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Inflation forces real estate developers to readjust prices

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To compensate for the sluggish real estate market after prices have risen due to higher costs caused by the Russia Ukraine war, real estate developers should downsize unit sizes and readjust some features. Furthermore, in order to avoid incurring greater costs as a result of the new tax, real estate developers will be more selective when purchasing property for their next project.

Construction prices would increase by 5 to 10%, especially for residential properties where the cost to build them is much higher than the price of land, according to the honorary president of the Housing Business Association, Issara Boonyoung.

“Inflation and the sluggish economy will cause a decrease in home purchasing power. While the costs had increased, developers may be unable to raise housing prices as homebuyers may not be able to afford a unit as their purchasing power has stayed the same or decreased.”

From the second quarter of 2020 to the first quarter of 2022, the price index of land in Bangkok increased by nearly 2%, contrasted with 4% from 2015 to 2019. When the government invested in numerous new public transportations in Bangkok, such as the Yellow, Pink, and Orange lines, the index spiked. However, the price slowed down due to the pandemic, according to REIC.

It’s recommended that developers make their townhomes smaller, or switch to duplex homes rather than focusing on single-detached homes to keep prices stable.

Low-rise home builders should make changes to their properties to decrease costs, including removing unnecessary amenities or using alternative designs, according to vice-chairman of the Board of Trade of Thailand, Atip Bijanonda.

“Some functions or features that incur too high costs should be replaced with choices which will not affect homebuyers’ usage,”

Finished and ready-to-transfer apartment units would be unaffected by rising expenses because their prices were set before increased inflation took effect. However, to keep their inventories low, developers should cut their profit margins on their current projects that are under construction.

Due to the economic slump induced caused by the outbreak, prices of land have gone up for almost two years, according to acting director-general of the Real Estate Information Center (REIC), Vichai Viratkapan.

“The situation got worse with the Russia-Ukraine war. The Thai economy will likely have a lower growth than expected which will have an impact on home purchasing power.”

SOURCE: Bangkok Post

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