Colliers condo outlook tepid

Glut and falling Chinese market loom

Developers should be more cautious about launching new condo supply next year as many negative factors will affect local demand and the Chinese — the largest foreign buyer market — will also slow down their purchases.

Phattarachai Taweewong, senior manager at property consultant Colliers International Thailand’s research department, said there are many negative factors affecting the property market next year.

“A rise in interest rates will have an impact on local demand,” he said.

“Those buying for their own use, as an investment or for rent will have a higher burden. They may slow their purchases.”

The rental yield for a condo unit is only 3.5-5% per year. If interest rates rise, buying a condo for rent will not be as attractive for many investment buyers, particularly in the lower to mid-priced segment, who traditionally use mortgages to buy a unit.

“Investment buyers may think twice as the yield they get will not be worth the investment”, said Mr Phattarachai.

The new lending curbs that will take effect on April 1, 2019 will be another key factor affecting investment buyers because they will be required to pay a higher down payment, he said.

The general election scheduled for early next year and the land and buildings tax, due to take effect in January 2020, will also have an impact on the property market next year, suggested Mr Phattarachai.

He said the property sector in 2018 was very hot, with big growth in new condo supply and heavy sales from the Chinese market.

According to Colliers, new condo supply launched in Bangkok during the first 11 months of 2018 totalled 63,594 units from 152 projects worth a combined 330 billion baht, the highest number in 30 years.

By quarter, the fourth quarter this year will see the highest number of supply, with a total of 23,800 units launched from 49 projects worth a combined 128 billion baht, the highest in history and up 50% from the same period last year.

Mr Phattarachai said developers should reduce the new condo supply being launched in 2019 to balance the market.

For the best absorption rate, the market should have no more than 40,000 condo units launched each year, he said.

“The Chinese market will not be as hot next year because they are likely to be affected by the US-China trade row,” said Mr Phattarachai.

“Most of them buy Thai condos as an investment, focusing on the capital gain.”

He said some agencies boast of high capital gains from Thai condo investment when offering units to Chinese.

“If Chinese buyers eventually find actual gains are not as high as promised, what will happen?” said Mr Phattarachai.

“Will Chinese buyers dump units they booked when they are scheduled for transfer? If so, there will be a large number of these units being returned to the market. This will boost inventory and definitely affect the property market.”

Before planning a new launch, developers should drain inventory at each potential location to cope with the several negative factors affecting the market next year, he said.

They should shift to low-rise (single house, townhouse and duplex house) development as buyers in that segment have real demand, said Mr Phattarachai.

Nalinrat Chareonsuphong, managing director of property consultant Nexus Property Marketing Co, said some agencies introducing Thai condo units to Chinese buyers had sales prices 20-50% higher than the prices for Thai buyers.

“Some Chinese buyers, if they find out they were sold a unit at a higher price than Thais, may be unwilling to accept the unit transfer,” she said. “When selling property to foreigners, the price should be fair as it will build up confidence.”

Ms Nalinrat suggested developers provide after-sales services to Chinese buyers, such as seeking tenants for those who bought for rent.

She said a slower global economy next year and the trade war will weaken Chinese purchasing demand, creating a drag on growth in 2019.

Other foreign buyers such as those from Hong Kong and Singapore remain interested in Thai property, as prices are much lower than those in their home country.

Though the market remains limited, buyers from Cambodia, Laos, Myanmar and Vietnam are emerging, particularly in the high-income segment.