Property Boom Could Be Past Its Peak
Thailand's property market is set to underperform the broader economy in H213 and potentially into 2014, in our view. We believe that the property market's stellar performance in recent years has been driven by a combination of speculation on the part of domestic investors, an influx of foreign capital, and loose fiscal and monetary policy. Since 2009, prices of property-related stocks that are listed on the local stock exchange (Stock Exchange of Thailand Property Development Index) had risen by more than seven times by the end of April 2013.
|Investors Are Giving A Second Thought|
|Thailand - Stock Exchange of Thailand Property Development Index|
Although the recent sell-off in the equity market has brought valuations on property-related stocks back to more realistic levels, data on property transactions published by local real estate agencies suggest that we have yet to see this translate into a decline in property prices. This is not surprising given that the property market is much less liquid compared to stocks and investors generally take a longer term view on property valuations while ignoring short term volatility in economic data. However, we believe that Thailand's property boom may be already past its peak.
|Growing Supply Of New Units Spells Trouble|
|Thailand - Supply Of New Residential Housing, Units|
Risk Of Oversupply
We note that there is a growing risk of an oversupply of new housing units that could place significant downward pressure on prices over the coming quarters. According to figures published by the Bank of Thailand (BoT), the total supply of new residential units in Bangkok and surrounding provinces rose for the fourth consecutive month from just 3,704 units in January to 11,213 units in April. This trend is also reflected in the apartments and condominiums segment of the property market, which gives a better reflection of foreign investor demand.
|Debt-Hungry Developers Signalling Property Market Peak|
|Thailand - Real Estate Credit Outstanding, % chg y-o-y|
Real Estate Developers Are Leveraging Into The Boom
Real estate developers are also becoming increasingly optimistic towards the residential property market, and we believe that sentiment is reaching a bullish extreme. As the accompanying chart shows, growth in outstanding credit to real estate developers has outpaced that of personal housing loans since late-2012. This trend reflects a mismatch in expectations between buyers and suppliers of new residential property in our view. Given that there is a significant lag between the financing stage of an investment project and the launch of the new units into the market, we caution that the property market could be heading for a harsh cyclical downturn.