Bangkok's Condo Market
Bangkok, July 13, 2007:
In the overall scheme of things, the Bangkok high end condominium market represents little more than a drop in the bucket of the city's complete real estate make-up, which features an endless stream of housing developments, townhouses, self built homes and low to mid range condo developments.
But from the perspective of foreign expatriates and regional investors, high end condominiums remain the most popular outlet for those looking to invest in the city's property market, due to the country's sticky foreign ownership laws and the risk of oversupply that is fast developing in the mid-range of the market.
James Pitchton, executive director of CBRE Thailand, says that overall the rate of sales of condominiums has been slower in Bangkok for almost the last year, however much of that is a result of a reduction in Thai demand because of very weak consumer confidence and uncertainty resulting from the political situation.
"There is still a 49% limit on foreign ownership [in a condominium development] but most buildings in Bangkok still have foreign quota available, there are a few where the quota is full but certainly the importance of foreign buyers has increased."
As of the first quarter of 2007, the total supply of condominiums in the area of central Bangkok, which includes Sukhumvit up to Ekamai, Lumpini, Sathorn, a portion of the riverside and the Phryathai area up to Victory Monument, was 46,152 units.
"Going forward there is a lot of new supply currently under construction and planned," said Pitchton. "About 20,000 units planned just in the downtown area. But that new supply will come in over a period of probably three years."
A number of big name players have been faring particularly well in the past year. These include Thai developer Major Development, which continues to launch high end developments that are met with favourable response from the local market such as Wind at Sukhumvit 23, a project incorporating luxury with functionality. There's also the well known brand Sansiri, which recently launched stepped back into the high-end condo market with SIRI at Sukhumvit, a development near Thong Lor valued at over Bt3 billion. And of course there's TCC Capital Land, which continues launch highly successful projects, most recently its high end Villa Rachatewi project.
One project that is generating its fair share of buzz is Raimon Land's recently launched premium development The River, located in a prime location on the Chaophraya River across from the Shangri-La Hotel.
The River is a freehold condominium designed by Hans Brouwer, and is already being touted as lifting the city's luxury market to new heights. The development's iconic building will comprise of a variety of well planned units and extensive recreational facilities.
According to Raimon Land CEO Nigel Cornick, the project has already exceeded expectations. "We're probably up around Bt2.8 billion, which represents about 35% of the initial valuation of the project. And that's just the front tower. We haven't launched the north tower, the back tower. We're looking at exploring branding," says Cornick. "The River has demonstrated that there is still very strong demand for premium grade condominiums in the CBD and in good areas. We're achieving in our River project between Bt100,000 up to Bt200,000psm depending on the location and the outlook and size of the unit. So that's a significant increase from where we thought the market would be when we starting talking about pricing for the first phase."
Cornick notes a significant percentage are foreign buyers who perhaps have got less price sensitivity than some of the local buyers. "That being said, we have sold quite an extensive number of units in this project to Thais, so it indicates there's also a Thai market."
Growing demand for projects like The River highlights a trend in which buyers are more discerning, and want more in terms of quality and design than what they were offered in recent years. To put it simply, size is not enough.
"When there was very little choice people would take the first things that came up," said Pitchton. "Today there's a wide range of choice and there's a wide range of buildings that are being completed so people can look at what's been done so far, so there are new bench marks and new standards set."
And as standards rise, Pitchton says there is a new market sector emerging, what he calls 'super luxury', however there are very few examples of projects that fall into that category at the moment.
"It's buildings achieving over Bt130,000psm on a consistent basis, not just the penthouse unit or one unit, but where average prices are over Bt140,000 or Bt150,000," he says. "And The Met is one example of those, on Sathorn Road. But there are very few examples of those."
The Met is a 66 storey 370 unit development featuring 2-4 Bedrooms ranging in size between 92-546 sqm. It's scheduled for completion in early 2009, and is located next to the Singaporean embassy.
Pitchton says the regular luxury sector achieves around Bt80-130,000psm, so there is a level of standard that has to be offered before people are willing to pay a significantly higher price.
