Weak Q3 casts pall on 2019 condo view
New condo supply planned for the year to come is unlikely to increase, as launch prices show limited growth and sales rates proved disappointing in the third quarter, says property consultancy Edmund Tie & Co SEA.
In the fourth quarter, the firms expects the launch of The Aestiq Thonglor, developed by Real Asset Development Co, and Tait 12 in the Sathon area by SET-listed developer Raimon Land Plc. Each is to be worth 4.2 billion baht.
The average take-up rate of newly launched condo projects in the central business district (CBD) reached just 31% in the third quarter, down from 58% in the same period last year and even lower than the poor performance of 46% in the second quarter.
In the third quarter, 51% of condo units launched in the CBD were from the luxury segment, making up the largest portion of new launches. This was followed by the super-luxury and Grade A segments.
Even so, the average unit selling price stayed flat at 330,447 baht per square metre in the third quarter versus the second quarter, though it saw an increase of 32% from the third quarter last year.
The significant drop in overall supply in the CBD showed that developers were responding to weaker demand for residential units.
In non-CBD areas, supply remained high and often outstripped demand. Banks were also more cautious in granting new loans, putting further pressure on the increasingly fragile market.
On Oct 4, t he Bank of Thailand announced a plan to lower loan-to-value limits to 80% of home value for new mortgages for a second contract or for a unit valued at 10 million baht or more.
Both requirements would affect condos in the CBD, as most of the units were priced higher than 10 million baht and demand usually comes from those buying a second or third unit, according to condo developers.
Edmund Tie reported that new condo supply in the CBD in the third quarter totalled 1,636 units, rising from 852 units in the second quarter. The total number of new units launched increased by 92% quarter-on-quarter.
The largest investment deal recorded in the third quarter was an acquisition of shares. SET-listed developer Supalai Plc acquired shares in the portfolio of SETlisted MK Real Estate Development Plc for 4.067 billion baht. Part of this included 64 development projects.
Total investment sales in the third quarter accounted for 10.3 billion baht, decreasing from 25.4 billion baht in the second quarter, or a 60% drop.
Edmund Tie said the investment market was once again dominated by domestic investors, accounting for all 10.3 billion baht worth of transactions.
Thailand remained a prime destination for foreign direct investment.
International companies are making meaningful investments in Thailand. Joint venture agreements, in collaboration with local partners, are effectively the only way for foreign entities to undertake development activity in the property sector.
For the office sector, rents will continue to increase gradually in the fourth quarter and into 2019, driven by limited supply. There will be an increased demand for office condos in Bangkok.
While the majority of office condos are in older buildings, there has been strong demand from national and international investors for these units because they are relatively affordable compared with buildings near public transport, which have increased significantly in price in recent years.
There are more office buildings either under construction or planned in and outside of Bangkok’s CBD. This improved supply addresses the landlord-tenant imbalance in the market, and property owners will have to be more competitive to attract and retain occupiers.
Office developers remain focused on providing open-plan office space close to public transport nodes.
Prime rents for Grade A offices in the CBD rose quarter-on-quarter to 850 baht per sq m per month, reflecting an increase of 4.3% on a year-on-year basis. There were no new offices launched in the third quarter, so office stock remained at 1.858 million sq m.
Some 218,596 sq m of office space was under construction or had been granted a construction permit in the CBD. Asking rents increased to 850 baht per sq m per month in the third quarter, a rise of 4.3% year-on-year.
Office occupancy in the CBD increased slightly to 89.8% in the third quarter, while office supply in Bangkok’s CBD remained unchanged at 1,858,000 sq m.
According to Edmund Tie, there were a few projects due to be complete in the fourth quarter, with Iconsiam in the Khlong San area occupying the largest space with 87,500 sq m out of total supply of 200,000 sq m.
In the CBD, there was 6,000 sq m at Singha Complex, a mixed-use project in the Asok area.
Edmund Tie reported that developers in recent years have been more cautious about the downtown market, partly because spending became reasonably low amid high household debt levels.
Online shopping is still a small sector in Thailand’s retail market, but most major retail landlords have been slow to compete in this growing alternative.
The food and beverage (F&B) sector has long embraced e-commerce, with numerous platforms and popular fulfilment methods. Tenants in the sector understand that the customer experience is paramount, and they remain keen to expand in Thailand.
Growth in the retail sector remains modest amid static occupancy rates f or both downtown and midtown locations. Occupancy will see some increase soon as tenants begin to move into newly launched retail malls.
According to the consultancy’s report, demand for retail space persistently came from the F&B sector. Newly launched retail community malls were mostly filled with F&B and entertainment venues.