Bangkok Post

Condo market on a rollercoas­ter

Demand is not meeting supply nationwide, but Bangkok’s mass transit extension is a boon for the capital

- By Kanana Katharangs­iporn

Drive past Sukhumvit-Asoke intersecti­on and you may notice a new billboard has come up in the past few days advertisin­g a special discount for buyers of a high-end condominiu­m project on Sathon Road that until recently was being touted as having been 100% sold out.

One would be forgiven if they thought that this was a standalone case of a single project, but if one digs deeper they will notice that the demand for property in Thailand, especially in Bangkok, has been witnessing a phase of slowdown over the past couple of years, although most developers would not admit to it.

“The situation in the property market is not as rosy as you may think but it is not that bad either,” Adisorn Thananan-narapool, chief executive officer of Land & Houses Plc, said.

Although admitting that the supply of condominiu­ms in the city was on a sharp upswing which could impact the takeup rates, he said at the moment fear of a property market crash is something that still is not on the horizon.

Mr Adisorn, who manages the 132-billionbah­t market capitalisa­tion company LH, says that one of the biggest indicators of not witnessing a possible crash is the fact that the margins of the developers have not gone down significan­tly over the past few quarters.

The current gross margins for most Stock Exchange of Thailand-listed property developers stand at around 33%, against the 35% gross margins they were enjoying about five years ago, at the same time operating margins have seen a larger drop to 17% from 20% seen during the same period.

The bulk of this decline has come from the increase in selling and administra­tive expenses which are up to about 16% from 12%, and there are no signs of any reversal of the trend, says Nathavut Shivaruchi­wong, sector analyst at Deutsche Tisco Investment Advisory, a unit of Tisco Securities and Deutsche Bank.

Although margins have seen a decline over the past few years, developers continue to enjoy an uptrend in certain segments of the property market, especially in the high-end of the condominiu­m market.

Bangkok’s condominiu­m market has seen supply continue to rise over the past few years, from 102,000 units with a combined value of 413 billion baht in 2015 to 110,000 units worth 382 billion baht to 114,000 units worth 441 billion baht in 2018.

During 2018 it is expected that as many as 120,000 units worth just over 500 billion baht would be launched and about half of the new launches of the condominiu­m units in Bangkok has been catering to the middle to upper segment of the market while the other half is for the middle to lower segment.

“There are some signs that the middle and below segments of the market for the condominiu­m market has not picked up yet,” Mr Adisorn says.

Chanond Ruangkrity­a, president and chief executive officer of SET-listed Ananda Developmen­t Plc, whose portfolio focuses mainly on condominiu­m market catering to the middle to the upper end, says that he does not see a situation of a demand/supply mismatch but instead the emphasis has been on the location and the demographi­cs of each project that is launched.


Most industry experts believe there will be no oversupply but what is clearly visible is that the takeup rate has been slowing and projects that used to make headlines of being sold out within days, if not hours, are rarely heard of these days.

“If you take the case of the project you just mentioned [on Sathon Road], they had reported that they were sold out but at the moment about 10% of the units remain and they are offering discounts for whatever is left,” says a real estate agent and speculator on the property market, who had purchased units at this newly opened building but has since sold out his units at a premium.

He added what others have been talking about in terms of the takeup rate that it is not on par with what the situation was a few months or years ago.

“The days of selling out in a single day don’t seem to be there now, and we never had those days anyway because we do not expect to sell out our project in a day or two, instead we would be happy to see 30% of our project being sold over a period of two to three months,” Mr Adisorn of LH says.

But projects in good locations continue to remain in high demand as was seen by the launch of “Supalai Premier Charoen Nakhon”

which saw the nearly 550 units sold out within days of the launch.

“If you talk about that project, it was actually sold out before it was up for sale because many of our existing customers wanted it and had booked before we opened it to the public, but because we wanted to have some proportion for the public we opened it to the public to buy,” Atip Bijanonda, a director at Supalai Plc and also the president of the Housing Business Associatio­n, says.

Although he conceded the takeup rate has been slowing slightly, he says that the issue of oversupply is something that is not visible in the market.

Jiraporn Linmaneech­ote, sector analyst at Phatra Securities, says takeup rates are down to 20-80%, with 80% being for really good projects, down from 100%, which used to be the norm.

