Thai Property Market Overview
The Thai property market has recovered nicely in recent years, with metrics trending in the right direction since the 2014 coup and the instability that preceded it. But the recovery remains mixed and inconsistent. Despite healthy foreign demand and low vacancy rates in the office market, weak economic growth and high consumer debt have slowed apartment sales at some levels and in some areas. As well, concerns about stability hang over the market as Thailand makes a challenging political transition.
THE CONDO RECOVERY
While the 2014 coup scared away some international investors for a period of time, sentiment recovered quickly after the new government restored order and prioritized growth and a return to normalcy. Other factors helping the property market include the establishment of the ASEAN Economic Community ( AEC) at the end of 2015, the sense that Bangkok could become a major business hub within the AEC, and infrastructure spending. Condominium prices in Bangkok are down from the first quarter of 2016, but up from their levels in 2014. On average, units are selling at Baht 103,450 ( USD 3,017) per sq m. Some analysts have noted strong demand at the very high end, with properties starting to hit new records and breaking the Baht 300,000 ( USD 8,668) per sq meter mark. Because few sites are available in the downtown area for development, competition is high and prices could continue to increase for prime properties. Stress has been noted at the lower end as the average Thai struggles in a slow growth environment and has trouble getting credit. The New Residence Buyer’s Confidence Index fell to 56.7 in the second quarter of 2016, the lowest level in two years. Supply meanwhile remains high and the focus has been on clear- ing inventory. Quarterly condominium launches are down significantly over the past two years. The recent peak was about 15,000 a month in the fourth quarter of 2014. Since the second half of 2015, launches have averaged about half that every month.
It has been described as a two tiered market, with the upper end doing far better than the lower. But some doubts have been raised about the ability of the former to hold up. Demand locally for more expensive properties is in question, while unsold high- end units are still available on the market. Concerns have also been raised about speculation. In early 2016, the central bank issued a warning that included a reference to the property market.
Foreign buyers are seen as crucial to the health of the market. Some developers are selling first to overseas parties and then to local buyers, and condominium developers are holding marketing events overseas, in places such as Hong Kong, Singapore and Mainland China. Colliers International says that this is in part due to the lack of buyers domestically. Efforts by the authorities in Hong Kong and Singapore to cool their property markets have also driven investors to Thailand.
While the market faces challenges, the subsector has remained strong throughout. The Bank of Thailand’s House Price Index shows positive growth for condominiums since 2013, with the rate of increase hitting 14.4% in October 2015. The rate went back to single digits at the end of 2015, but was at 6.6% as of June 2016. Colliers says that demand could
pick up in the second half of the year, but that depends largely on the economy.
The vacancy rate for offices has been under 10% for more than two years, and CBRE expects the market to remain tight as demand climbs and as supply continues to rise slowly. After falling slightly in 2011, rental rates have been increasing steadily, from a low of under Baht 700 ( USD 20.23) sq m per month for Grade A space in the central business district to above Baht 900 ( USD 26.00). CBRE anticipates 253,000 sq m of new space being completed in 2016, but only 210,000 sq m being available in the market and only 48,000 of that being Grade A space in the central business district.
According to Jones Lang Lasalle, the Bangkok market remains highly competitive regionally. At USD 216 per sq m a year for Grade A offices, space is cheaper than in Manila, Hanoi, Jakarta, Delhi, Ho Chi Minh City and Guangzhou, though it is more expensive than in Kuala Lumpur ( where the average is USD 127). The vacancy rate in the office market did rise a bit as completions increased in 2015 and 2016, but JLL sees the rate, which stood at 9% in 2016, declining.
CBRE writes that e- commerce is helping the market, as it pushes customers to visit retail establishments while e- commercerelated companies need office space and logistics and warehousing assets. The company says that demand for offices by e- commerce businesses has helped offset weak demand generally. It adds that strong tourism numbers are supporting the hotel market, with occupancy rising above 75% – though it notes that room rates are stable.
The retail property subsector has been challenged due to weak consumer demand. Some mall space was taken out of the market due to refurbishment, but that capacity is coming back in while new properties are being completed. New supply is expected to total 300,000 sq m in 2016, but CBRE sees about 600,000 sq m of space in the pipeline. The company believes that it will be difficult to raise rents in 2016. CBRE is pessimistic about the industrial sector. Demand there is driven by foreign direct investment, which has been weak.
While the Thai property market remains highly competitive, both in terms of residential units and commercial space, it is being challenged by a wide variety of forces and factors, some of which are highly unpredictable. Demand is choppy due to economic headwinds and high consumer debt. An oversupply of some types of property weighs on the market. More broadly, political concerns and the possibility of extremist threats are contributing to weakness. The Thai property market continues to represent good value and is of great interest regionally and globally, but the sector needs continued stability and stronger underlying economic growth.
Paulius Kuncinas is Managing Editor at Oxford Business Group. He can be contacted at pkuncinas@ oxfordbusinessgroup. com.