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Mid-Year Property Review

By on Aug 03, 2010 in Property News

Published in the August/September 2010 Edition of The Brief, the Magazine of the British Chamber of Commerce in Thailand

We are already half way through 2010 and already it has proved to be a memorable year, albeit for negatives reasons with the April-May anti-government protests in Bangkok. With the protests effectively closing down key areas of the Thai capital, how did the political crisis affect the various sectors of the Kingdom’s property market?

James Pitchon, executive director at CB Richard Ellis Thailand, said that despite the turbulent scenes played out in Bangkok, said there has been “no significant change” in the property sector with the exception of hotels.


Bangkok’s overall office vacancy rate is currently at 14.4%, with the Grade A Central Business District vacancy slightly higher at 17% and neither figure has been much affected by the political events,” said Mr. Pitchon.

“Only four office buildings are under construction in the whole of Bangkok with a total area of 118,000 square metres. The total office stock is about eight million square metres so the amount of new supply will not have a significant effect on the market,” he added.

The largest new development will be the 72,500 square metre Sathorn Square on the corner of Narathiwat and Sathorn Roads. This development is scheduled to be completed by the end of this year and will have direct access via a covered bridge to the Chongnongsee BTS station and will have a W hotel on a separate building on the same site.

“Unlike other Thai property sectors we have no concerns about significant oversupply, the problem is that demand has been weakening since 2007, we have seen a small amount of net growth in occupied space this year but not much,“ said Mr Pitchon.

More than 50% of demand for offices in Bangkok comes from Multi National Companies, who have been cautious about increasing expenses following the global financial crisis and fears about a double dip recession. Thailand’s business reputation has also suffered from multiple blows since 2006 which makes it even harder for companies to get approval to expand in Thailand.

The macro economic numbers have been very positive and CB Richard Ellis expect that this will eventually feed through to increased demand , falling vacancy rates and rising rents. “Tenants with leases expiring over the next 12 months have to decide whether to renew in their existing premises or relocate to better quality, better located buildings close to mass transit stations,” said Mr. Pitchon.

“If the cost of interior decoration in the existing premises has been written off and is no longer fit for purpose then the next 12 months represents an opportunity for tenants to secure new premises at rental rates that are unlikely to fall further and if there is continued economic growth will start to rise,” he said. Grade A rents have only fallen by about 10 % over the last three years and are still the second cheapest on Asia with only Jakarta having lower rents.

Condominium Market

Most of the cranes that one sees on the skyline are condominium developments and following a lull in launches in March and April developers are launching new projects. However, the market has changed, most new developments are one bedroom small units. Thai rather than foreign buyers dominate the market. Mr. Pitchon said there are three types of buyer.

End user owner occupiers : Thais have adapted to condominium living and a survey of projects completed 3 years ago shows owner occupancy rates of 70- 80 %. There are fears about the affordability of new projects for owner occupiers as rising land prices have increased prices.

Buy to Rent Investors : low deposit savings rates are driving local investors to property. Even after the .25% interest rate increase in July, it is tough to find savings rates for three month deposits of better than 0.75 %. Buy to rent investors are hoping for yields of 6 % or more but will still be content with any return better than current savings rates which are currently negative once inflation has been taken into account. There are limited investment choices in Thailand, the stock market is seen a being volatile, the fixed income market is very small and so money is being driven to the property market.

Speculators : Buyers who purchase off plan with low down payments who hope to resell prior to completion. This the area of the market where this the most concern, if speculators stop buying then the volume of sales will fall which may not be a bad thing, but if they buy then default on the final payment then that is where there will be problems. Despite the turmoil in April and May developers are still able to sell some projects out on the launch day – interest rates are going to have to rise substantially before people decide that the keeping money in the bank on deposit is better idea than investing in property.

Mr. Pitchon said the Thai government may decide that non interest rate measures such as higher deposits may be necessary if they feel the condominium market is overheating. Non interest rate measures have been announced in China, Hong Kong and Singapore. “In the larger unit luxury sector there is some unsold inventory in completed buildings and developers are taking steps to clear this stock with incentives such as “guaranteed yields” and furniture packages inclusive in the price.

“We estimate that unsold inventory only accounts for less than 3 % of the total downtown stock and will not trigger a fall in prices.”

On the contrary, Mr. Pitchon said, prices have continued to rise in some of the better developments that have been completed over the last three years.


The Bangkok hotels and hospitality industry was arguably most affected by the political unrest earlier this year. Travel warnings, international news headlines, violence and deaths all combined to turn tens of thousands of tourists away and hotels located near the protest site were forced to close their doors.

Thailand is blessed with a large number of repeat visitors and Mr Pitchon estimates around 40-50% of the Kingdom’s visitors are return tourists.

“Fundamentally, Thailand remains attractive as a destination,” Mr Pitchon said, “while many areas were totally unaffected by Bangkok’s issues. Phuket, for example, enjoys a degree of separation from branding it as ‘Phuket’, rather than ‘Phuket, Thailand’.” Mr. Pitchon pointed out that international passenger arrivals to Bangkok Airports increased by 2% in June and International arrivals to Phuket increased by 47%.

The Airports of Thailand Public Company Limited (AOT) announced the air transport statistics for June 2010 and from that it said total international passenger disembarkations at Bangkok’s Suvarnabhumi airport were 1,013,782 in June 2010 compared to 994,205 in June 2009, an increase of 2% but this represents a 19% decline on June 2008 disembarkations. Domestic passenger disembarkations at Suvarnabhumi and Don Muang airports were 394,278 in June 2010 compared to 431,514 in June 2009, a 9% decline on both June 2009 and 2008 disembarkations.

International disembarkations at Phuket’s airport were 94,681 in June 2010 compared to 64,451 in June 2009, a 47% increase. This represents a 23% increase on June 2008 figures. Domestic passenger disembarkations were 102,505 compared to 108,270 in June 2009, a decline of 5% on June 2009 and a 9% decline on June 2008 figures.

Aside from domestic political issues, Mr Pitchon pointed to a potential difficulty for the country’s hotel industry with new developments set to increase the industry’s overall number of rooms by 30% over the next two years. “While there is likely to be a recovery in terms of arrival numbers, it remains to be seen whether visitors numbers can grow in line with the new inventories being developed,” he said.

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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