Condo mar­ket on a roller­coaster

De­mand is not meet­ing sup­ply na­tion­wide, but Bangkok’s mass tran­sit ex­ten­sion is a boon for the cap­i­tal

Bangkok Post - - PROPERTY - By Kanana Katha­rangsi­porn

Drive past Sukhumvit-Asoke in­ter­sec­tion and you may no­tice a new bill­board has come up in the past few days ad­ver­tis­ing a spe­cial dis­count for buy­ers of a high-end con­do­minium project on Sathon Road that un­til re­cently was be­ing touted as hav­ing been 100% sold out.

One would be for­given if they thought that this was a stand­alone case of a sin­gle project, but if one digs deeper they will no­tice that the de­mand for prop­erty in Thai­land, es­pe­cially in Bangkok, has been wit­ness­ing a phase of slow­down over the past cou­ple of years, al­though most de­vel­op­ers would not ad­mit to it.

“The sit­u­a­tion in the prop­erty mar­ket is not as rosy as you may think but it is not that bad ei­ther,” Adis­orn Thananan-nara­pool, chief ex­ec­u­tive of­fi­cer of Land & Houses Plc, said.

Al­though ad­mit­ting that the sup­ply of con­do­mini­ums in the city was on a sharp up­swing which could im­pact the takeup rates, he said at the mo­ment fear of a prop­erty mar­ket crash is some­thing that still is not on the hori­zon.

Mr Adis­orn, who man­ages the 132-bil­lion­baht mar­ket cap­i­tal­i­sa­tion com­pany LH, says that one of the big­gest in­di­ca­tors of not wit­ness­ing a pos­si­ble crash is the fact that the mar­gins of the de­vel­op­ers have not gone down sig­nif­i­cantly over the past few quar­ters.

The cur­rent gross mar­gins for most Stock Ex­change of Thai­land-listed prop­erty de­vel­op­ers stand at around 33%, against the 35% gross mar­gins they were en­joy­ing about five years ago, at the same time op­er­at­ing mar­gins have seen a larger drop to 17% from 20% seen dur­ing the same pe­riod.

The bulk of this de­cline has come from the in­crease in sell­ing and ad­min­is­tra­tive ex­penses which are up to about 16% from 12%, and there are no signs of any re­ver­sal of the trend, says Nathavut Shivaruchi­wong, sec­tor an­a­lyst at Deutsche Tisco In­vest­ment Advisory, a unit of Tisco Se­cu­ri­ties and Deutsche Bank.

Al­though mar­gins have seen a de­cline over the past few years, de­vel­op­ers con­tinue to en­joy an up­trend in cer­tain seg­ments of the prop­erty mar­ket, es­pe­cially in the high-end of the con­do­minium mar­ket.

Bangkok’s con­do­minium mar­ket has seen sup­ply con­tinue to rise over the past few years, from 102,000 units with a com­bined value of 413 bil­lion baht in 2015 to 110,000 units worth 382 bil­lion baht to 114,000 units worth 441 bil­lion baht in 2018.

Dur­ing 2018 it is ex­pected that as many as 120,000 units worth just over 500 bil­lion baht would be launched and about half of the new launches of the con­do­minium units in Bangkok has been cater­ing to the mid­dle to up­per seg­ment of the mar­ket while the other half is for the mid­dle to lower seg­ment.

“There are some signs that the mid­dle and be­low seg­ments of the mar­ket for the con­do­minium mar­ket has not picked up yet,” Mr Adis­orn says.

Chanond Ruangkrity­a, pres­i­dent and chief ex­ec­u­tive of­fi­cer of SET-listed Ananda De­vel­op­ment Plc, whose port­fo­lio fo­cuses mainly on con­do­minium mar­ket cater­ing to the mid­dle to the up­per end, says that he does not see a sit­u­a­tion of a de­mand/sup­ply mis­match but in­stead the em­pha­sis has been on the lo­ca­tion and the de­mo­graph­ics of each project that is launched.

TAKEUP RATE

Most in­dus­try ex­perts be­lieve there will be no over­sup­ply but what is clearly vis­i­ble is that the takeup rate has been slow­ing and projects that used to make head­lines of be­ing sold out within days, if not hours, are rarely heard of these days.

“If you take the case of the project you just men­tioned [on Sathon Road], they had re­ported that they were sold out but at the mo­ment about 10% of the units re­main and they are of­fer­ing dis­counts for what­ever is left,” says a real es­tate agent and spec­u­la­tor on the prop­erty mar­ket, who had pur­chased units at this newly opened build­ing but has since sold out his units at a pre­mium.

