Rate hike may harm condos

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A possible hike in interest rates may weaken demand for investment purchases of condominiums, causing some buyers to baulk at having their purchase units transferred, warn a property analyst and developer.

Therdsak Thaveeteeratham, executive vice-president at securities firm Asset Plus Securities Plc, said condo demand is partly driven by investment buyers and the investment generally generates a higher return than bank deposit rates.

"When the economy is in a good condition, we should watch interest rates, which usually rise in line with economic growth," he said. "Many asset prices have already risen ahead of the anticipated interest rate rise."

Mr Therdsak said investment buyers in the condo sector are sensitive to a rise in interest rates, as yields or returns might become less attractive and appreciations in prices may slow down.

He said developers should also be more cautious of the situation, given that the disappearance of investment buyers will influence the sales rate of their new condo projects.

"We see many condominium projects where many units have never turned on a light," Mr Therdsak said. "These units might be either unsold or vacant."

As the rise in condo prices outpaces average salary increases (8% versus 4.5%, respectively), developers can either offer an affordable package price or shift to upper-end markets, he suggested.

According to Asset Plus research, the sales backlog of 16 SET-listed developers totalled about 294 billion baht at the end of 2017. Of this amount, 263 billion baht was from condo units and the rest from single houses and townhouses.

At the same time, housing inventory exceeded 800 billion baht by market price. That amount is considered relatively high and in need of disposal by developers.

Prasert Taedullayasatit, a former president of the Thai Condominium Association, said the negative impact of higher interest rates on the condo market may last at least two years and the government is unlikely to raise interest rates rapidly.

Nathapol Luepromchai, Krungsri Bank's executive vice-president for the mortgage loan division, said the bank's view on the condo sector includes both positive and negative aspects.

In the bank's view, condos have high liquidity and their prices never fall, Mr Nathapol said.

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