Economic Update

Published 27 Apr 2018

Rising prices and dwindling land banks, combined with improved transport connectivity, are changing the shape of Bangkok’s condominium market as new projects move away from the city’s centre; however, oversupply in some areas could continue to weigh on sales.

With the expansion of bus and rail transport improving connectivity in the capital, mid- and upper-range property developments are set to migrate away from traditional downtown areas, according to international real estate consultancy Colliers International Thailand.

Around 60,000 condominiums will be added to existing stocks this year, building on the 300,000 units that have entered the market since 2013, Phattarachai Taweewong, senior manager of the firm’s research department, told local press in April.

The extension of the Metropolitan Rapid Transit Blue Line connecting Tha Phra to Bang Sue, which is close to completion, has accelerated development in the city’s west. An estimated nine condominium projects are set to be launched in the area this year, bolstering supplies in the middle and lower end of the market.

Meanwhile, the upscale Thonglor district, which is already well connected by the Bangkok Mass Transit System, or Skytrain, will see the most activity this year, with around 3300 units to be added. The area’s high land prices indicate the new developments will be in the upper brackets of the market. Meanwhile, central Bangkok’s Phaya Thai district, also linked by the Skytrain, has around 2000 units in the pipeline for this year.

While the number of planned projects remains strong, there is already a surplus of supply on the condominium market: some 45,000 units remain unsold from 2017, with client take-up slowing in some districts as buyers become more selective about price and location.

Competition, land costs, driving upmarket development

The increasing competition in the condominium segment has seen developers refine their offerings, with high land prices and foreign interest leading to a continued focus in the upper end of the market.

“The high end is the safest investment segment at this time and will always be the safest even when there’s an economic downturn,” Ishmit Bajaj, managing director of property firm Lucky Living, told OBG. “As in all cities, the centre will continue to attract the wealthiest buyers.”

A tightening of supply has seen land prices in central Bangkok rise by annual rates of 10-15% in recent years, according to property consultancy JLL. This, combined with rising household debt levels and caution among Thai banks over lending to the property market, has seen developers look increasingly towards foreign investors.

While Bangkok land and unit prices are inflating, they still remain lower than comparable offerings in other parts of South-east Asia. This has led to strong interest for upmarket properties among Chinese, Taiwanese, Singaporean and Hong Kong buyers, according to Somchai Sirilertpanich, managing director of local firm Syntec Construction.

“A good unit built on prime land with a desirable location will attract interest, and we expect 20-30% of luxury sales to be driven by foreign buyers,” he told OBG.

Developers turn to renovations amid land shortages

With much of the upper end of market demand being driven by newly completed residential units, the resale value of older properties has not followed the same price appreciation, according to Antoine Van Innis, co-founder and partner at local agency Sense Property Group.

“There’s an increasing gap in price per sq metre between old and new property,” he told OBG. “Similar developments built just five years apart can see price differences of 50% per sq metre.”

This, coupled with the limited availability and high cost of land, is leading some developers to buy and renovate existing properties rather than build from scratch.

In January Japanese firm JR Kyushu announced it would spend at least BT100m ($3.2m) on renovating a 429-unit, mixed hotel and apartment complex in downtown Bangkok. The property, purchased for BT2.9bn ($93.1m), will undergo extensive remodelling and enhancements, with the initial opening scheduled for mid-2018.

New property law could cool investment demand

Despite healthy real estate activity in Bangkok, the introduction of a new leasing law that improves the protection of tenants could affect demand in the short term.

The regulations, which come into force on May 1, restrict landlords from asking for more than one month’s rent in advance and one month’s rent as a security deposit. They will also ensure that rental agreements are formalised through contracts and utilities bills are set at a rate in line with what is offered by the main suppliers.

The law will only apply to investors or businesses leasing five or more units in one building for residential use.

While some industry analysts believe the additional security provided to tenants will encourage growth in the rental market, developers have expressed concerns that the regulations may affect appetite for investment properties and therefore sales.