He added what oth­ers have been talk­ing about in terms of the takeup rate that it is not on par with what the sit­u­a­tion was a few months or years ago.

“The days of sell­ing out in a sin­gle day don’t seem to be there now, and we never had those days any­way be­cause we do not ex­pect to sell out our project in a day or two, in­stead we would be happy to see 30% of our project be­ing sold over a pe­riod of two to three months,” Mr Adis­orn of LH says.

But projects in good lo­ca­tions con­tinue to re­main in high de­mand as was seen by the launch of “Su­palai Pre­mier Charoen Nakhon”

which saw the nearly 550 units sold out within days of the launch.

“If you talk about that project, it was ac­tu­ally sold out be­fore it was up for sale be­cause many of our ex­ist­ing cus­tomers wanted it and had booked be­fore we opened it to the pub­lic, but be­cause we wanted to have some pro­por­tion for the pub­lic we opened it to the pub­lic to buy,” Atip Bi­janonda, a di­rec­tor at Su­palai Plc and also the pres­i­dent of the Hous­ing Busi­ness As­so­ci­a­tion, says.

Al­though he con­ceded the takeup rate has been slow­ing slightly, he says that the is­sue of over­sup­ply is some­thing that is not vis­i­ble in the mar­ket.

Ji­ra­porn Lin­ma­nee­chote, sec­tor an­a­lyst at Pha­tra Se­cu­ri­ties, says takeup rates are down to 20-80%, with 80% be­ing for re­ally good projects, down from 100%, which used to be the norm.

But the good news, she says, is that trans­fer rates con­tinue to re­main good, even though there were re­ports of a rise in the re­jec­tions of ap­pli­ca­tions for hous­ing mort­gages a few months ago.

A de­cent takeup rate would mean that sup­ply for the mar­ket would con­tinue to re­main.

Vichai Viratkapan, act­ing di­rec­tor-gen­eral of the Real Es­tate In­for­ma­tion Cen­ter (REIC), says res­i­den­tial sup­ply in 2018 would to­tal around 276,100 units na­tion­wide, a rise of 6.2% from 260,000 units at the end of 2017.

The amount would com­prise 154,200 lowrise units (sin­gle houses, town­houses, du­plexes and shop­houses) which would ac­count for 55.8%. The re­main­ing 121,900 units would be con­do­mini­ums.

If bro­ken down by cat­e­gory then the con­do­minium seg­ment would be the largest in num­ber which would ac­count for 44.1%, fol­lowed by town­houses (24.3%), sin­gle houses (23.5%) and du­plexes and shop­houses (8.1%).

“This amount will not re­flect an over­sup­ply as the over­all ab­sorp­tion rate will re­main healthy,” he said.

Ac­cord­ing to him the ab­sorp­tion rate of res­i­den­tial sup­ply na­tion­wide is ex­pected to im­prove and the cur­rent stock in the mar­ket could be ab­sorbed within 15 months, a more op­ti­mistic ap­proach than the an­a­lysts who be­lieve that it could take up to 24 months to ab­sorb the cur­rent in­ven­tory to be sold out if no new units are added.

REIC es­ti­mates that low-rise units would take 17 months to be sold out, shorter than a usual rate of 19 months, while con­do­minium would take 13 months, slightly longer than a usual rate of 12 months.

In Greater Bangkok, res­i­den­tial sup­ply would to­tal 154,200 units which would com­prise 79,900 con­do­minium units and 74,300 low-rise units, rep­re­sent­ing 51.2% and 48.8% re­spec­tively.

“Con­do­mini­ums will con­tinue to dom­i­nate Bangkok’s prop­erty mar­ket this year, driven by the de­vel­op­ment of new mass tran­sit lines cov­er­ing wider ar­eas of Greater Bangkok and a change in peo­ple’s life­styles,” he says.

In the prov­inces, the key mar­ket will re­main low-rise units, which would ac­count for 65.5%, he added.

“Res­i­den­tial trans­fers, which best re­flect hous­ing de­mand, have been on an up­ward trend since late last year. This mo­men­tum will carry on this year with an in­crease of 6% in the num­ber of res­i­den­tial trans­fers na­tion­wide,” says Mr Vichai.

In Greater Bangkok, the num­ber of res­i­den­tial trans­fers would be higher than the na­tion­wide fig­ure, with a rise of 8.6%, while in the prov­inces that would ex­pand by only 2%.

Prop­erty con­sul­tant Knight Frank Char­tered (Thai­land) says Bangkok’s con­do­minium mar­ket wit­nessed con­sec­u­tive quar­ters of an­nual growth sales as a re­sult of im­proved buy­ing ac­tiv­ity in the mar­ket.

