President Atip Bichanont said the purchasing power of foreigners was limited by the instruction introduced early this year as a way of discouraging currency speculators.

At a property market seminar yesterday, panellists said they expected the property market to grow by no more than 5 per cent this year due to an absence of foreign investor confidence in spite of lower interest rates and stable oil prices.

Thanawat Phonvichai, director of the Economics and Business Forecasting Centre at the University of the Thai Chamber of Commerce, said interest rates should drop by between a half and a whole percentage point this year and oil prices should be more stable.

But he believes these factors will not do much to boost the confidence of consumers, who are now more concerned with the political situation. The New Year's Eve bombs in Bangkok further dampened market sentiment.

Besides, the purchasing power of foreigners is limited by the central bank's instruction to suspend property loans to them, said Atip.

Foreigners could borrow up to 60 per cent of a project's value before the central bank acted to block speculative money that may come under the guise of property loans.

Atip said the association would meet the Bank of Thailand later this month to ask it to revoke the instruction because most foreign borrowers are genuine property buyers.

Foreigners buy about 49 per cent of the 20,000 condominium units sold each year, but only 10 per cent of them seek loans to finance their purchase.

Thanawat said the purchasing power of Thai buyers would continue to slow until the middle of the year because people are concerned about the political situation. The market should improve in the third and fourth quarters when the government's policy on mega-projects, covering five new electric rail routes, starts to take shape.

The decision to open bidding for the first route in March, and the reimbursement of the necessary budget, should increase consumer purchasing power in the second half.

Samma Kitasin, director-general of the Real Estate Information Centre at the Government Housing Bank, said he estimated that 82,000 property units would be sold this year, compared to 78,000 last year.

Growth will be a result of the mega-projects, as a number of property projects are likely to sprout along the mass-transit routes because of the changing lifestyle of urbanites who prefer to live close to the routes.

The ratio of sales of condoms to detached houses is set to rise from 1:6 to 3.5:6.

Atip said that while property operators would face rising construction costs of 7 per cent to 9 per cent this year, they will find it difficult to increase prices due to limited purchasing power. Therefore, they will have to improve cost efficiency.

The average housing price has fallen from Bt3.5 million to Bt2.8 million because people are looking for more affordable property.

Property operators also fear that if there is no election until the end of the year, the market might see zero growth.

Kitipon Pramoth Na Ayudhya, secretary of the Thai Real Estate Association, said operators would have to adjust by trying to diversify into the Middle East or Singapore to expand their logistics and office buildings.

Prasong Owlarn, president of the Housing Business Association, said the property market this year should grow by only 3 per cent because of declining purchasing power and the economic trend, which would slow down from the middle of the year to the third quarter.

Meanwhile, Housing Finance Association chairman Kitti Patanapongpibul warned that supply in the property sector had possibly overshot demand and might create a small crisis in the present environment.

Finished residential houses this year are expected to number 83,000, compared to 79,000 last year. But new housing loans, reflecting demand, contracted 10 per cent last year, following a 5-per-cent decline in 2005. In 2003, new housing loans expanded by up to 80 per cent.

However, Government Housing Bank president Khan Prachuabmoh downplayed the concern, saying the number of finished residential units remained low compared with 170,000 homes in 1996.

He predicted that condominiums, particularly those in Bangkok, would increase significantly by 32 per cent this year, while finished houses would grow 5 per cent to 83,000 units. Residences priced at less than Bt3 million will be the most popular.

Kitti said he hoped the lending interest rate would decline by one percentage point this year, helping to boost purchasing power and housing loans. He said the two-percentage-point hike in the lending rate over the past two years had cut purchasing power by 20 per cent.

Somluck Srimalee

The Nation