Price Rises Fuel Demand for Leasehold Sites
13 Jun 2018
Freehold land prices continue to rise for prime sites in central Bangkok. The increase in prices is mainly being driven by developers who see the potential to achieve premium prices of over 300,000 baht per square metre for luxury condominiums. This has created challenges for developers seeking to build income producing properties such as rental offices, serviced apartments and hotels because current rentals/room rate returns are not high enough to justify paying top market prices for freehold sites. Developers of income producing properties are now starting to acquire leasehold sites.
There are also some land owners who do not want to sell and will only offer long leases. There have been a number of significant leasehold, prime central business district (CBD) site transactions over the last year. Raimon Land has leased a 6-rai site on Ploenchit Road, opposite to Central Embassy for 30 years at a total cost of 3.32 billion baht or 1.37 million baht per square wah. The site will be developed into a Grade A office building with a net rentable area of approximately 60,000 sq. m.
Dusit Thani has renewed their lease for 30 years with the rights to extend for another 30 years for the 24 rai site on Rama IV Road with the Crown Property Bureau for 7.4 billion baht. Dusit Thani subsequently formed a joint venture with CPN to develop the office and retail elements of the project which will also include a new Dusit Thani hotel and leasehold residential for sale. The total value of this mixed-use property development will be THB 37 billion.
Origin Property leased a 3.5-rai site in Sukhumvit Soi 24 for a total amount of 1.08 billion baht or 750,000 baht per square wah. This will be developed into Origin 24, a mixed-use project which will include a hotel, serviced apartment, offices and retail space. The project is opposite to their Park 24 condominium project. Origin also leased another plot in Sukhumvit Soi 55 for a future hotel development.
Ananda Development announced a strategic partnership with Ascott to build four serviced apartments on leasehold sites in Ratchadapisek, Sathorn, Sukhumvit Soi 8 and Sukhumvit Soi 55 (Thonglor).
The maximum lease length is 30 years for residential properties and 50 years for commercial properties. Some landlords offer right to renew the lease with a pre-agreed formula to calculate the renewed rental.
Traditionally Thais have viewed present value cost of a 30-year lease as being around at 30% of the freehold value of the site. While this is a general understanding there are unique sites or sites in very prime areas where the cost of a 30-year lease can command up to 40 - 50% of the freehold price.
In the Lumpini area of Bangkok, much of the land is owned by the Crown Property Bureau or other government organizations and is only available on a leasehold basis. The Lumpini area is one of the few locations where the scarcity of freehold land means that developers have been able to leasehold residential units to individual purchasers.
30 years is still a very short period of time and the potential for leasehold sites would be much greater if the law was ever changed to permit longer lease terms of 75 - 100 years which are common in other countries.
An article written by Tornbonkot Patcharaprakiti, senior analyst, CBRE Research & Consulting, CBRE Thailand for Bangkok Post dated 13 June 2018.
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