Thai Prop­erty Mar­ket Over­view

Thai-American Business (T-AB) Magazine - - Front Page - 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 BUY­ING

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.

OF­FICE PARTY

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.

OUT­LOOK

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.

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