Leading indicators for Thai property: bad debts and Bangkok’s stock exchange

Before the 1990s Asian financial crisis, Thailand's residential property market was heavily influenced by the exchange rate and whether bank credit was expanding. Today, the macroeconomic forces affecting the sector have broadened and grown more subtle.

Seeking correlations, we have visualized Thai home sales against the local stock market and benchmark bond yields, as well as bad loans at the nation's banks.

As our first chart shows, equity prices are a useful leading indicator for economic optimism and home sales. When the Bangkok bourse's benchmark SET index rises, a seeming wealth effect tends to result in more real-estate transactions soon afterwards. For the past decade overall, however, Thai stocks have been treading water; after most retreats by equities, a slowdown in the property market has soon followed.

Our second chart tackles non-performing loans (NPLs). Unsurprisingly, banks struggling with loans gone bad tighten the flow of credit to would-be home buyers; a high rate of NPLs might also indicate a troubled economy more generally and reduced risk appetite. This indicator's growth rate is thus inversely correlated to the property market.

In September 2015, NPLs had surged 23% from a year earlier; six months after this peak, in April 2016, property sales were down 26% year on year. The situation was reversed in 2011; with NPLs steadily declining, home transactions reached growth rates they have never seen since.

In much of 2022-23, NPLs were shrinking year-on-year, and the residential market was picking up; however, both of those trends have recently reversed.

Finally, when Thai government bond yields are low, that indicates demand for safer assets – correlating with lower investor confidence in the real-estate market. The decade leading up to the pandemic-era record low interest rates saw the 10-year bond yield steadily compress.

In summary, it could be some time before the property market regains its zip – given the sluggish equity market, the recent tick higher in NPLs and a still-thin yield spread for Thai government bonds.

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