Demand for condos for rent in Bangkok is likely to take its toll in the aftermath of the anti-government rallies that exploded into scenes of violence last month. But, according to analysts, the Thai property market will remain buoyant.

Patima Jeerapaet, managing director of property consultant Colliers International Thailand, has said that although property activities may drop in the second quarter, traditionally a quiet period, it is likely that local demand will pick up in the third, but that “foreign demand remains unpredictable”.

A report in the Bangkok Post quoted Mr Patima as saying: “If everything is calm soon, it will pick up in June as local demand remains strong. But we cannot depend on foreign demand, as the negative factors are not only the political turbulence but also the currency.

“We cannot say when foreign demand will pick up. There are other factors like the world economy and natural disasters around the world,” said Mr Patima, also chairman of the Joint Foreign Chambers of Commerce in Thailand’s property committee.

As the financial crisis reaches another phase, there is the issue of the repayment of unprecedented stimulus packages put in place by countries such as Britain, and the new government has embarked on a strategy to make adjustments to both its fiscal and monetary policies to repay its colossal debt.

Sterling’s current rate against the baht is not just a crucial factor of the financial crisis and the protests in Bangkok, as the exchange rate has fallen from a high of Bt73/£ back in the heady days of five years ago to Bt48/£ today, and this has made property investment in this country a lot more expensive.

During the crash, when nations teetered on the brink, governments were the solution to the economic crisis, now they are the problem, and the trend is for local property investors to step in: for people who live in Thailand and are quietly confident that a peaceful resolution to Thailand’s political crisis is in range, they will start to buy condos again.

Aliwassa Pathnadabutr, managing director of international consulting firm CB Richard Ellis (Thailand) said that the price of condos in Thailand will remain stable. A report in the Bangkok Post quoted her as saying: “Buyers will continue to have the upper hand in residential markets. Although developers may not lower prices, they are likely to have strong promotional campaigns to stimulate sales.”

In her view, the revival of Thailand’s tourism sector is needed first in order to boost the residential market. “It will take up to two years before foreigners invest again.”

As another analyst put it, relating to the crisis in Greece: “We are watching a fight between the ideas of two long-dead economists — the Austrian Schumpeter vs the Englishman Keynes. To put it very simply, Schumpeter advocated letting the incompetents, imbeciles, profligates and the unlucky self-destruct. Out of this destruction, something new and healthier will be born, eventually…”

Maybe, but the future economic outlook, with Greek contagion bringing down larger economies and, as a spin-off, its tourists, coupled with the civil unrest in Thailand, is tentative. It would help if oft-fractious Thai politicians become far more mutually accommodating to ease economic pressures and its effect on employment.

The Bangkok Post recently noted that: “The second quarter will represent an aberration while the first quarter can be viewed as the real indicator for longer term property market trends. And this is the best way to proceed at this juncture.”

However, as a by-product of this sentiment, the Cabinet recently approved the one-month extension of the property tax incentives to the end of June: transfer fees and mortgage registration fees will remain 0.01 per cent of property value, from normal rate of two and one per cent, respectively, although DBS Vickers Securities (Thailand) noted that though the extension is positive to the property sector, the impact will be quite limited.

The Board of Investment (BoI) is also in the process of coming up with new measures to promote investment after Thailand’s medium and long-term investment potential was affected by the recent political riots.

Added to this, government agencies are launching remedial measures to help those affected by the riots, especially in the tourism and retail sectors and Japanese investors are still interested in pouring investment into Thailand, having proposed 99 projects with a combined value of Bt25.6 billion.

For condo development in Bangkok, new supply of around 6,940 units hit the market in the first quarter and developers have focusing on smaller one-bedroom units, targeting local first-time buyers who are looking for affordable products. Even though there are scant indications that the demand for condos in the 1.5 million baht range is yet replete, it is predicted that the future for this sector remains somewhat bright.

While first-quarter reports assess the overall state of the real estate market, they still lack defining statements on what market sentiment is today after the troubles, both global and domestic.

However, it will need the skies to clear over Europe and Thailand before predictions on the condo for rent market become truly visible again for some while to come.

Property seekers should realise that the market has changed from two years ago when it was always a good time to buy and sell

The Bangkok property market holds low appeal these days to foreigners, who are more concerned about the strong baht than ongoing political problems, says Chris Heath, managing director of Soho Properties Company.

Although overseas buyers are a bit concerned about the red shirt demonstrations, the general opinion is that the protests will soon disperse. “There are a lot of problems, obviously one is the political scene, but the other thing is that the baht is very, very strong right now,” said Mr Heath.

This is particularly true for prospective British buyers, who are finding that the pound doesn’t buy nearly as much as it used to. Sterling today is trading about 48 baht, compared with more than 70 baht two years ago and 65 as recently as last year.

“I had a hotel deal going in Pattaya but amid the negotiations the pound dropped from 55 baht to 49 and it became too expensive just through the exchange rate,” said Mr Heath.

