Not only a halt to all work on sites in the capital for 30 days but a credit squeeze by the banks on mid-market borrowers and a jump in material costs have left the property development industry facing a serious problem in 2021. Key industry leader says that the sector is going backwards even from last year’s disastrous performance following the severe lockdown of the country.
The Thai property industry and real estate sector in Bangkok is facing an even greater crisis after the closure of the capital’s building and construction sites last weekend for at least 30 days by order of the government. It comes amid rising unemployment, tightening credit lines and a jump in the price of materials which has put many operators in a difficult position.
The President of the Thai Real Estate Association and Managing Director of Ban Pornpailin Group, Pornnarit Chuanchaisit, has warned that his industry is facing a triple whammy with a fall-off in sales, a jump in the cost of raw materials and now a suspension of construction work in the capital because of up to 38 virus clusters found at building campsites in the metropolis amounting to up to 35% of the capital’s clusters driving the current rise in infections which many observers suspect amounts to a 4th wave of the Covid-19 virus.
The Thai real estate industry has been left reeling from last weekend’s closure of 575 construction work sites in and around Bangkok.
Leaders within the industry are warning that many firms are facing a perfect storm with reduced demand, rising material costs and now a costly hiatus in carefully planned building programmes which will result in increased bank interest costs and losses relating to failure to deliver finished units on time.
Workforce which drives the industry includes 1.1 million legal migrant workers says property boss
On Monday, Mr Pornnarit admitted that the construction workforce, which forms a significant part of 1.1 million legal migrant workers within the Thai economy, as well as an unknown known number of illegal labourers, is the driving force behind the industry.
He told the press that the fact that the government was forced to close down the worksites is bad news for his industry sector and for good employers who understood that taking care of their workers and helping to prevent such an outcome was the better business approach.
Government must control this latest virus outbreak quickly or complications may mount in the sector
He expressed fears that even the current closure and sealing off of sites may still see some workers managing to move about causing infection levels to spread.
The 59-year-old businessman called on the government to bring this latest virus wave under control as quickly as possible.
Mr Pornnarist explained that many property purchasers will lose confidence and faith because of the disruption which could lead to contract cancellations and even legal disputes between property developers and end purchasers as a result of last weekend’s development if not managed carefully.
All building work ordered to stop on sites
Under the measures announced from Friday and over the weekend, which were published in the Royal Gazette, are orders closing and giving the government powers to seal off and control building sites while also suspending construction work on them for at least 30 days.
In the meantime, the real estate chief points out that construction and real estate firms must still pay overheads including sales staff and office costs while the interest charges continue to accrue on developments that are stalled.
Mr Pornnarit explained that even if the construction worksites reopen and building work proceeds, real estate firms will still need to pay again for the sales and marketing effort which is currently left idle.
Real estate sector is still going backwards in 2021 despite last year’s severe shutdown of the economy
He revealed that even after last year’s severe and unprecedented lockdown of Bangkok at the outset of the pandemic, the sale of real estate in 2021 has failed to move forward at all.
In fact, in the first half of the year, he suggests that only 188,716 units were sold which was a fall of 4% compared to the previous year while the value generated by sold properties was ฿604,800 million a reduction of 1.4% on last year’s tally considered by many as a once-off disaster.
Purchasing power and borrowing ability of the local Thai population has been dented by this crisis
The real estate executive said not only have companies been stymied by the suspension of ongoing construction work but that the purchasing power of the population has deteriorated rapidly.
Last year, many real estate industry representatives lamented the absence of foreign buyers who are allowed to purchase up to 49% of condominium property developments.
The year ended with a reported ฿1 trillion in unsold property units on the market.
Mr Pornnarsi, on Monday, said he was less concerned about these buyers as they would materialise eventually but was more concerned about the lack of availability of loans in the middle property sector for local buyers where prices range from ฿5 million to ฿10 million.
Median property prices in Bangkok fell by 5.9% in the last 12 months as the pandemic’s impact is felt
The market for property in the provinces and Bangkok had been resilient up until last year but the average price from median level property in Bangkok priced at ฿6.075 million, has fallen by 5.9% in the last year.
The property boss laments that banks even though many are reported to be flush with money, have tightened up lending policies because of a drop in earnings and incomes within the general population.
‘The main problem is that banks are finding it difficult to approve loans. And for the most part, at the moment, many occupations are deemed at risk. Banks rarely give a positive decision. Even if the bank has a lot of money. But considering the strict lending, it’s difficult to find financial solutions for prospective customers.’
Severe layoffs are probably in the pipeline
He predicted that even within his own industry sector, there will be severe layoffs as a result of the ongoing disruption since the third wave began in April and particularly because of the latest developments.
He pointed out that up to the end of March, unemployment rates were already rising by 1.96% and felt that the second quarter will be very severe.
He predicted, based on the current outlook, that this negative situation will continue well into the third quarter.
Jump in the price of key raw materials such as aluminium and copper hurting building contractors
The property boss also explained that the industry is being challenged with a rise in the costs of raw materials which is particularly devastating for contractors involved in development projects within the industry, many who bid on projects at auctions and now find themselves in ruinous positions because of increases in steel, aluminium and copper prices.
‘The contractor when he bids, assuming the price is ฿12,000 per square metre, but when the price of steel increases, the cost will increase to ฿13,000 like this. ‘It’s ruined,’ and the increase in aluminium prices means that the door-window frame also rises in price. For example, the price of copper has risen to the same level, although in the past the price was ฿130 per kilogram, now the price has risen to ฿300.’
Government supports and concessions have expired
Mr Pornnarit also pointed out that last year’s government support and concessions to assist the sector had now run out.
He said his industry was facing severe challenges on several fronts all of which will require the government’s help to address.
The first step of course will have to be containing the latest virus outbreak and reopening the construction sites so that work can recommence and developers can ascertain just how much damage has been done and the scale of the challenge ahead.