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BUYING LUXURY CONDOMINIUMS IN BANGKOK

By on Feb 25, 2008 in Residential

Bangkok’s luxury condominium market will become more active this year and the new supply will continue to be limited, according to leading international property consultants CB Richard Ellis. 

The high-end and luxury markets, which faced a slight slowdown in 2007 mainly due to the low market sentiment, will become more active in 2008. Last year, the main focus in the Bangkok condominium market was in the mid-range market where projects are located close to the skytrain or other mass transit system.  This segment will continue to grow and become more competitive. 

Investors are aware that freehold land plots in prime central locations are very limited and the increase in land prices has resulted in a drop in the new supply of luxury units in these areas, whereas demand for downtown city living is growing.  Prices of downtown condominiums have continued to rise since the market recovery in 2003, at an average of 10-12% per annum for new projects.

According to Ms. Aliwassa Pathnadabutr, Managing Director of CB Richard Ellis, “We have found that, with the rising construction and land costs in downtown areas, it will be difficult to develop new freehold high-rise condominiums to sell at prices below Baht 100,000 per square metre in prime locations such as upper Silom, Sathorn (a radius of 1 km from Lumpini Park towards Silom and Sathorn Road), inner Wireless Road, Sarasin Road, Rajdamri Road, Langsuan, and Ploenchit Roads, as well as Sukhumvit Road up to Thonglor in good neighbourhoods near skytrain stations. Lumpini Park is seen as the centre of the prime Central Business District (CBD) of Bangkok, an area covering a radius of 1 km from the park and is one of the most sought-after locations where good freehold land is scarce.
Prices of newly launched high-end and luxury condominiums in these areas range from Baht 100,000 to Baht 178,000 per square metre, depending on product and location. Most of these newly launched projects have sold over 60% of their units in 2007 and include such developments as Hansar Rajdamri.  The prices of units at the Athenee Residence, a newly completed condominium project on Wireless Road, have appreciated by over 40% in the 3 years since the project’s launch in 2004.

In December 2007, the Sukhothai Residences, developed by HKR International, set a new price record for the Bangkok condominium market by achieving Baht 220,000 per square metre for its typical units and Baht 343,000 baht per square metre for one of its penthouses.  The project’s success in selling over 90 units or 50% of the total saleable area at these record prices in one month indicates that demand for luxury properties is still strong from both Thai and overseas buyers.

CB Richard Ellis Research team has re-categorized the condominium market in the downtown area into 6 different segments by price, including the super luxury segment with prices of over Baht 180,000 per square metre, the luxury segment priced at Baht 130,000 – 180,000 per square metre, the high-end segment priced at Baht 100,000 – 130,000 per square metre, the upper middle segment priced at between Baht 80,000 – 100,000 per square metre, the mid-range segment priced at between Baht 60,000- 80,000 per square metre, and the economy segment priced at below Baht 60,000 per square metre.

The market for the luxury supply has become much more sophisticated in terms of target buyers’ requirements. Developers will therefore face more challenges and more intense competition than in the mid-range market. The critical factors in developing in luxury and super luxury condominiums lie in selecting the right location, design, unit mixes and product that must be acceptable to the target purchasers.

“Investment in new luxury condominiums in prime CBD locations has generated an average of 4- 5% yield per annum during the past 4 years and 10-12% price appreciation per annum which is pretty good compared with other forms of investment.  Another underlying benefit in investing in residential properties is its potential for future use,” said Ms. Aliwassa.

CB Richard Ellis found that demand from foreign purchasers has been increasing during the past 3 years. The average percentage of foreign buyers of downtown condominiums as of Q4 2007 stood at 32% whereas the percentage of foreign buyers was less than 20% on average in the last decade.

The quota for foreign ownership in some condominiums has reached its 49% limit. That means foreigners are no longer able to purchase units in those buildings unless they buy a unit from a foreign owner.  This makes units owned by foreigners more valuable in those buildings popular among foreigners. CB Richard Ellis is now seeing the beginning of two-tier pricing for Thai and foreigners in those projects which foreign quota is reached. 

Foreign investors have started to note this trend and are looking to invest more in good quality and well-designed buildings that are located in prime CBD locations despite the skyrocketing prices.

Another reason that boosts condominium prices in downtown Bangkok among foreign investors and end-users is their affordable price levels. For example, with a budget of US$ 500,000 or around Baht 15 million, you could purchase a luxury two-bedroom unit with 90-120 square metres in a prime CBD location in Bangkok.

 To buy a similar product in a prime central location in other cities like Singapore or Hong Kong, you would have to allow for a budget in the region of Baht 50 – 80 million.

 This comparison shows that Bangkok has a wider market base as there are a large number of individual investors in the region with this budget who are interested in real estate investment.
 
Despite the world property market facing difficult times, Bangkok condominiums, in both downtown areas and along the skytrain routes, are still in demand.

“We do not see price increases at the same rate for non-prime locations in Bangkok as there is plenty of land available for development.  The upper-middle, mid range and economy markets will be more competitive in terms of pricing, whereas the key success factor in the luxury market is product quality, design and unit mixes which must match requirements of the target market.  Market sentiment is another key factor in driving the high-end and luxury markets,” concluded Ms. Aliwassa.

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