Provincial glut

Demand is waning for condos after the 2012-13 boom, writes Kanana Katharangsiporn

The condominium market in destinations favoured by SET-listed developers over the last couple of years is feeling the pinch from oversupply and weak demand. The situation is especially bad in major provinces such as Chiang Mai, Udon Thani, Khon Kaen, Chon Buri and Phuket.

“The condo market in these provinces shares the same story. It boomed in 2012-13 with many condo units launched after the floods hit Bangkok in 2011, but demand is limited,” says Samma Kitsin, director-general of the Real Estate Information Center (REIC).

Chiang Mai is a good example. New condo units launched each year in the province numbered only in the hundreds before 2011. The number soared to the thousands each year from 2012.

As of the end of last year, there were 49 condo projects with a total of 6,700 units in the popular northern province. Of this amount, 4,200 units, or only 63%, were sold, according to the REIC.

Most condos in major provinces launched in 2012-13 were completed last year when the economy was hit by the political crisis. Besides the overall economic slowdown, the provinces have also been hit by falling prices of agricultural products.

Mr Samma says the condo glut is most notable in provinces where SET-listed developers have launched mostly large condo projects.

“When highly capitalised SET-listed developers moved to the provinces, they launched condo projects with more than 500 units. Some launched more than one site. When the projects were completed and ready to be transferred, it is unfortunate that this coincided with the economic slowdown,” he says.

Some projects completed last year had unit transfers of only 30% despite a sales rate of 80%. This happened for various reasons, including buyers failing to get home loan approval, while some were speculators who failed to find buyers to resell the unit to.

Prasert Taedullayasatit, president of the Thai Condominium Association, says condo price increases in the provinces are relatively slow, making most buyers reluctant to get a unit transfer.

“The provincial condo market was poor last year due to oversupply,” he says.

Mr Prasert says the top five developers have now withdrawn from the provincial market. Some have slowed down construction. The overall provincial market last year dropped by 40%, while the Greater Bangkok market declined by only 16%.

Banks continue extending home loans to condo buyers in Greater Bangkok where condo prices, once the projects are completed, will rise at least 30% from the launch date, says Mr Prasert.

Mr Samma at the REIC says that although condo demand in major provinces is not as high as many developers expected, there is a chance to revive demand in provinces where mass transit systems will be constructed.

“Developers should postpone their new launches until 2017 and wait for the remaining supply to get absorbed,” he says.

“Some developers have revised their plans by halting the sales of projects they recently launched and returning booking money to buyers. This is good for the industry. When the existing supply is gradually absorbed, they can relaunch their projects.”

The REIC survey found that while major provinces had been suffering from oversupply, the housing market in minor provinces remained in good shape, as supply met demand.

The REIC in October last year did residential market research in 15 minor provinces where the low-rise housing and condo sectors were expanding. The best sales rate was for condos in Roi Et at 91%, followed by condos in Suphan Buri (86%) and low-rise houses in Chanthaburi (81%).

There was only one condo project in Roi Et — Korndej Park Condominium — with 137 units and only 13 units remain for sale. Developed by a large local developer, Korndej Park Condominium will be completed in October.

Mr Samma says 10 of the 15 provinces surveyed had condo launches over the last couple of years, and nine had a sales rate of at least 50% except for Kanchanaburi, where the condo sales rate was only 40%.

“The sales rates in these provinces were good as oversupply was not too much of a problem. Most provinces have only one condo project except for Nakhon Sawan, Ratchaburi and Krabi.”

Despite a lower sales rate than projects in other provinces, unsold units of completed condo projects in Kanchanaburi have been rented out, the survey found.

Residential units popular among people in Kanchanaburi include shophouses and townhouses on Bypass Road in the central area of Muang district, mainly due to the planned special economic zone development in Dawei, Myanmar.

According to the survey, Roi Et, Ratchaburi, Nakhon Sawan and Buri Ram provinces enjoyed strong demand with sales rates of more than 65% for both low-rise and condo supply.

Nakhon Sawan is the northern region’s second-largest province after Chiang Mai.

The most popular residential units were two-storey single houses priced 2-7 million baht, single-storey single houses priced 900,000 to 2 million baht, twostorey townhouses priced 1-2 million baht and three-storey shophouses priced 3-5 million baht.

The high condo supply launched in the province coincided many new shopping malls. The most popular condos were sized 30-40 square metres and priced 1-2 million baht.

Buri Ram, meanwhile, was spurred by the sports craze. There are two sports facilities — New I-Mobile Stadium with 32,600 seats and the 50,000-seat Chang International Circuit for Formula One races.

There are two four-star hotels — the Amari and the Best Western. In the future, there will be an amusement park, which will be the largest in the Northeast, and a golf course opposite the football stadium.

Phanom Kanchanathiemthao, managing director of property consultant Knight Frank Chartered (Thailand) Co, says now is a golden time for property-savvy investors to buy a condo unit at newly completed projects in Pattaya, particularly from Russian buyers.

“Russian buyers’ purchasing power has dropped significantly due to the fall in the rouble. They may refuse to get a unit transfer,” he says.