Analysis – Property sector likely to see uptick in Q2 or Q3 as govt. measures kicks in and economy picks up

Thailand’s real-estate sector continued to languish during the 1st quarter of this year and expectations are that the 2nd quarter is unlikely to see any major improvements amid continued tightening of the loan-to-value ratio by the Bank of Thailand and the more than 50% rejection rate of mortgage loans by the commercial banks in the country.

Property sector, which Patchara Klinchuanchun sector analyst at Krungsri Research, estimates accounts for about 10% of Thailand’s gross domestic product (GDP) in 2022, is a major driver for economic growth of the country but subdued sentiments on the state of the economy going forward coupled with over cautious banks, has all led to a slowdown in the economic activities in the sector.

Patchara says that the real estate sector has a big role in driving the Thai economy. When combined with other related sectors and industries in its value chain, the extended real estate sector contributed around 10% of Thailand’s GDP in 2022, which is significant to the national economy.

She says that a large amount of capital circulates within the economy and supports employment and income. The sector also has a large influence on the direction of related businesses such as construction, construction materials, electrical appliances, furniture and home decorations, and finance.

Dip in Q1 Earnings

The top 10 listed property developers saw their earnings during the 1st quarter of this year decline amid slowdown in the demand.

Narumon Ekasamut, property analyst at Phatra Securities, said in a note that during the 1st quarter of 2024, the aggregate core earnings dropped 32% year-on-year (YoY) and 34% quarter-on-quarter (QoQ) to 5.1 billion Baht, dampened by lower residential revenue recognition and margin squeeze (gross profit margin pressure for residential for sales).

Narumon says that 1st quarter’s weak demand can be attributed to the slow Thai economic recovery, tightening bank mortgage policy, and intense competition. Hence, Q1 2024 aggregate presales were 60 billion Baht (57% landed property, 43% condos), down 10% YoY and 19% QoQ. Weak presales for 1Q24 were dragged by both landed property (down 7% YoY) and condos (down 14% YoY).

Addin that the top 10 listed developers’ Q1 aggregate launch value was 50 billion Baht (92% landed property/8% condos), a jump of 55% YoY (32 billion Baht Q1 2023 low base) led by SPALI, LH, and SIRI but plunging 64% QoQ (on seasonality).

The Agency for Real Estate Affairs (AREA) earlier this month also reported that there was a substantial 58% decrease in the number of newly launched real estate projects in April 2024 compared to March 2024. Only 16 projects were launched, totaling 3,750 residential units. According to AREA, this slowdown may be attributed to the prevailing economic conditions.

Nathavut Shivaruchiwong, property analyst at TISCO Securities noted that factors such as economic conditions, property stimulus, and market demand will influence developers’ decisions in the coming months.

Q2 Outlook

Narumon of Phatra says that during Q2 2024 the aggregate launches should almost double QoQ and be up about 15-20% YoY, led by Asian Property Plc (AP), Supalai Plc (SPALI), and SC Asset Plc (SC), with active condo launches for AP and Sansiri Plc (SIRI).

She adds that during Q2 2024 the aggregate presales should recover QoQ, but it will be challenging to beat Q2 2023’s 68 billion Baht.

“We expect YoY presales to be flat for AP (12.6 billion Baht Q2 2023 high base), single-digit growth for SPALI (8.3 billion Baht in Q2 2023), and double-digit growth for LH and QH (deep low base of 4 billion Baht/1.9 billion Baht),” she said.

Sector earnings normally see a bottoming-out in Q1 and then a QoQ recovery in Q2. In Q2 2024, she anticipates QoQ core profit recovery for all developers, but YoY growth is preliminarily expected to be flat. Property stimulus measures will help SPALI and AP the most on their high exposure to the mid-end segment.

The government’s stimulus issued in early April should also help to kick in some stimulus to the economy with the government itself saying that it expects a boost in the GDP from the various stimulus it approved in the 1st week of April this year.

The measures are expected to lead to about 800 billion Baht ht in property transactions, more than 400 billion Baht in investment and 120 billion Baht in consumption, said Pornchai Thiraveja, head of the ministry’s Fiscal Policy Office. The expectation is that with these measures, the economy this year will grow a little over 4%. The stimulus would lift growth by 1.7 to 1.8% points.

The government in early April passed measures to spur the property sector and the measures approved included reduction of transaction fees for houses worth up to 7 million Baht, with ownership transfer fees and mortgage registration fees cut to 0.01%, from 2% and 1%, respectively. Currently, only residential properties valued at a maximum of 3 million Baht are eligible for the fee cuts. The government will also offer home loans worth 30 billion Baht from state banks, tax breaks for some property developers as well as tax deductions of up to 100,000 Baht for people who want to build their houses.

The cabinet also raised the threshold of value of properties developed by companies that are eligible for Board of Investment tax incentives to 1.5 million Baht from 1 million Baht. The measures will help lift industry sentiment and speed up the transfers of houses in the 3 million to 7 million Baht price range.

Analysts say that all these measures coupled with the economic picking up could possibly push the sector to witness a better prospect during the end of Q2 and into Q3 2024.

Stock Price Info

Stock Fundamental

Peer Comparison

Stock Price Chart

The post Analysis – Property sector likely to see uptick in Q2 or Q3 as govt. measures kicks in and economy picks up appeared first on Thai Enquirer.

Go to Source
Author: Enquistock