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18 Jan 2008

Real Estate and Construction

Housing Market Outlook – Year of the Rat: Negative Factors Impeding Economic Recovery Need Monitoring (Current Issue No.2027)

KASIKORN RESEARCH CENTER (KResearch) estimates that real estate sector investments in 2008 may grow within a range of 2.0-5.8 percent after experiencing the slowdown of 2007, provided that national economy records growth of 4.0-5.0 percent. This also assumes that the new coalition government now being formed will press ahead with investments in mega-projects and budgetary disbursements, which would be followed by rising private investment. On the downside, the economy may be plagued with numerous negative factors, including political uncertainty and steep oil prices that could push inflation up. As for the new housing completions in the Bangkok Metropolitan Area in 2008, KResearch forecasts that there will be around 63,400-64,300 units, shrinking by 2.6-3.9 percent from the 66,000 units of 2007. This contraction was due mainly to decreases in the number of residential units constructed in housing estates as well as fewer custom-built homes. The massing supply of completed homes in housing estates available on the market will likely result in a lower housing estate success rate and fewer new projects being unveiled.

KResearch is of the view that the many positive factors toward economic revival in 1H08 would include stimulus policies expected from the newly-formed government – including investments in the government's mega-projects – i.e., mass transit trains and other major infrastructure projects, which would in turn boost manufacturing and employment. Based on these hypotheses, private sector confidence could be restored by government policies, paving the way for higher private investment and rising economic activity as well as improved consumer confidence.

However, numerous economic risks are still major variables that could affect the real estate sector. The direction of the economy remains a key factor that will influence homebuyers' decision. The continuing trend of economic slowdown will likely marginalize consumers' incomes accordingly. Risk factors for the country include volatile oil prices, inflation – affecting the cost of living – which would pressure interest rates, and the Baht's appreciation that is affecting the competitiveness of 's exports, etc.

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