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End-User Demand Drives Luxury Market

By on Mar 20, 2012 in Property News

Published on The Nation dated 19 March 2012 by Aliwassa Pathnadabutr, Managing Director of CBRE Thailand

The main headline story at the end of last year was the flooding and the debate on how this would affect the property market. While the floods will not lead to everyone deciding to live in condominiums, it certainly has had an impact on demand for condominiums and the overall market direction for 2012.

One of the positive impacts on the market is healthier demand from end-users, particularly in the luxury segment and from first-time buyers. The current surge in sales for newly completed luxury projects that offer more spacious units and top-quality product is an evidence of this trend. Not only are the sales volunes higher, the achieved price per square metre is also catching up with smaller-sized units.

This group of buyers prefers completed properties and has a preference for larger units sizes than what the market currently offers. Typically, the most popular unit sizes for the luxury market targeting end-users is 60 to 70 sqm for one-bedroom, 90 to 110 sqm for two-bedroom and 165-190sqm for three-bedroom. These sizings are typically found in older projects launched in the 2000’s prior to the US economic crisis. These have suffered slow sales and flat prices in the last two years due to competition from smaller units. These units are now selling well as they offer larger space than the new generation of condominium projects.

The luxury segment has shown clear signs of price increases in the first quarter, driven by an increase in end-user demand. The high volume of recent sales at Saladaeng Residences and Q Langsuan has proved that the price point of Bt150,000 to Bt210,000 per sqm is accepted by the local market for a quality product with good design in a prime location. Even without branded hotel management and services, both projects have achieved record prices amongst comparable projects in their locations. Similarly, prices for quality completed projects in Sukhumvit such as Pearl Residences and Bright Sukhumvit 24 have achieved Bt130,000 to Bt140,000 per sqm, also exceeding the market average for their location. Typical one-and two-bedroom units in bth projects offer larger unit sizes compared to the overall market.

There is solid evidence from real transactions that the market is paying these prices, but whether these price levels could be seen as the new market benchmark for new products with higher land and construction costs or are only achieved for the very top end of the market remains to be seen. The buyers at the luxury-end are very selective about location to begin with and it is a question of how they perceive the value of the product, which determines what they are willing to pay for it.

In a competitive environment, one of the challenges most developers face is in deciding on the unit sizes to build. On one hand, developers are faced with the challenge of keeping units affordable against a background of rising land and construction costs. Many developers are compressing unit sizes for new launches to maintain affordability. However, there is a limit on how small a unit can be before buyers reject it as being impractical.

On the other hand, the risk a developer takes by building larger units is the slower absorption rate during the off-plan sales and construction phase. The dilemma over unit sizes for developers, especially in the luxury sector remain, and getting this right will underpin a project’s success and achieved price.

Without a completed product, larger-sized units are usually a harder sell. This is one of the reasons why most developers end up launching smaller units. However, if a developer is able to present the project well through a high-quality show unit, marketing and branding and the developer’s own track record, then off-plan sales of larger units is possible. Given the end-user market is growing, the trend and preference of the end-user market should not be ignored.

Aliwassa has been the Managing Director οf CBRE Thailand for a number of years. As a Thai national, Aliwassa is extremely knowledgeable about the sale of property in Thailand, specifically large scale high value condominium developments largely in Bangkok.

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