As numerous observers and analysts continue to trim their expectations for Thailand’s macro-economic outlook over the next 12-18 months, the national government is presently considering a broad menu of financial stimuli to combat slowing growth. One curious measure under consideration is purportedly being designed to buoy Bangkok’s (and by extension the country’s) residential real estate market.

This measure seeks to reduce the ownership transfer fee of freehold real estate from 2.00% to 0.01% of a property’s assessed value and to reduce the mortgage registration fee from 1.00% to 0.01% of the value of the loan. Collectively these fees account for about 40% of the typical transaction costs for residential real estate in Thailand.

Champions of the measure suggest that if successfully implemented, housing will become more affordable, encouraging new transaction activity and thereby providing a boost to the economy. Yet limited precedence for such intervention and a relatively healthy real estate market despite bleak macro economic conditions beg the question – Does the market really need external stimulation?

Consider the following:

1. The proposed stimulus implicitly targets the condominium market, which has a diverse mix of end-users, investors, and speculators, and as a result has a much larger supply pipeline than either the detached house or townhome segments, which almost exclusively cater to end-user demand.
2. As of 3Q15, 97.5% of condo units in completed projects have been sold and 74.8% of off-plan units in the supply pipeline have been pre-sold, leaving more than 48,000 units available for sale in the market. Relative to average sales / take-up recorded between 2009 and 2014, there exists 18 months of supply in the pipeline, a remarkably large number.
3. Despite a dramatic increase in Bangkok’s condo supply, which has increased tenfold since the last government intervention in 2001 and has nearly doubled since the end of 2011, off-plan sale prices continue to rise, increasing market-wide by an average of 3.5% y-o-y in 3Q15, with increases witnessed in all of the city’s twelve submarkets.
4. Thailand’s private sector has essentially learned to self-regulate in the absence of government intervention. Mortgage rejection rates at major commercial banks, which typically hover between 10-20% are now reportedly as high as 50-60% at some banks. At the same time, developers are becoming more selective, increasing required down payments from as little as 0-10% as recently as three years ago to as high as 40% in some cases today and instituting their own policies regarding would-be buyers with limited purchasing power.

With such a large supply pipeline and a less stable demand base than other market segments, new policies to strengthen demand for condominiums could yield a range of benefits. Private consumption could increase as buyers take advantage of reduced transfer fees, clearing developer backlogs more quickly and potentially facilitating new private investment, another key component to macroeconomic growth. While it is not immediately clear whether the market truly needs external stimuli, the policies as proposed represent a safe step towards shoring up demand.

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