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Lack of Solid City Planning Laws Leaves Market in Limbo

By on Oct 26, 2011 in Property News

Urban development regulations need to be finalised soon to avoid damage to the city’s real estate sector.

Bangkok was established as Thailand’s capital in 1782, but its evolution into a modern metropolis has been relatively recent, dating back to around 1960. Covering approximately 1,570 square kilometres today, Bangkok has grown dramatically from a small city with a population under two million to a metropolis of more than 10 million.

However, urban planning has not been carried out properly in Thailand’s capital and business hub,especially when compared to major global cities such as Singapore, London or Sydney. Bangkok’s growth does not have much direction or strategy. One reason is the lack of balance between the city’s growth against development of mass transport and environmental quality. The first mass-transit system started operation in 1999, and 11 years on, the total distance has increased only from 23.5km to 79.45km.

One of the most contentious issues in the Bangkok property market recently has been city planning regulations. The latest regulations expired in May and have been extended for an additional year, while the new draft regulations are at the public hearing stage and not yet definite.

The new draft raises many questions and uncertainty in the property sector, and will certainly have many short and long-term implications for the market, both positive and negative.

From my study of the draft regulations, the aim is to maintain the high-density areas in the city centre and in areas identified as commercial zones, but to lower the density in smaller roads and sois in both commercial and residential zones.

The new regulations involve changes in several areas including minor changes in zoning (colour zones identifying land use) and the reduction of the floor area ratio (FAR) in selected areas, mostly residential,but with allowances for higher FARs near mass-transit stations to maximise the use of these systems. There are also minor changes regarding environmental issues,such as allowing a higher FAR for developments with more public space, car parking space, or those with more energy-saving features.

The key changes that underpin the draft regulation involve land usage and restrictions on built-area based on road widths, with the overall aim of achieving lower density along smaller roads and in residential zones. Road width requirements have changed significantly for large high-rise buildings exceeding 10,000 square metres, from the current requirement of 10m in width to between 16m and 30m, depending on the zone. Building heights will also be more restricted where the road access is smaller.

In the immediate term, the draft regulations have raised concerns for developers and landlords holding land banks in areas affected by the rules. They face uncertainty about what can or cannot be built in the future, which is resulting in a panic rush by developers to plan, design and obtain construction permits before the new regulations come into effect.

As a result, we may see a surge in new supply that is rushed to market, where the projects are designed based on current demand ad maximising land use,rather than planning based on future market needs.This could result in undesirable products that will face slow sales and subpar achieved prices.

Stricter regulations also mean a potential loss inland value. Land prices are most likely to decline in specific areas where less can be built based on new road width requirements. This will negatively affect landlords and developers who have acquired sites based on current regulations. The uncertainty could also result in a slowdown in land transactions in areas affected by the draft regulations.

While land prices for areas affected by the regulations are likely to fall, land located on roads that are more than 16m wide and main roads in the city centre and suburban areas near mass-transit stations is likely to increase in price. This means future prices of buildings along these areas are likely to be pushed up in line with increased land prices. Existing large scale highrise buildings are also likely to increase in value, but this will vary depending on the building design, condition and upkeep.

In the long term, a decline in prices in some areas could make property more affordable, benefiting middle-level income earners.

At present, those who are earning low to middle level incomes with a budget of one to three million baht to purchase a home are forced to buy 30-squaremetre condominium units as their budget constraints do not enable them to buy a single house, even in areas outside the city.

Lower land prices will change this, making larger and more affordable housing available that will see an increase in people’s standard of living.

Another positive impact that will come as a result of stricter regulations is a controlled supply of new condominiums and offices in central Bangkok. Although this may sound negative to the market, restrictions on future supply should reduce the risk of overbuilding and a bubble.

However, I noticed one area in the new regulations that lacks proper planning, which is the allowance of more commercial space in the nodes of high-density residential areas. In a residential area, there is a need and demand for large-scale retail and commercial properties that are conveniently located close to the communities to support the growing suburban population, thereby reducing the need to travel into the city.

Unfortunately what works for the retail market in terms of design and usage are large shopping complexes that require a built area of more than 10,000 square metres per building, and these continue to be restricted.

Retail planning should be treated separately and subject to different regulations or exemptions to ensure that retail development supports residential expansion.Large-scale retail in suburban locations is equally important as the sector’s development in the city’s business districts.

Urban planning is a controversial issue and we need a city planning strategy that best promotes a high overall standard of living and environmental quality.

The new draft city planning regulation is a good step forward. Whether the regulation will impose more or fewer restrictions, it should be concluded soon, as the current uncertainty will not do the property market any good.

Source : Bangkok Post dated 23 October 2011 by Aliwassa Pathnadabutr, Managing Director of CBRE Thailand

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.

Comment

FreD B. FIELD III

how come Bangkok doesn’t have zoning laws forbidding burning trash inside the city limits? Who does someone call when a neighbor is burning trash next door? Bangkok has enough pollution already.

//Fred








 

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