"It's going to be a small market, and the product has to be quite spectacular in terms of location, reputation, design and the developer to be able to achieve that. I think yes, (the Bangkok condominium market) can move to the Bt200,000 mark, but the product has to be exceptional."
Cornick echoed these comments, saying Raimon Land's as of yet unnamed project on Ratchadamri Road is probably going to set a new benchmark for residential high-end condos in Bangkok.
"We won't be launching that till the end of the year but we're already talking about in excess of Bt175,000psm entry level. So I think the high end as far as we can see is also perhaps a little misleading because if you say high end is 100,000psm, that isn't necessarily true anymore. You can go from Sukhumvit up to Thonglor and buy for Bt100-120,000psm in buildings that you would not define as being premium grade residential projects. So I think we're seeing a split of the top end of the market into premium premium grade and grade A. I think the differentials are going to be significant for some of these projects."
So how do luxury developers differentiate their products? With a location that is so unique no one else can have it or by moving towards mixed-use branding with a hotel, says Pitchton.
"Certainly we're seeing that in the Phuket market with Shangri-La Villas, we'll see it in Samui with W Resort and I think we will see that with Sukhothai Residence in Bangkok, a very high-end development that's being planned by the developer of the Sukhothai hotel, behind the hotel, which will have less than 200 units," says Pitchton.
"To achieve a price significantly higher than the average a development really has to stand out."
Cornick echoes these sentiments, noting that since the 1997 financial crisis there's been an entry into the market by a number of players, including Raimon Land, who have brought experience to the market. "And now everyone else has to keep up with us," he says. "I think it's a question of adaptation. I don't think a lot of the Thai property developers understand what premium grade really means, and there's going to be an education I think for a lot of buyers that when they end up walking into their unit when it's finished and see they're not necessarily going to get the premium grade buildings and finishings that they thought they were going to get. So we try and ensure that our show units actually represent exactly what you're going to get in three-four years time because most if not all of these projects are being sold off plan."
In addition to ensuring you're actually going to get what you pay for, buyers also need to be cautious about management, which can severely affect the the long-term prospects of a project.
"Some of the common area management fees set two or three years ago may not be sufficient to pay for a high standard of management," says Pitchton. "Sadly, it's one of the areas developers forget about. They're quite happy to say that their condo is worth Bt100,000psm but are not willing to pay for a first class management service. But it will be the management that preserves and adds value.
"If you look back at buildings built in the late 80s and 90s, there are very few that have kept pace with new developments. There's often a discount of as much as 50% between a building that's 10 years old and a new building. And that's despite the fact that land and construction costs have risen considerably."
Pitchton points to Somkid Gardens, completed in 1991 and located in the upscale Chidlom area, as one of the few examples of buildings more than 10 years old that can still achieve prices of over 100,000psm.
As for the months ahead, the same issues that have been pulling the high-end condo market down are what continue to threaten its growth. These include uncertainty on the future government policies and postponement of the city's mega infrastructure plan, especially mass transit extensions, which have all weakened buyer confidence.
During recent the Land & Property Law in Thailand conference, Apisit Limlomwongse, managing director of Nexus Property Consultants Co., Ltd, made a presentation on investment opportunities, prospects and trends in the Bangkok condominium market.
He noted that condominium units priced over 100,000 psm have the lowest average absorption rate, of just over 60%, however condominium units priced over 100,000psm account for only 12% of the total unsold units in the market. "Almost 70% of the unsold units in the market are priced below Bt70,000 psm."
Apisit says projects that are most appealing to buyers are located near skytrain, subway stations, shopping areas and workplaces, featuring compact, efficient and fully functional unit layouts with ample facilities and parking.What's not hot are projects located deep ino sub-sois, especially large scale projects, in a location where many units are available in nearby projects.
As for pricing, buyers should look for an overall unit price to be in line with the location. "For example, in the Thonglor area, prices are in the range of Bt 3-4 million for a two-bedroom unit," said Apisit, adding that buyers will be turned off of high overall unit prices that result from inefficient unit layouts, even if the price per square meter is cheaper than competitors.
Article courtesy of Asia Property Report
