Building for the future

Property & Real Estate

Building for the future

What opportunities and pitfalls lie ahead in Thailand’s residential and commercial property sectors? We asked leading real estate consultancies for an update. Khun Suphin Mechuchep, Managing Director of Jones Lang Lasalle Thailand, shared her thoughts with The LINK.

Q: Will a General Election in 2019 influence demand for commercial and resident land and property?

A: While an election season is usually accompanied by a temporary increase in flow of money in the economy following pre-election promotional activities by political parties, results of the general election will be more impactful than the election itself.

Nonetheless, the election will mean Thailand’s return to democracy and thus should help the country’s economic sentiment to improve. This will be good for the property sector where demand is generally dependent upon economic conditions. Investor confidence should also improve.

We expect commercial real estate to be the first to benefit from the improvement in economic sentiment. Stronger business and consumer confidence should encourage business expansion which will lead to an increase of demand in the office, retail and industrial/logistics sectors.

The residential sector may be slower to feel the impact because this property sector historically often lags behind overall economic performance.

Q: Is Bangkok CBD becoming too expensive for residential investors? To which areas of Bangkok are YOU now directing your clients?

Yes, if the investors purchase a condo for rental yields. The average selling price of condominiums in Central Bangkok has doubled since 2008 to THB 250,000 per square metre at present. Condos in ultra luxury developments are offering much higher prices, averaging THB 364,000 per square metre.

While prices have jumped, rentals have risen by only 10 percent - leading to yield compression. Condominiums across Bangkok, including the central area, are now offering rental yields averaging less than three percent a year, a substantial decline from five years ago.

However, ‘no’ may also be the answer to this same question if the investors expect capital gain in the long term. Many people have continued to buy condominiums in Central Bangkok as an investment. These investors are aware that prime sites or land plots that are suitable for

new condominium development are increasingly scarce and expect future condominium projects to offer higher prices as development costs, particularly the cost of land in the area, will continue to rise.

Outside Central Bangkok, the riverside area along Charoenkrung Road and certain parts of Charoennakorn Road on the opposite side of Chao Phraya River are where luxury condos have a potential to offer capital gain in the long term, given the fact that there remains very little land supply that is suitable to accommodate new luxury/ultra luxury development projects. The recent opening of ICONSIAM has also given a big boost to the riverside area.

There are a number of exclusive flagship developments in this area, including branded residences such as Banyan Tree Residences Riverside Bangkok, Four Seasons Private Residences and The Residences at Mandarin Oriental (ICONSIAM).

Q: Are the new rail infrastructure projects driving up prices beyond working families?

The new rail infrastructure projects will present condo developers with new opportunities as they are opening up new corridors. But generally, we don’t expect these projects to drive condo prices up in the short term.

These rail projects are extensions of the existing mass transit systems, covering areas outside Central Bangkok. Therefore, most (if not all) of the future condominium projects that will be developed along these rail projects will be in the mass market segment where an oversupply remains. Even though certain areas near these new mass transit projects, such as areas around the Bang Sue Central Station, may have a potential to accommodate high end condominium projects we don’t expect these projects to fetch the same prices as those in Central Bangkok.

Q: Why is it so difficult to sell a second-hand condo (at a profit) in Thailand?

Actually, the resale condo market in Bangkok has remained very active, with strong demand from buyers purchasing used units for own use. There are a number of reasons for some second-hand or used condo units being difficult to sell.

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Property & Real Estate

Wider choice The total stock of condominiums in Bangkok rose from 115,000 units in 2009 to more than 530,000 units at present. As a result, it comes as no surprise that buyers have no rush to make a purchase decision in a market where a wide choice of both first-hand and used condominium supply is available for them to pick and choose.

Unwanted products There are a number of factors that make used condos unsellable at a profitable price. Some of these factors lie in the condo unit itself. These include age, inefficient unit layout, bad location within the building (i.e. blocked view), undesirable furnishings and lack of maintenance. Others are to do with the development – poor quality of design and construction, bad location and accessibility and lack of professional property management.

Gap in price expectations Another major factor that makes it much more difficult for some owners to sell a used condo is the gap between sellers’ and buyers’ expectations. In many cases, unrealistic pricing brings about this gap.

Some condo owners expect prices of their aged units to be close to that of units in newly completed developments in the same area but the reality is that most of the units in aged buildings are available for sale at prices some 30 to 50 percent lower than units in newly completed projects.

For example, 15 years ago buyers could buy units in offplan developments in a price range between THB 80,000 and THB 100,000 per square metre. Today, sellable prices of units in most of these aged developments range between THB 120,000 and THB 200,000 per square metre, while most of the newly launched projects in the area are asking THB 280,000-350,000 per square metre.

There is only a handful of aged developments where units achieve prices at THB 250,000 up to THB 300,000 per square metre. These include developments that were designed and built to an exceptional standard, occupy highly sought-after locations and are well managed and maintained.

Suphin Mechuchep is Managing Director, JLL Thailand. Tel: +662 624 6400 E-mail: suphin.mechuchep@ap.jll.com

JLL is a leading professional services firm that specialises in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of US$6.8 billion and fee revenue of US$5.8 billion and, on behalf of clients, managed 409 million square metres, and completed sales acquisitions and finance transactions of approximately US$145 billion. JLL has 300 corporate offices, operations in over 80 countries and a global workforce of over 80,000.

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