit their debt-servicing ability, it predicted.

The securities firm also indicated that the minimum lending rate and banks' prime reference rates would peak at 8 to 8.5 per cent this year. Consumer confidence as well as spending power will recover when the interest and inflation rates peak in the second half this year.

The firm predicted that competition in the property market would remain high. The future growth of the property market will depend more on sales volume than value and profit margins of 35 per cent will not be seen anymore as they were in recent years, KGI Securities said.

The company said the average profit margin over the next two years would be 30 to 35 per cent. Earnings in the property sector during the second quarter likely declined from the first quarter due to the aftershocks from the current political tension, oil prices and rising interest rates.

Property stocks have declined 20 per cent over the past two to three months. Taking into account current prices, property stocks are attractive a price-to-book value of only 1.2-to-1 and prices-to-earnings ratio of about 7-to-1 or 8-to-1, KGI said.

Siriporn Chanjindamanee
The Nation