But the good news, she says, is that transfer rates continue to remain good, even though there were reports of a rise in the rejections of applicatio­ns for housing mortgages a few months ago.

A decent takeup rate would mean that supply for the market would continue to remain.

Vichai Viratkapan, acting director-general of the Real Estate Informatio­n Center (REIC), says residentia­l supply in 2018 would total around 276,100 units nationwide, a rise of 6.2% from 260,000 units at the end of 2017.

The amount would comprise 154,200 lowrise units (single houses, townhouses, duplexes and shophouses) which would account for 55.8%. The remaining 121,900 units would be condominiu­ms.

If broken down by category then the condominiu­m segment would be the largest in number which would account for 44.1%, followed by townhouses (24.3%), single houses (23.5%) and duplexes and shophouses (8.1%).

“This amount will not reflect an oversupply as the overall absorption rate will remain healthy,” he said.

According to him the absorption rate of residentia­l supply nationwide is expected to improve and the current stock in the market could be absorbed within 15 months, a more optimistic approach than the analysts who believe that it could take up to 24 months to absorb the current inventory to be sold out if no new units are added.

REIC estimates that low-rise units would take 17 months to be sold out, shorter than a usual rate of 19 months, while condominiu­m would take 13 months, slightly longer than a usual rate of 12 months.

In Greater Bangkok, residentia­l supply would total 154,200 units which would comprise 79,900 condominiu­m units and 74,300 low-rise units, representi­ng 51.2% and 48.8% respective­ly.

“Condominiu­ms will continue to dominate Bangkok’s property market this year, driven by the developmen­t of new mass transit lines covering wider areas of Greater Bangkok and a change in people’s lifestyles,” he says.

In the provinces, the key market will remain low-rise units, which would account for 65.5%, he added.

“Residentia­l transfers, which best reflect housing demand, have been on an upward trend since late last year. This momentum will carry on this year with an increase of 6% in the number of residentia­l transfers nationwide,” says Mr Vichai.

In Greater Bangkok, the number of residentia­l transfers would be higher than the nationwide figure, with a rise of 8.6%, while in the provinces that would expand by only 2%.

Property consultant Knight Frank Chartered (Thailand) says Bangkok’s condominiu­m market witnessed consecutiv­e quarters of annual growth sales as a result of improved buying activity in the market.

The average takeup rate for the entire year of 2017 jumped to 75.8%, up approximat­ely 2% year-on-year, which reflected stronger sentiments among homebuyers. In the second half of 2017, the market saw an average takeup rate of 76.5%, rising by 1.4% half-on-half.

New developmen­ts in the central business district (CBD) were active, with the average takeup rate surging to 77.4%. Demand for high value units in the CBD with superior specificat­ions had shown strong performanc­e, with some developers able to sell up to 80% of their projects on the launch day.

Also, it was seen that demand for top-quality projects with superb locations and sophistica­ted specificat­ions remain of interest, and the buyers of these properties tended to acquire them for their own occupation or long-term capital appreciati­on.

In the second half of 2017, demand for homeowners­hip in the city fringe and peripheral areas was confirmed in light of the extension of mass transit routes.

Buyers continued to expand their interest in various locations, mainly in Ratchadaph­isek, Phahon Yothin, Lat Phrao, and On Nut-Bearing. Takeup rates for projects in the city fringe and periphery were 72.5% and 79.6% respective­ly.

But despite the decent take-up rates, REIC says that there were certain segments of the market where the inventory remained high.

According to research by REIC, the top three unit prices which saw the largest number of unsold units as of mid-2017 were units priced 2-3 million baht with 18,743 units which accounted for 29% of total unsold units.

It was followed by units priced one to 1.5 million baht with 12,474 units and 1.5-2 million baht with 10,408 units.

Fears of such unsold inventory had sparked concerns of possible oversupply and a “bubble”.

“Maybe in some pockets of the country such as Phuket you can see some oversupply but in other places I can say that it is not true, not even in Pattaya where until a few months ago one could say that there was an oversupply but the Chinese demand in Pattaya has helped to improve the situation there,” Mr Atip of Supalai says.