The av­er­age takeup rate for the en­tire year of 2017 jumped to 75.8%, up ap­prox­i­mately 2% year-on-year, which re­flected stronger sen­ti­ments among home­buy­ers. In the sec­ond half of 2017, the mar­ket saw an av­er­age takeup rate of 76.5%, ris­ing by 1.4% half-on-half.

New de­vel­op­ments in the cen­tral busi­ness dis­trict (CBD) were ac­tive, with the av­er­age takeup rate surg­ing to 77.4%. De­mand for high value units in the CBD with su­pe­rior spec­i­fi­ca­tions had shown strong per­for­mance, with some de­vel­op­ers able to sell up to 80% of their projects on the launch day.

Also, it was seen that de­mand for top-qual­ity projects with su­perb lo­ca­tions and so­phis­ti­cated spec­i­fi­ca­tions re­main of in­ter­est, and the buy­ers of these prop­er­ties tended to ac­quire them for their own oc­cu­pa­tion or long-term cap­i­tal ap­pre­ci­a­tion.

In the sec­ond half of 2017, de­mand for home­own­er­ship in the city fringe and pe­riph­eral ar­eas was con­firmed in light of the ex­ten­sion of mass tran­sit routes.

Buy­ers con­tin­ued to ex­pand their in­ter­est in var­i­ous lo­ca­tions, mainly in Ratchadaph­isek, Pha­hon Yothin, Lat Phrao, and On Nut-Bear­ing. Takeup rates for projects in the city fringe and pe­riph­ery were 72.5% and 79.6% re­spec­tively.

But de­spite the de­cent take-up rates, REIC says that there were cer­tain seg­ments of the mar­ket where the in­ven­tory re­mained high.

Ac­cord­ing to re­search by REIC, the top three unit prices which saw the largest num­ber of un­sold units as of mid-2017 were units priced 2-3 mil­lion baht with 18,743 units which ac­counted for 29% of to­tal un­sold units.

It was fol­lowed by units priced one to 1.5 mil­lion baht with 12,474 units and 1.5-2 mil­lion baht with 10,408 units.

Fears of such un­sold in­ven­tory had sparked con­cerns of pos­si­ble over­sup­ply and a “bub­ble”.

“Maybe in some pock­ets of the coun­try such as Phuket you can see some over­sup­ply but in other places I can say that it is not true, not even in Pat­taya where un­til a few months ago one could say that there was an over­sup­ply but the Chi­nese de­mand in Pat­taya has helped to im­prove the sit­u­a­tion there,” Mr Atip of Su­palai says.

CHI­NESE BUY­ERS TO THE RES­CUE

Chi­nese in­vestors, who have been shunned in many parts of the world where they have been blamed for cre­at­ing an ar­ti­fi­cial bub­ble in the prop­erty mar­ket, have been ac­tively par­tic­i­pat­ing in the Thai mar­ket.

“If I have to guess, they ac­count for about 10% of the over­all pur­chases in the mid seg­ment of the mar­ket,” says Ms Ji­ra­porn from Pha­tra.

Chi­nese buy­ers who have re­cently be­come ac­tive in the mar­ket for units priced be­low 10 mil­lion baht have helped spur de­mand and lower the in­ven­tory, which Mr Nathavut from Deutsche Tisco an­tic­i­pates is in the tune of nearly 200,000 units or about 1.7 years be­fore they are ab­sorbed.

“For­eign buy­ers have been help­ing the mar­ket and had it not been for them, the sit­u­a­tion would be worse,” Mr Adis­orn of LH ad­mits.

But fears that they may cre­ate a prob­lem such as that seen in Aus­tralia and Cam­bo­dia seems un­re­al­is­tic in Thai­land as there are re­stric­tions on the num­ber of units in each build­ing that for­eign­ers can own.

Chi­nese buy­ers in Aus­tralia and Cam­bo­dia have been blamed for push­ing up the prices of units to the point that laws were con­sid­ered to cur­tail their par­tic­i­pa­tion in the prop­erty mar­ket there.

But so far Chi­nese buy­ers in Thai­land have mostly have been in the mid­dle

Con­do­mini­ums will con­tinue to dom­i­nate Bangkok’s prop­erty mar­ket this year.

VICHAI VIRATKAPAN ACT­ING DI­REC­TOR-GEN­ERAL OF REIC

>> seg­ment, rep­re­sent­ing prices of 100,000 to 150,000 baht per square me­tre, while in the up­per end mar­ket their par­tic­i­pa­tion con­tin­ues to re­main very limited, thus pre­vent­ing a surge in prices like in cer­tain other coun­tries.

