Bangkok Condo Market Suffers Mismatch of Supply and Demand
21 Feb 2014
A special article by Aliwassa Pathnadabutr, Managing Director of CBRE Thailand, published in The Nation dated 21 February 2014.
There has been concern about a possible oversupply of condominiums in some areas of Bangkok, and CBRE research shows that sales have slowed in the city's condo market. A survey by our marketing team reveals that there is still demand for residential properties; however, there is a mismatch between supply and demand in terms of product and pricing. What developers want is to achieve target pricing and optimum sales rates, but is the product what customers want?
In downtown areas where prices of new high-rise condominiums have risen above Bt150,000 or sometimes even Bt200,000 per square metre, developers have either reduced unit sizes or lowered specifications and material finishes of the properties to make the unit price affordable. But by reducing unit sizes further, affordable units have become too small to create a quality living environment. We found that in the higher end of the market, people are still looking for a reasonably large space, and the two-bedroom type is the most popular, with growing demand for three-bedroom units. In many cases, they are prepared to pay higher prices for products that meet their requirements in terms of quality and design.
What is happening in the lower- and middle-income markets in midtown and suburban locations is even worse: Most products have been developed with affordability as the sole consideration. Attractive financial packages with low down payments are what the buyers will consider. Thus most of the projects have ended up offering the same products, with the majority being one-bedroom units as small as 24-30 square metres. On the other hand, there is a real demand for larger one-bedroom and two-bedroom types.
There are opportunities to fill the gap and develop products that meet the market needs, but few developers are able to do so given the current cost of land and construction.
In both high-end and middle-end markets, end-user buyers who want more spacious units have started looking for other alternatives, which include older buildings that typically offer larger unit sizes. However, we found that the volume of sales in older buildings is still limited. Buyers do not like the generally poor condition of the units or their buildings.
Poor building management and lack of renovation of common areas are among the most common reasons cited regarding the illiquidity of these old properties, despite the fact that their price per square metre is much lower than that of new buildings.
In midtown areas such as late Sukhumvit or in other suburban locations, the lack of marketing and sales channels makes the old properties even more unmarketable. We cannot just sell properties by placing them on the Internet or in traditional newspaper adverts; physical inspection is still required and, in most cases, sales in existing buildings are carried out by property agents.
And even though there are more than 100 property agencies in the market, most of them focus on saleable new buildings in good locations, leaving the old properties unmarketable.
We do not expect a big surge in the resale of older properties, as there is no real mechanism to expedite the transactions.
The sales of older properties will continue to be slow and, because of the financial factors that dictate new projects, I believe that the mismatch between buyers' space requirements and the products being offered will continue until the market has consolidated and the new cycle begins.
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