Chinese investors, who have been shunned in many parts of the world where they have been blamed for creating an artificial bubble in the property market, have been actively participat­ing in the Thai market.

“If I have to guess, they account for about 10% of the overall purchases in the mid segment of the market,” says Ms Jiraporn from Phatra.

Chinese buyers who have recently become active in the market for units priced below 10 million baht have helped spur demand and lower the inventory, which Mr Nathavut from Deutsche Tisco anticipate­s is in the tune of nearly 200,000 units or about 1.7 years before they are absorbed.

“Foreign buyers have been helping the market and had it not been for them, the situation would be worse,” Mr Adisorn of LH admits.

But fears that they may create a problem such as that seen in Australia and Cambodia seems unrealisti­c in Thailand as there are restrictio­ns on the number of units in each building that foreigners can own.

Chinese buyers in Australia and Cambodia have been blamed for pushing up the prices of units to the point that laws were considered to curtail their participat­ion in the property market there.

But so far Chinese buyers in Thailand have mostly have been in the middle

Condominiu­ms will continue to dominate Bangkok’s property market this year.


>> segment, representi­ng prices of 100,000 to 150,000 baht per square metre, while in the upper end market their participat­ion continues to remain very limited, thus preventing a surge in prices like in certain other countries.


Property expert Surachet Kongcheep says the new condominiu­m supply in Bangkok totalled around 56,000 units in 2017, a growth of 44% from 2016, the highest number in the past six years.

“Developers are confident about purchasing power and Bangkok’s condominiu­m market,” he says. “Despite the large number of new supply, the sales rate was good at 65%.”

Many projects were sold out, especially projects in a good location or with an interestin­g concept attracted buyers despite weak economic sentiment last year, he added.

New developmen­ts continued to increase, particular­ly those located in peripheral areas in line with urban sprawl along new mass transit lines and limited availabili­ty of prime land and high prices of land in the CBD.

A total of 32,258 units were launched in the second half of last year, the highest new supply recorded in eight quarters. As a result, accumulate­d condominiu­m stock in Bangkok surged to 538,920 units, a rise of 6.4% half-on-half.

But despite the rising supply, a decent takeup rate helped keep prices stable in many areas, Knight Frank says.

It added that the average selling prices of all grades of condominiu­ms launched across the city in 2017 stood at 153,220 baht per sq m, an increase of 5.9% from 2016. In the second half of 2017 alone, average selling prices were 152,371 baht per sq m, up 16.8%.

Average selling prices in the CBD stood at 241,585 per sq m, a rise of 5.6% compared to the second half of 2016. Neverthele­ss, pricing for new supply in the CBD was down slightly across the board when compared to the first half of 2017.

Due to a shift in the market share of sales away from Sukhumvit and towards other areas such as Withayu, Silom, Sathon and Rama IV, average prices of new CBD supply declined 5.24%.

Driven by increasing selling prices of new additions in the area, the city fringe’s average prices in the second half was 131,906 baht per sq m, approximat­ely 0.6% higher than that in the first half of 2017.

Over the same period, average selling prices of condominiu­ms in peripheral areas surged to 83,623 baht per sq m, up from 74,591 baht per sq m in the second half of 2016.

Pricing in both the city fringe and periphery noticeably experience­d annual gains for consecutiv­e years, primarily due to higher land prices in those areas, a result of new mass transit routes in the city.

Meanwhile, selling prices in the city fringe and peripheral zones continued to push upward while CBD prices dipped slightly by 5.2% halfon-half due to a shift in the market share of sales away from prime Sukhumvit towards other zones.

Average selling prices of all new supply across the city fall to 154,068 baht per sq m, representi­ng a decrease of 1.1% compared to the first half last year.

In 2017, more domestic developers, particular­ly large and experience­d players in the market partnered with foreign investors, mainly from Japan, China and Hong Kong, in response to expanding demand from overseas buyers and improvemen­ts in constructi­on technology.

The locations along new mass transit routes continued to emerge in the limelight as a result of land shortage and high land prices in the city centre. More developers were also eyeing areas in Ramkhamhae­ng, Ram Intra and Thon Buri.

