Demand for Leasehold Condominiums on the Rise
Published on Bangkok Post dated 28 August 2011 by David Simister, Chairman of CB Richard Ellis Thailand
Foreign buyers are leading a shift away from freehold units towards high-end properties that offer better services
While Bangkok property buyers may be seeking signs of improvement following the recent elections, it is interesting to note that not only are foreign buyers beginning to return to the market at the top end, but they are also prepared to take leasehold title at a price premium over freehold condominiums, if they are convinced of the quality and potential of the development.
In the past two years Bangkok has seen several leasehold condominium projects launched, including the Residences at the St Regis Bangkok, the Ritz-Carlton Residences, Bangkok, and the Oriental Residence. While buyers’ preferences have traditionally been for freehold property, these top-end leasehold projects are seeing a significant increase in demand.
CB Richard Ellis’ (CBRE) recent roadshow for the Ritz-Carlton Residences, Bangkok in Hong Kong and Singapore generated 18 sales with a combined value of more than 750 million baht. Overall, purchasers at the development have been approximately 60%foreign and 40% Thai. At the same time, the St Regis has gained sales momentum postcompletion, with the majority of sales made to foreign purchasers including Europeans and Scandinavians, Hong Kong Chinese as well as Malaysian.
The latest completed leasehold development is the Oriental Residence on Witthayu Road where more than 50% of the units were sold in 2009 and at that time demand was 75% Thai. The project was recently relaunched as a completed development on Aug 25 and it is expected that the remaining 19 units will soon be taken up by a combination of Thai and foreign investors as we have shown keen interest due to both the quality of the project and the location.
The significance of this is that it represents a change in the property market in 2011. For no specific reason there has been a feeling that the high-end market was experiencing a slowdown after a strong run in recent years.It is interesting to note that in the current market foreign buyers are more confident than Thai buyers at the top end. This is largely because Thailand has successfully weathered a series of political disruptions from 2008 through to 2011 and its economy,while not producing record performance, is steadily moving forward. Recent sales have shown that for the right property, buyers consistently pay more than 200,000 baht per square metre.
Statistically in 2010, we estimate that the ratio of Thai to foreign buyers was 80:20. With political stability, foreign demand is likely to return, but it is important to recognise that buyers’ demographics have changed.Developers and agents who are in tune with the changes will have the ability to reap the benefits. With a poor outlook for Western economies, the focus will be on Asian-based buyers from key markets such as Hong Kong and Singapore. It is also expected that demand from mainland Chinese will grow in significance as more inquiries are being generated.
Another important factor prompting foreign demand is the fact that Bangkok offers bargains compared to regional capitals such as Hong Kong and Singapore, where the price per square metre is approximately 896,000 and 742,000 baht, respectively – at least five times higher than Bangkok.
Demand for leasehold properties is quality and location specific. There are a set of reasons why these top-end projects have achieved at least a 30% price premium compared to highend freehold condominiums. The Ritz-Carlton Residences, Bangkok, recently achieved more than 270,000 baht per square metre, compared to the Silom/Sathon average condominium price of 115,585 baht, while the Residences at the St Regis Bangkok reached an estimated average of more than 200,000 baht per square metre, compared to a Central Lumpini average of 145,556 baht per square metre for freehold condominiums.
The primary reasons for these recordbreaking prices are the quality of the development, both in terms of architectural design and high quality construction and specifications, the location, the complete package of service offered and the guarantee of five-star quality management.
For example, the Residences at the St Regis Bangkok is on Ratchadamri Road, one of Bangkok’s main streets, overlooking the Royal Bangkok Sports Club, with five-star hotel services and management by St Regis.
Similarly, The Ritz-Carlton Residences,Bangkok, offers a similar package with branded management and hotel services.The Oriental Residence will also offer hotel facilities including a lounge, restaurant, business centre, spa, children’s club, fitness centre and swimming pool, as well as round-the-clock services such as housekeeping, concierge, laundry, room service, and valet and shuttle service.
All three projects offer a complete package and these types of development have not reached the market before. This explains the price premium they have achieved compared to existing freehold condominiums in the same location. It is quite an achievement for leasehold properties to achieve in excess of 200,000 baht per square metre, and that is for large units. In the case of St Regis, not only has the project attracted purchasers,but also tenants with a recent one-year leasing contract achieving a record rent of 350,000 baht a month.
There is clearly demand for top-end properties such as the Residences at the St Regis Bangkok, the Ritz-Carlton Residences, Bangkok, and the Oriental Residence, albeit a finite volume. But the rationale of these purchasers is to buy the best that the market offers and tenure is a secondary consideration.To date, no completed freehold condominium has offered the same product with the addon services and top quality management,but this is set to change with the completion of the Sukhothai Residences, where purchasers will benefit from five-star hotel management as well as freehold title. In the case of Sukhothai, the developer and brand owner are the same entity; thereby allowing full control to ensure the development is run to the highest five-star standard.
The demand for fully serviced and branded residences is set to redefine the market. Topend freehold condominiums must address management issues and be able to provide the services, facilities and quality management required by purchasers in this segment. The defining feature for top level pricing achieved has been branding, whether it is St Regis, Sukhothai or Ritz-Carlton.
However, there is no reason why highend projects such as the Met, Athenee Residence or Park Chidlom cannot sustain similar price increases, providing they can deliver and maintain high quality levels of management.
The bottom line is demand for leasehold condominiums has been on the rise because these top-end projects offer what very few freehold projects have offered to date. The exception will be the Sukhothai Residences. It is essential for existing and future projects to focus their attention o top-quality management and services in order to attain price appreciation overtime. Today we see many condominium developments in Sukhumvit launched more than 10 years ago slipping in price due to poor quality management, and this only helps to reiterate the importance of management and services and why quality leasehold properties are winning over.