Bank of Thailand Points to Two Major Headwinds Facing Thai Real Estate: Rising Costs and Declining Purchasing Power; LTV Policy Adjustments Under Review
Thailand's real estate sector faces dual pressures from rising energy-driven construction costs and weakening consumer purchasing power, with the central bank reviewing lending policies as affordability gaps widen and second-hand home deman
Deputy Governor Don Nakornthap of the Bank of Thailand's Financial Policy Division explained that the Thai real estate sector is currently facing "two major shocks" from the energy crisis—both on the supply side through increased construction and material costs tied to energy prices, and on the demand side through higher living costs reducing consumer purchasing power.
Residential property transfer data shows a continuous downward trend over the past three years, though recent slight improvements have emerged. While foreign demand has increased in unit numbers, total transaction value has not grown proportionally due to a shift in buyer demographics from high-income groups to lower-priced market segments.
Credit conditions remain sluggish, with retail and real estate lending still negative and non-performing loans (NPL) remaining high compared to international standards. Borrower behavior of not abandoning properties keeps debts lingering in the system.
On the supply side, residential projects remain abundant despite fewer new launches last year, requiring continued time to clear inventory. Smaller developers face greater pressure than larger ones due to capital constraints and credit access difficulties.
A critical market shift is the growing second-hand home market, which has increased from approximately 31% to 41% market share. Across nearly all income groups, consumers increasingly prefer second-hand properties due to better affordability as new home prices remain elevated.
Affordability remains a significant pressure point, with residential prices trending upward long-term while incomes have not kept pace, making credit access increasingly difficult for lower-income earners. New lending data shows the proportion of borrowers earning below 30,000 baht monthly dropped from about 10% to 7%, while higher-priced real estate gained share, reflecting greater market dependence on high-income buyers.
While financial institutions have not tightened credit standards, declining borrower quality has automatically reduced loan approvals.