BANGKOK LEADS THE WAY

Prop­erty ex­pert Surachet Kongcheep says the new con­do­minium sup­ply in Bangkok to­talled around 56,000 units in 2017, a growth of 44% from 2016, the high­est num­ber in the past six years.

“De­vel­op­ers are con­fi­dent about pur­chas­ing power and Bangkok’s con­do­minium mar­ket,” he says. “De­spite the large num­ber of new sup­ply, the sales rate was good at 65%.”

Many projects were sold out, es­pe­cially projects in a good lo­ca­tion or with an in­ter­est­ing con­cept at­tracted buy­ers de­spite weak eco­nomic sen­ti­ment last year, he added.

New de­vel­op­ments con­tin­ued to in­crease, par­tic­u­larly those lo­cated in pe­riph­eral ar­eas in line with ur­ban sprawl along new mass tran­sit lines and limited avail­abil­ity of prime land and high prices of land in the CBD.

A to­tal of 32,258 units were launched in the sec­ond half of last year, the high­est new sup­ply recorded in eight quar­ters. As a re­sult, ac­cu­mu­lated con­do­minium stock in Bangkok surged to 538,920 units, a rise of 6.4% half-on-half.

But de­spite the ris­ing sup­ply, a de­cent takeup rate helped keep prices sta­ble in many ar­eas, Knight Frank says.

It added that the av­er­age sell­ing prices of all grades of con­do­mini­ums launched across the city in 2017 stood at 153,220 baht per sq m, an in­crease of 5.9% from 2016. In the sec­ond half of 2017 alone, av­er­age sell­ing prices were 152,371 baht per sq m, up 16.8%.

Av­er­age sell­ing prices in the CBD stood at 241,585 per sq m, a rise of 5.6% com­pared to the sec­ond half of 2016. Nev­er­the­less, pric­ing for new sup­ply in the CBD was down slightly across the board when com­pared to the first half of 2017.

Due to a shift in the mar­ket share of sales away from Sukhumvit and to­wards other ar­eas such as Withayu, Silom, Sathon and Rama IV, av­er­age prices of new CBD sup­ply de­clined 5.24%.

Driven by in­creas­ing sell­ing prices of new ad­di­tions in the area, the city fringe’s av­er­age prices in the sec­ond half was 131,906 baht per sq m, ap­prox­i­mately 0.6% higher than that in the first half of 2017.

Over the same pe­riod, av­er­age sell­ing prices of con­do­mini­ums in pe­riph­eral ar­eas surged to 83,623 baht per sq m, up from 74,591 baht per sq m in the sec­ond half of 2016.

Pric­ing in both the city fringe and pe­riph­ery no­tice­ably ex­pe­ri­enced an­nual gains for con­sec­u­tive years, pri­mar­ily due to higher land prices in those ar­eas, a re­sult of new mass tran­sit routes in the city.

Mean­while, sell­ing prices in the city fringe and pe­riph­eral zones con­tin­ued to push up­ward while CBD prices dipped slightly by 5.2% hal­fon-half due to a shift in the mar­ket share of sales away from prime Sukhumvit to­wards other zones.

Av­er­age sell­ing prices of all new sup­ply across the city fall to 154,068 baht per sq m, rep­re­sent­ing a de­crease of 1.1% com­pared to the first half last year.

In 2017, more do­mes­tic de­vel­op­ers, par­tic­u­larly large and ex­pe­ri­enced play­ers in the mar­ket part­nered with for­eign in­vestors, mainly from Ja­pan, China and Hong Kong, in re­sponse to ex­pand­ing de­mand from over­seas buy­ers and im­prove­ments in con­struc­tion tech­nol­ogy.

The lo­ca­tions along new mass tran­sit routes con­tin­ued to emerge in the lime­light as a re­sult of land short­age and high land prices in the city cen­tre. More de­vel­op­ers were also eye­ing ar­eas in Ramkhamhae­ng, Ram In­tra and Thon Buri.

Bangkok’s con­do­minium sec­tor main­tained healthy mo­men­tum in 2017 with the to­tal num­ber of new de­vel­op­ments ris­ing 19% from 2016 to 62,751 units.

Dur­ing the sec­ond half of 2017 alone, the to­tal new sup­ply in­creased 5% to 32,258 units com­pared to 30,789 units in the lat­ter part of 2016. The sec­ond half of 2017 showed pos­i­tive growth as more con­do­mini­ums were launched in the CBD.

