Thai property:Take-up rate remains slow;market speculating on tax measures but impact could be limited
Our property site visits indicate take-up rates remain slow. Developers have yet to cut prices. Property buyers and stockinvestors hope for property tax measures. Positive share price reactions have been seen lately. However, this could proveto have limited impact as household debt, income pressure, and tight credit conditions remain key constraints.
Our site visits show slow take-up rates. SPALI launched a new condo project worth Bt2.0 billion located onRatchada-Narathiwas road. This project targets the middle income class with price per sqm. around Bt80-80k and has566 units (unit price of Bt2.5-11.8 million). SPALI requires approximately 15% down payment to be paid by buyersover a 2.5-3 year construction period. After almost a week since launch, take-up rate is c.50%, below management’sexpectation of 70-80%.
Demand conditions weak due to slow economy, high household debt, income pressure, and tight bank creditconditions. Lately there have been reports (Khao Hoon) that the government is looking to stimulate property demand byproviding some tax measures. This has led to some optimism especially for stock investors leading to a strong reversalin share price performance as highlighted in Figure 1 (YTD property stocks underperformed the market but these stockshave performed really well during the past one month – especially LPN, PS, and SPALI which target low-incomebuyers). We remain cautious and see the possibility of this being another disappointment. Unlike in the past,currently demand pressure is driven by debt issue, income pressure, as well as tight credit conditions. This cannot befixed with a property transaction tax cut.
o Extract from our email on 7 Sep15 (Thailand equity strategy update: NRC rejects the draft charter - Juntagovernment to stay at least until 2017) According to local press Khao Hoon, the Minister of Finance is considering taxmeasures to boost the property market. In the past, we have seen governments try to revive the property market bycutting property transaction taxes. This, in the past, has always been a very effective measure since it basically cutsproperty transaction taxes from 6% to less than 1% (cutting mortgage fee from 1% to 0.01%, transfer fee from 2% to0.01%, special business tax from 3% to 0.01%). While the rising inventory of residential units, especially condos,creates need for this measure, household debt situation, income conditions, and banking credit conditions may belimitations to this measure. While we doubt if this will really happen, if it does happen property developers’ stockswould benefit, in our view – particularly LPN, PS, and SPALI.