Are Condominium Prices Rising?
CBRE is often asked how the condominium market is and if prices are rising or falling. In Bangkok, there is no simple answer to this. There are now ten condominium projects, two completed and eight under construction, where average achieved prices are now over Baht 300,000 per square meter ( see photo). At the same time, there are older condominium projects in prime locations where prices have barely moved in twenty years and trade in the region of Baht 50,000 to 60,000 per square meter. Much of this has to do with buyers’ prejudice against older buildings despite the fact that all buildings will become old one day.
FACTORS AFFECTING PRICE
The real estate agent’s mantra of “location, location, location” as the sole determinant of price does not apply in Bangkok. Location is one of many factors including age, unit size, design, specification, total number of units, ownership profile and others.
The majority of condominium purchasers in Bangkok are Thai. Only 20% of purchasers of Bangkok’s luxury downtown condominium properties are overseas buyers and there are not many foreign purchasers in the midtown and suburban condominium market. Historically, Thai purchasers have favoured new properties but as the price gap widens between old and new properties, this may change as buyers start to overcome their prejudices and see value in older condominium properties. Compared to other cities, especially in Europe, Bangkok’s older properties are relatively new with few more than 25 years old. This price discrepancy between old and new projects combined with the absence of publicly available transaction data makes commenting on price movements challenging.
CBRE forecasts that the price of new property in prime locations is going to increase because the price of prime land is going to continue to increase. This has been the pattern for the last thirty years with an interlude following the 1997 Asian crisis when land sales just about ceased and there were only a few examples of site sales at lower than previous prices.
The far more difficult question is what will happen to prices in properties that are ten or twenty years old. There is some evidence of prices rising in older properties that were well designed and have been well maintained. Conversely there are other buildings where the original design often combined with poor maintenance and lack of renovation and improvements has meant that there are a few interested purchasers even at low prices.
BANGKOK VS. NEIGHBOURING MARKETS
Many people are shocked by the best properties in Bangkok achieving price levels of Baht 300,000 per square meter, but the best apartments in Hong Kong are priced at over Baht two million per square meter and that is for a lease that will expire in June 2047. Prices for the most expensive Singapore condominiums are more than 4,500 Singapore dollars per square foot or Baht 1.25 million per square meter. These are special markets where the combination of both geographical shortage of development sites combined with government policies controlling land use have artificially restricted new supply. Hong Kong and Singapore are Asia’s benchmark property markets against which all other regional markets are measured. Despite the 200% increase in prices for new properties over the last 20 years, Bangkok still looks like good value compared to Hong Kong and Singapore.
Overall in 2016 the condominium market is slower with fewer new sales, new launches and resales but prices for new projects will continue to rise because of higher land prices. The resale market for existing properties, especially those more than 20 years old, is going to be very mixed with purchaser interest and price rising for some properties and no price movement and few sales in others, but this will be one of the most interesting markets to watch and the most challenging to invest in because of the huge range in price performance for similarly located properties.
James Pitchon is Head of Research at CBRE Thailand. He can be contacted at James. Pitchon@ cbre. co. th.