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Pent-Up Demand Seen Driving Luxury Market

By on Sep 26, 2010 in Residential
Published on The Nation dated 20 September 2010 by Aliwassa Pathanadabutr, Managing Director of CB Richard Ellis Thailand

Only three months on from the political chaos in Bangkok and all of Thailand’s economic indicators have turned around swiftly. Economic growth figures are beyond forecast levels and one of the highest in Southeast Asia. The economy’s strength is evidenced by the growth in the Stock Exchange of Thailand, the property market and the strength of the baht.

With the positive indicators, we have seen sales in the luxury and super luxury condominium markets starting to gain momentum. This segment which includes units priced above Bt10 million and Bt130,000 per square metre was previously driven by foreign demand and was clouded by the global economic crisis and local politics for almost two years. In the past two months, there are clear signs that this segment has been revived, but this time dominated by local demand. Sales of units above Bt15 million have improved significantly in August and September 2010. We have seen a surge in sales volume for units priced between Bt30 million to Bt94 million in luxury projects we monitor such as Saladaeng Residences, The Met, Millennium, Royce Private Residences, and the Ritz Carlton Residences.

The driving force behind the luxury market revival is the pent-up demand, which has been deferred by the lack of market confidence. In the past two years, buyers’ interests have shifted to smaller units priced between Bt3 million to Bt6 million. When looking at the historical growth in other regional markets, no one can deny that current prices in the Bangkok luxury market are reasonable in comparison.

The best buys are in projects launched before 2008 as they enjoy lower land and construction costs. For example, you can still purchase luxury two and three bedroom units for Bt100,000 to Bt140,000 per sqm, which represents real value for money. The super luxury, especially branded property, remains at an average of Bt200,000 to Bt280,000 per sqm.

The key ingredient to develop a luxury and super luxury project that matches the affluent target market requirement is a prime CBD site with good surrounding areas. Given there are limited sites available in prime locations such as the areas surrounding Lumpini Park, including early Sathorn, Wireless, Rajdamri and Phloenchit roads and Sukhumvit, particularly popular locations such as Soi 24 and Thong Lor, scarcity of prime sites will be a major determinant in future price trends. Prices of prime sites have skyrocketed recently, with an appreciation of 50 percent to 70 percent from 2007 to 2010 based on our records, much higher compared to non-prime sites which generally appreciate at 3 percent to 5 percent per annum. With increasing land and construction costs, prices for future projects to be launched after this period will definitely go up.

We have yet to see an influx of foreign buyers returning to the Thai market. For now, local buyers are leading the market but we believe foreign buyers will soon return in line with improved economic and political outlook and as most other key markets have matured. An increase in foreign demand is another factor that will drive prices upwards; therefore the domestic market is now grabbing the opportunity to buy in at current prices. The strength of the baht may have some effect on foreign demand but with the potential for future capital gain and “value for money” products, Thai condominiums remain an attractive buy for foreigners.

With potential price increases, scarcity of land and limited supply of future luxury and super luxuty developments, we foresee a trend of long-term holding for people buying into this segment.

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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