The strong baht, however, has led to the UK’s largest house builder, Berkeley Homes, approaching Soho Properties to promote sales of British properties in Thailand, because it now makes a lot of sense for a Thai to buy overseas and get good value for the baht now that prices in London and the US have dropped to record lows.

Mr Heath estimated that a 30 square metre studio in the outskirts of London can be had for 5 million baht these days. This is 40% cheaper than two years ago, with the exchange rate representing half the difference and the general decline in UK property prices the rest.

“For Thailand, probably the most interested people would be those who have children studying in the UK. So they can buy a home there and during the three years or so their children are studying they can live in it without paying rent, and when they have finished they have an investment they can rent out.”

Berkeley Homes had earlier planned to join a property exhibition at Siam Paragon but has put this off. Later this summer the company will conduct a regional promotion that will also cover Malaysia and Singapore.

This British company has already held a successful two-day show in Hong Kong where 40 units in the Docklands in London were displayed with prices averaging 10 million baht.

The current slide in the Bangkok property market has also affected rentals, because a lot of companies have reduced their housing allowances substantially, said Mr Heath. A foreign executive who previously had a housing budget of 100,000 baht a month is being allocated 70,000 baht these days.

“A lot of people are downsizing to cheaper units, but the thing is they still want a good central location and they want very modern and well-furnished apartments. We have found that some people are moving from very large units to slightly smaller ones or they are moving because they are getting a better deal somewhere else.”

Mr Heath has also noticed that a lot of companies seem to be selecting single employees or couples without children for assignments in Thailand because accommodation cost would be lower and there would be no cost for schooling, which is expensive.

While the Bangkok property market has been difficult lately, Soho Properties has been fortunate because it has some high-end customers and has managed to rent out some large units. “There are still high-end and low-end customers, but the middle range of customers seems to have dropped,” he said.

The company has also had an increase in the number of Indian and Chinese customers, said Mr Heath.
“I don’t know why but we seem to get a lot of Indian customers. A lot are looking for businesses – to open a restaurant, for example. Most of the deals we have done lately are not residential – we just rented out Dickens pub (in the Ambassador Hotel) and the supermarket next to Times Square.”

Negative reports about the nightlife in the stretch of Sukhumvit from Soi 1 to the Asok intersection do raise questions about how appealing apartments and condominiums in this area still are, he acknowledged, but said in general people still like the area because it is vibrant and busy.

“You have the subway, the BTS, the expressway is easy to get to from there, so you don’t need to go far. It’s probably the second largest business district after Silom. There are quite a lot of new businesses moving into the office complexes there – Citibank is moving in from Silom.
“So it shows you that this is becoming the second centre of commerce. You have also got the best restaurants around this way.”

Mr Heath warned property buyers to keep in mind that the market is difficult today and has changed greatly from two years ago when it was always a good time to buy and sell. Then buyers would get a property cheaper than they would the following month and sellers would always increase their investment.

Today real estate investors should choose the right type of property, one that can be leased easily. They should not focus only on getting a good price but on actually buying something that people want to rent.

“If you are buying it for your lifestyle then you know you can look around and make sure that you find something that is a good price and suits your lifestyle.”

He recommends that for investment one should avoid studios, which are too small for most foreigners. “If you are looking to invest and rent out to an expat customer one bedroom would be the smallest – one to two bedrooms.”

He added that the really small one-bedroom units that developers are currently building are not suitable for most Westerners, who prefer a unit of at least 50 sq m. Other factors include transport, building management and quality of workmanship.

“For the long-term view Bangkok is a very good place to invest in because it is still very cheap for office and residential properties compared to a lot of Asian capital cities.”

Soho Properties has recently concluded a deal with Ark Developments, offering buyers a unique opportunity of owning penthouse condominiums with breathtaking views of the ocean from the top of the world, commencing June 2012.

Following lengthy and complex negotiations with the Nepalese government, plans are now in place to develop a 50,000 rai plot high up in the Himalayan mountains, with technologically superior and advanced ecological features.

The construction is to be based on extending the basic principles to build simple but self-supporting tetrahedral structures, with the ability to protect, nurture, support and accommodate all needs of life.

Inspired by ideas first developed in the 1950s, the structure will use 70% less surface area as box-type structures. This means, with its natural feedback systems, almost no energy will be lost. There will also be no opportunity for heat to escape or outside air to penetrate. In addition, the spherical shape of this dome-type development will provide for natural and efficient interior air circulation.

Chris Heath, CEO of Soho Properties, and Noah Cubits, of Ark Developments, a world-renown philanthropist, are to jointly manage the project. Mr Heath commented on the project’s scale and depth: “Human habitation and evolution has never before owed so much to such refined technological innovation.”

Mr Cubits, in charge of the project’s construction, has commissioned a team of ecological experts to round up the world’s most evolutionary advanced species to participate in this brave new world, and will be accommodated in its southern slopes. Mr Cubits ventured: “It is not intended that sand and horse flies, mosquitoes and other pests will be invited.”

