First home blues: Why Thai millennials are caught in a housing crisis

Traditional markers of success like graduating from a prestigious university, securing a job, purchasing a car, buying a house, and starting a family, have become increasingly challenging for many millennials.

Their hopes have been dampened further by the significant surge in property prices.

House prices are projected to rise again this year, driven by factors a 5-8% increase in the minimum wage and escalating construction costs.

The Real Estate Information Center (REIC) recorded a gradual increase in home building costs throughout 2022, with a notable 6.2% year-on-year rise in the third quarter, marking the highest growth in 19 quarters. Housing prices, particularly for projects slated to open this year, are forecast to rise by 5-10%.

"I want to buy a home, but it feels like I can only afford a townhouse with my budget. The dream of having my ideal forever home seems challenging given the current state of the housing market in Thailand,” said Kamonchanok, an office worker from Greater Bangkok. Her experience reflects the struggles of countless aspiring Thai millennials in the current housing market.

The 28-year-old accountant is desperate to purchase her own home but knows well the financial constraints facing young people.

Kamonchanok highlights the stark difference in affordability of first houses for the previous generation, born between 1970 and 1980.

"Compared with my parents, who bought their first house in 1998 and could afford a decent single-family home on their salary, my generation faces limitations. I can only consider townhouses. However, the quality usually doesn't match the price."

Kamonchanok emphasised the difficulty in finding suitable housing options within her salary range.

"With a monthly income of about 28,000 baht, it's challenging to find a good place to live.”

The high price of home loans is adding to the challenge of buying a new house. The central bank’s policy interest rate is expected to rise from 1% to 2% this year, increasing the cost of home loans.

According to Numbeo, Thailand's ratio of house prices to income reached 24 in 2023, indicating that median housing prices are 24 times higher than the average annual household income.

For every 1% hike in the policy interest rate, the total installment burden on home loans surges by approximately 7%, placing greater financial strain on homebuyers who must either contend with higher installments or extend the repayment period.

The impact of elevated interest rates is particularly pronounced in the lower-priced home and condo segments, affecting predominantly low-income earners. These individuals often struggle to meet their installment obligations, which has seen bad debts mount to concerning levels and cast a shadow over the real estate market's performance in the past year.

Although demand for housing projects priced at 3 million baht or less remains resilient, the overarching challenge lies in the still-fragile economy. The economic uncertainty compounds the effects of rising interest rates, presenting significant hurdles for developers, aspiring homeowners, and banks in issuing loans.

Some Thai millennials are resorting to financial solutions that are close to home, such as gaining help from their parents with mortgage payments.

"I want the government to intervene, perhaps by controlling home loan interest rates. It may be challenging to regulate construction costs, but controlling interest rates could offer some relief,” Kamonchanok said.

Meanwhile, her preference for a house rather than a condo is part of a rising trend, cutting the pool of suitable properties even further. 

Jindapak Singharunsit, deputy secretary general of the Home Builders Association, said the impact of COVID-19 has changed consumer behaviour. Before the pandemic, demand for condos and townhouses was similar. Now, more people are prioritising privacy and space, leading to increased demand for single-family homes.

Adding to the difficulty in buying a house is the fact that homebuilders are now focusing on the high-end property market, further limiting choices available to millennials.

“The luxury market expansion has implications for younger individuals, potentially limiting their options," confirmed Jindapak.

While the main segment of the housing market used to be townhouses, increasing loan rejection rates have led developers to shift their focus towards the luxury-home market. Saenpin Sukhee, former chief executive of Frasers Property Home Thailand, told Krungthep Turakij that “detached house" projects typically experience loan rejection rates of 20% to 30%. Customers in this group often purchase homes with cash, accounting for up to 67% of buyers. These are usually single houses priced at 20 million baht or more. 

Watcharin Kasinrerk, managing director of Land and Houses Plc, also reckons the townhouse market is in decline, contrast it with “genuine demand” for luxury homes. This has led developers to focus more on the detached-house segment.

Jindapak also highlighted a trend for buyers to build their own home.

“The cost for building a home, including land, tends to be 20-30% higher. However, it is seen as a long-term investment due to the potential appreciation of property values."

Looking ahead, trends in home buying among millennials suggest a shift away from urban living. Many are gravitating towards cheaper options with more floor space outside of Bangkok.

"Many in the younger generation view Bangkok as a temporary source of income and are not planning to buy or stay for the long term," said Kamonchanok of her peers. "If they move outside the city, they can find larger, higher-quality homes at comparable prices."

The housing landscape in Thailand reflects the evolving needs and challenges faced by millennials in their quest for homeownership. As the government and industry stakeholders grapple with these issues, the future remains uncertain for a generation seeking a place to call home.