Market Waits for Dust to Settle
Developers counting on incentives to stoke buyer interest in unsold units before they start building more new ones
The economic slowdown and high household debt continue to influence condominium demand. With property tax incentives ending on April 28, 2016, developers plan to launch new projects in the second half after clearing inventory before the deadline.
Prasert Taedullayasatit, president of the Thai Condominium Association, says many developers are busy selling completed and ready-to-transfer condos during the incentive period in the first four months of the year.
“Most new condominium supply launched in the first quarter was from small-scale projects with 100 to 200 units in the central business district,” he said. “After the incentives end, a lot of new condominium projects will be launched.”
The backlog of condos in the market to be transferred to buyers is 190 billion baht, including units sold between 2012 and 2014. Overall condominium presales reached 182 billion baht last year, and growth of up to 5% is forecast this year, Mr Prasert says.
The property consultant Colliers International Thailand reports that 6,973 condo units were launched in the first quarter, up 17% from the fourth quarter of 2015.
Surachet Kongcheep, associate director of the research department at Colliers, says this represents not a recovery in the market, but rather a shift in developer focus to selling completed, unsold condo units during the incentive period.
“There were fewer new condominium projects launched by large developers,” he said. “Nearly a third of the new supply in the first quarter was from small, medium-sized and new developers.”
Atip Bijanonda, president of the Housing Business Association, says residential demand growth will continue, mainly in the townhouse segment, after a rise of 30% in new demand last year, indicating that many developers have shifted from condos to townhouses.
“When consumers are not confident in the economy, condos – a future-oriented product – will have slow demand at first as they take longer to develop,” he said. “Townhouses and single houses will move well due to lower risk.”
According to the Real Estate Information Center, the number of housing units newly launched in Greater Bangkok last year dropped to 104,900 from 118,300 in 2014. The biggest decline was in condos, to 60,400 units from 73,100, while the single house and townhouse segment dipped to 44,500 from 45,200.
“Townhouses are becoming a replacement product for condominiums, as most new condo supply is in the high-priced segment at higher than 100,000 baht per square metre, an unaffordable price for the mass market,” Mr Atip said.
According to Colliers, there were 505 high-priced condo units with an average price of 250,000 baht per sq m launched in the first quarter, bringing the total number to 3,393, of which 65% sold.
Newly launched high-end condo supply may fall in 2016, as some developers are less than confident in the country’s economic recovery.
Moreover, new supply launched last year has already been absorbed by demand; new projects in the fourth quarter saw lower sales than those launched in the first half.
The better part of high-priced condo supply launched in the first quarter of this year was between Sukhumvit Soi 1 and Soi 55, accounting for 40% of the total, as land prices on Sukhumvit Road in the inner city surpassed 1.5 million baht per square wah.
Aliwassa Pathnadabutr, managing director of property consultant CBRE (Thailand), says downtown Bangkok will continue to be the most sought-after address for high-net-worth people and young white-collar workers.
Last year, condo buyers of units priced over 200,000 baht per sq m were 80% Thai. Of the 20% that were foreigners, most were from Asia. This pattern is tipped to continue with no dramatic increase in foreign buyers.
Prices of newly launched condos in the best downtown locations will continue to rise, driven by soaring land prices as developers compete to buy land amid a limited number of plots in the inner city.
Some luxury projects in 2015 were able to achieve high sales rates and record-breaking prices exceeding 300,000 baht per sq m.
“The land-price record will be broken in the first half of this year,” Ms Aliwassa said. “After a new record high was set of 1.8 million baht per square wah in the Chidlom area late last year, many land plots in the city are now offered at 2 million baht [per square wah].”
Though there remains no sales recorded at that price, it will eventually be accepted by developers, she says.
CBRE expects the downtown condo market in 2016 to be sluggish, mirroring economic conditions. Nevertheless, the number of new project launches will remain relatively stable or rise slightly from 2015.
Many condo projects await launch, especially in the Sukhumvit area, including some that were postponed from 2015.
The risk during an economic slowdown is that not every project will be able to capture the buyer’s imagination in terms of location, specifications and quality – or at least not enough to justify high asking prices. Only a small pool of potential buyers can afford luxury housing.
“The key for developers in 2016 is to focus on developing the right product in the right location at the right price,” Ms Aliwassa said. “Only projects that manage to do so will succeed.”
According to CBRE research, projects in non-prime downtown locations will face strong competition in a market where buyers are less confident.
Nalinrat Chareonsuphong, managing director of Nexus Property Marketing, says new condo supply in Bangkok will grow at the same level seen last year, while demand will be relatively strong in some segments.
Downtown, new supply in the super-luxury segment will be limited because of the limited number of land plots available at reasonable prices. Demand will remain strong for property in prime locations, Mrs Nalinrat says.
She expects selling prices to rise by at least 7% (a lower increase than last year’s 10%), from 96,000 baht per sq m to 106,000, reflecting higher land costs.
“The price of a single house in the provinces is affordable,” he said. “Though they are far from town, travel is still convenient. This is the main reason why the condominium market in many provinces such as Chiang Mai and Khon Kaen was sluggish during the past few years.”
He says some projects need to be cancelled and the booking money refunded to buyers because the sales rate is too low to take risks. Some projects had speculative buyers refusing to get units transferred because they were unable to resell.
According to Colliers research, the average sales rate of condos in Chiang Mai last year was 60% of a total 6,660 units; in Khon Kaen, the figures were 75% and 1,310 units; in Khao Yai, 70% of 3,320 units.
Sales rates in the Thai-dominated resort destinations Cha-am and Hua Hin were 80% of 13,593 units and 77% of 5,962 units, respectively. In foreign-dominated Pattaya and Phuket, the rates were 80% of 26,510 units and 80% of 21,331 units.
“Sales rates of condominiums in the provinces were quite high because the supply was launched many years ago and the number of newly launched units dropped significantly in all locations,” Mr Surachet said. “Some projects in some provinces were frozen.”
Source: Bangkok Post – 28 April 2016