Being Cautious Pays Off

February 16, 2022

In the past several years, we have seen the government place significant effort and emphasis on delivering many long-planned infrastructure developments throughout the country. In recent years, a number of existing mass transit lines in Bangkok have been extended (most recently the northern leg of the Light Green Line and the SRT Red Line) and a number of significant road projects (including the extension of Motorway 7 to Map Ta Phut) have also been completed.

Many other train line and airport projects have been on the cards for a number of years. Infrastructure development has always been one of the key catalysts for real estate development, and many developers anchor their projects where further development is planned.

The government's significant push to develop new airports or expand the capacity of existing airports brought about by surging tourist numbers before the pandemic is well documented. According to Airports of Thailand Plc (AOT), before the Covid-19 outbreak, airports in Bangkok and other provinces were operating well above their capacities, especially Phuket, Hat Yai, Chiang Mai and Mae Fah Luang (Chiang Rai).

The impact on tourism of the pandemic has highlighted the risks for developers when planning projects tied to the completion of major infrastructure developments. Any shift in the expected completion dates of these developments will have direct impacts on the real estate developments that revolve around them, and developers need to be well aware of the risk.

Take for example two new airports planned to serve Phuket (in Khlok Kloi town in Phangnga province) and Chiang Mai (in Ban Thi district of Lamphun). These projects have attracted the attention of many developers who expect to see an influx of demand generators once the airports are completed. Currently, both are still at the study stage to prepare for environmental impact assessment (EIA) reports.

We have witnessed these issues before in Bangkok whenever news emerges of a new mass transit line, prompting early land acquisitions and resulting in land prices increasing significantly above average. When the Purple Line was confirmed and long before it finally opened in 2016, many developers had rushed to acquire sites years earlier and quickly launched condominium projects with the hope that the new line would bring in traffic and new demand.

In reality, the popularity of the Purple Line was underwhelming for a number of reasons, including distance and cost, as well as the delayed construction of the "missing link" at Tao Poon station, leaving many condominium projects with significant unsold inventory to this day.

In recent times, it has been common for investors in Thailand to speculate on land acquisition based on planned infrastructure, even if such purchases don't appear to match current market conditions. Ongoing uncertainty has made it more important for developers to keep an eye on both the clear progress and timelines of any infrastructure development to match the launch dates of their projects or the completion period of their own developments.

When it comes to launching new projects, just being fast does not guarantee success. Developers should prepare alternative plans in case they are forced to change their original ones, especially when their projects are anchored to demand that has not yet materialised.

An article written by Natchaya Promsuwan, Analyst, Research and Consulting, CBRE Thailand for Bangkok Post dated 16 February 2022.