Some prom­i­nent projects were launched across ma­jor con­do­minium zones with the bulk lo­cated in the Sukhumvit area.

Ap­prox­i­mately 6,500 units were launched in the sec­ond half of 2017, of which 51% were in Sukhumvit, fol­lowed by 22% in Wit­thayu-Chid­lom and 12% in the Rama IV zone.

Fif­teen lux­ury con­do­minium projects with a to­tal of 4,777 units were launched in the sec­ond half of 2017, a strong in­crease of 22.8% from 1,091 units in the same pe­riod of 2016.

In the sec­ond half of 2017, new sup­ply in pe­riph­eral ar­eas to­talled 18,732 units, rep­re­sent­ing some 58% of the to­tal sup­ply launched in the sec­ond half of the year.

Over the same time, new sup­ply in the city fringe ac­counted for 22% of over­all launches in Bangkok. Pop­u­lar lo­ca­tions for the new ad­di­tions in the area were Lat Phrao, Ratchadaph­isek and Thon Buri. Ac­cord­ing to Knight Frank, new mass tran­sit routes will con­tinue to rule real es­tate con­ver­sa­tions in the com­ing years as there are a lot of ma­jor pub­lic trans­porta­tion changes hap­pen­ing in Bangkok in the near fu­ture.

Height­ened com­pe­ti­tion is an­tic­i­pated in pre­vi­ously less ac­ces­si­ble zones of Bangkok, es­pe­cially along the BTS Light Green Line ex­ten­sion from Mo Chit to Kukot and Bear­ing to Sam­rong, the MRT ex­ten­sion from Tao Poon to Thapra and Hua Lam­phong, the Pink Line from Kae Rai to Min­buri, the Or­ange Line from Rama IX to Ramkhamhae­ng, and the Yel­low Line from Lat Phrao to Hua Mak.

“Cur­rently there are 83 sta­tions op­er­at­ing. In­clud­ing those un­der con­struc­tion, there are 137 sta­tions, and we find each of these sta­tions per­forms as its own mar­ket,” says Ananda’s Mr Chanond.

Some of them have had a lot of new con­dos launched re­cently, while some haven’t had any launched nearby for a long time. Some of them have good de­mo­graph­ics; younger, up­wardly mo­bile peo­ple.”

He added that his com­pany’s job is to study these 137 mar­kets and launch only in those with a favourable sup­ply-de­mand bal­ance.

For ex­am­ple, he said: “It’s hard to find favourable sit­u­a­tions along the Pur­ple Line, whereas Sukhumvit Line sta­tions gen­er­ally per­formed ahead of our ex­pec­ta­tions in 2017 and we ex­pect that to con­tinue in 2018”.

The in­crease in the num­ber of sta­tions also means there would be a trend of peo­ple look­ing to ben­e­fit from the higher rental yields.

But Mr Atip of Su­palai says that as of late, the num­ber of peo­ple buy­ing for rental yields and pos­si­ble spec­u­la­tion on mak­ing a profit from turn­ing around and sell­ing has di­min­ished.

“We have wit­nessed a rise in real buy­ers rather than rental and spec­u­la­tive buy­ers,” Mr Atip says.

“The liq­uid­ity of turn­ing around and sell­ing the units has started to dry and this has made many of them dis­ap­pear.”

On the sup­ply side, the tra­di­tional de­vel­op­ers, most of who are listed on the stock mar­ket, have started to wit­ness a de­cline in their marker share as new sup­ply from lit­tle known com­pa­nies has started to ap­pear in the mar­ket.

Mr Nathavut from Deutsche Tisco says that the hand­ful of de­vel­op­ers who have been listed on the stock mar­ket have seen their mar­ket share de­cline from 60% about a decade ago to about 45% now.

De­vel­op­ers are con­fi­dent about pur­chas­ing power and Bangkok’s con­do­minium mar­ket. SURACHET KONGCHEEP PROP­ERTY EX­PERT

STEADY SUP­PLY: Work­ers in­stall por­tions of the ex­te­rior of a new con­do­minium build­ing in Bangkok. The num­ber of con­dos newly launched in the cap­i­tal to­talled around 56,000 units in 2017.

SALES PITCH: A real es­tate agent presents the map of a condo project to a cus­tomer in Bangkok. Con­do­mini­ums ac­count for the largest pro­por­tion of new res­i­den­tial sup­ply this year.

RIVER VIEW: One of the prop­erty projects be­ing con­structed on the banks of the Chao Phraya. De­mand for top qual­ity projects with su­perb lo­ca­tions and so­phis­ti­cated spec­i­fi­ca­tions re­main of in­ter­est.

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