Bangkok--8 Apr--TRIS Rating
Summary
In 2015, TRIS Rating expects the residential property market to remain flat or improve slightly compared with last year. Declining interest rates, stable costs for labor and construction materials, and an improving political situation are positive credit factors. However, the major concerns for the year are the slower-than-expected growth in the domestic economy, high levels of household debt, and increasing inventories of housing units.
On 23 March 2015, the Bank of Thailand (BOT) lowered its 2015 Gross Domestic Product (GDP) growth rate forecast from 4% to 3.8%. The drop reflects a slower-than-expected recovery in the export sector. Private consumption and private investment are expected to grow more slowly than the forecasted in the earlier year. The main economic drivers will be government spending and the tourism industry. As a result, there is no catalyst to boost demand for housing. According to the Agency for Real Estate Affairs (AREA), in 2014, the number of housing units launched in Bangkok and the vicinity dropped by 13% year-on-year (y-o-y). However, the number of housing units sold dropped by 22% y-o-y, increasing the number of unsold housing units in Bangkok and the vicinity at the end of 2014 by 16% y-o-y. Concerns over the rising level of household debt and the expected slowdown in the economy may cause the homebuyers to postpone the decision to buy a new home.
Despite the weakening market conditions, the operating performances of most residential property developers rated by TRIS Rating remain acceptable. As of 2014, TRIS Rating rates 17 residential property developers (Table 1). The combined sales of these 17 developers and their subsidiaries accounted for 60%-65% of housing sales in Bangkok and the vicinity. Presales at these developers grew strongly during 2012 and 2013. As a result the operating performances of most rated developers in 2014 were in line with or better than the projections made at the beginning of 2014, except for AREEYA, CI, PF, and PRIN. Most rated developers achieved better operating profit margins in 2014 than in prior years. Operating profit margins were higher because marketing expenses. The developers launched fewer new projects in 2014. However, the average debt to capitalization ratio of the 17 rated developers increased to 52.9% in 2014, up from 50.3% in 2013. Leverage rose because the combined value of the investments in land, inventory, and projects under construction at these 17 developers increased by almost 20%. The investment value was equal to 3.19 times the three-year average cost of goods sold, up from 3.16 years at the end of 2013.
The slowdown in the domestic economy caused the presales of the 17 rated developers to drop by 16% y-o-y in 2014. Presales, in aggregate, fell to around Bt201,000 million, compared with Bt240,000 million in 2013. Presales in the condominium segment fell the most, dropping by 34% y-o-y to around Bt84,000 million. In contrast, presales in the low-rise housing segment grew by 5% y-o-y in 2014. Despite the drop in presales, the backlogs at the 17 rated developers remained sizable. At the end of 2014, the aggregate backlog at the 17 rated developers stood at Bt230,000 million, down by only 7% from the prior year. Most of the housing units in the backlogs will be transferred to customers and realized as revenue during 2015 and 2016. The size of the aggregate backlogs is almost equal to one year of revenue summed across these 17 developers. The sizable backlog will help sustain the operating performance of most rated developers in 2015.