Bangkok’s condominiu­m sector maintained healthy momentum in 2017 with the total number of new developmen­ts rising 19% from 2016 to 62,751 units.

During the second half of 2017 alone, the total new supply increased 5% to 32,258 units compared to 30,789 units in the latter part of 2016. The second half of 2017 showed positive growth as more condominiu­ms were launched in the CBD.

Some prominent projects were launched across major condominiu­m zones with the bulk located in the Sukhumvit area.

Approximat­ely 6,500 units were launched in the second half of 2017, of which 51% were in Sukhumvit, followed by 22% in Witthayu-Chidlom and 12% in the Rama IV zone.

Fifteen luxury condominiu­m projects with a total of 4,777 units were launched in the second half of 2017, a strong increase of 22.8% from 1,091 units in the same period of 2016.

In the second half of 2017, new supply in peripheral areas totalled 18,732 units, representi­ng some 58% of the total supply launched in the second half of the year.

Over the same time, new supply in the city fringe accounted for 22% of overall launches in Bangkok. Popular locations for the new additions in the area were Lat Phrao, Ratchadaph­isek and Thon Buri. According to Knight Frank, new mass transit routes will continue to rule real estate conversati­ons in the coming years as there are a lot of major public transporta­tion changes happening in Bangkok in the near future.

Heightened competitio­n is anticipate­d in previously less accessible zones of Bangkok, especially along the BTS Light Green Line extension from Mo Chit to Kukot and Bearing to Samrong, the MRT extension from Tao Poon to Thapra and Hua Lamphong, the Pink Line from Kae Rai to Minburi, the Orange Line from Rama IX to Ramkhamhae­ng, and the Yellow Line from Lat Phrao to Hua Mak.

“Currently there are 83 stations operating. Including those under constructi­on, there are 137 stations, and we find each of these stations performs as its own market,” says Ananda’s Mr Chanond.

Some of them have had a lot of new condos launched recently, while some haven’t had any launched nearby for a long time. Some of them have good demographi­cs; younger, upwardly mobile people.”

He added that his company’s job is to study these 137 markets and launch only in those with a favourable supply-demand balance.

For example, he said: “It’s hard to find favourable situations along the Purple Line, whereas Sukhumvit Line stations generally performed ahead of our expectatio­ns in 2017 and we expect that to continue in 2018”.

The increase in the number of stations also means there would be a trend of people looking to benefit from the higher rental yields.

But Mr Atip of Supalai says that as of late, the number of people buying for rental yields and possible speculatio­n on making a profit from turning around and selling has diminished.

“We have witnessed a rise in real buyers rather than rental and speculativ­e buyers,” Mr Atip says.

“The liquidity of turning around and selling the units has started to dry and this has made many of them disappear.”

On the supply side, the traditiona­l developers, most of who are listed on the stock market, have started to witness a decline in their marker share as new supply from little known companies has started to appear in the market.

Mr Nathavut from Deutsche Tisco says that the handful of developers who have been listed on the stock market have seen their market share decline from 60% about a decade ago to about 45% now.

Developers are confident about purchasing power and Bangkok’s condominiu­m market. SURACHET KONGCHEEP PROPERTY EXPERT

 ??  ?? STEADY SUPPLY: Workers install portions of the exterior of a new condominiu­m building in Bangkok. The number of condos newly launched in the capital totalled around 56,000 units in 2017.
STEADY SUPPLY: Workers install portions of the exterior of a new condominiu­m building in Bangkok. The number of condos newly launched in the capital totalled around 56,000 units in 2017.
 ??  ?? SALES PITCH: A real estate agent presents the map of a condo project to a customer in Bangkok. Condominiu­ms account for the largest proportion of new residentia­l supply this year.
SALES PITCH: A real estate agent presents the map of a condo project to a customer in Bangkok. Condominiu­ms account for the largest proportion of new residentia­l supply this year.
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 ??  ?? RIVER VIEW: One of the property projects being constructe­d on the banks of the Chao Phraya. Demand for top quality projects with superb locations and sophistica­ted specificat­ions remain of interest.
RIVER VIEW: One of the property projects being constructe­d on the banks of the Chao Phraya. Demand for top quality projects with superb locations and sophistica­ted specificat­ions remain of interest.

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