Mr Heath said that two-thirds of the condominiums to be built in the first phase of development had already been reserved; and that buyers were mainly from the world’s wealthiest families. The company has secured lifetime leases, which will include an array of golf courses, swimming pools, wildlife parks, restaurants and bars. It will also focus on a dynamic and exciting hiking culture, offering a rich and rewarding lifestyle.

Mr Heath concluded that the project will certainly help the Nepalese economy in three years’ time, just ahead of the 2012 debacle, and will act as a security haven for 250,000 residents when the world’s major cities and shorelines are under water.

It is envisaged that the social system will be largely communal, with operating officers responsible for the implementation of future developments, accompanied by a series of residential committees to act as advisory groups.

The developers have made it clear that all units will be ready to move into by the end of June 2012 at the latest in anticipation for the 21st December 2012 deadline.

[ NB: For your information, unless you haven't already guessed, the above story is a spoof on the film 2012 ]

The listed developer Supalai Plc plans to launch 10 new housing projects worth more than 10 billion baht in 2010, and at least four will be Board of Investment (BoI) Home projects, said president Prateep Tangmatitham.

The four BoI projects will include townhouses and single houses in Pathum Thani, while a BoI condominium will be located on a 10-rai site on either Soi LaSalle or Sukhumvit Soi 107, where it will develop about 1,000 units worth 1 billion baht.

“The economy is not that bad,” Mr Prateep said. “Interest rates are low and people remain confident in their income. The property market is improving and will be better in 2010.”

Given the improved sentiment, most of the company’s new launches will be in the first quarter next year. It plans to launch a condominium project in Phuket in December on a four-rai site with 600 units worth 900 million baht.

Next weekend it will launch two condominiums worth a combined 3.9 billion baht. One will be located on an 8.5-rai site on Ratchayothin Road opposite SCB Park that the company bought from SCB four months ago.

The project will comprise 800 units sized between 32 and 66 square metres and priced at 54,000 baht a square metre on average, starting at 1.9 million baht.

Another development, worth 1.5 billion baht, will be located on a 3.5-rai site near the Asok-Ratchadaphisek intersection. The project will consist of 500 units sized between 34 and 63.5 sq m and priced at 56,000 baht a sq m on average.

“We will launch these projects together to cut marketing costs by 20%,” said the company’s deputy managing director, Atip Bijanonda.

“We can share sales brochures and have a bigger impact on the market.”

In the past two weeks, the company has introduced the two projects to its existing customers to give them the privilege of choosing a unit first as well as a discount of at least 10,000 baht on each unit.The company expects to have sales of 50% on the launch date with 20% booked by existing customers. The projects should be sold out by the end of the year, said Mr Atip.

Supalai has also approached large corporate customers near the projects. For the Ratchayothin project, it gave SCB staff a 10,000 baht discount to book a unit.

Supalai reported a nine-month net profit of 1.81 billion baht, an increase of 113% from 854 million baht in the same period last year, on sales of 6.95 billion baht, up 51%.

Third-quarter net profit rose 187% year-on-year to 587 million baht, on sales of 2.29 billion baht, up 69%

The company had a sales backlog of 2.48 billion baht to be realised in the fourth quarter, while net gearing declined from 92% in 2008 to 63% as of the end of September.

Shares of Supalai (SPALI) closed yesterday on the Stock Exchange of Thailand at 6.00 baht, up 10 satang, in trade worth 35.58 million baht.

According to property sources in the UK, there are an increasing number of Asian investors looking to purchase property in the UK. Due to the drop in property prices and the large increase in some Asian currencies against the pound, it makes them more affordable and a sound investment.

According to the Guardian newspaper, the Nationwide has said house prices rose by 1.6% in August 2009: “The chief reason why house prices have not fallen by as much as many of us expected is that, unlike the early 1990s, interest rates are extraordinarily low. At the same time, banks are being more cautious about repossessions, because it’s the people who now own the banks.”

It seems that one of the main reasons house prices are rising again is that mortgage lending has not been extended to investors without significant deposits. The average price of a home is now £160,224 (nearly 9m baht), or 14.4% below the October 2007 peak. The Nationwide said a key factor in lifting prices was “the exceptionally low level of interest rates”, which have been kept at 0.5%.

Gary Smith, president of the National Association of Estate Agents, said: “The latest statistics from Nationwide appear to confirm that the housing market has finally bottomed out and indications are that we are hopefully moving to a point where the gradual recovery in prices witnessed this year will be sustained.

“With interest rates at historically low levels and unemployment on the rise, but when interest rates start to normalise, it could possibly result in a surge of properties coming onto the market as people are forced to sell. This, in turn, would mean that as higher interest rates emerge, finance will become more expensive, which will reduce demand and again apply downward pressure on prices.”

King Sturge, a leading supplier of property services in the UK industrial, office, retail, hotels and leisure, healthcare and residential sectors, are experts in residential land and mixed-use developments and also offer a complete range of financial services to the property sector.

King Sturge is the market leader in holding exhibitions across Asia to attract property buyers into the UK market. The team has a combined experience in excess of 45 years and counts all of London’s major housebuilders amongst its clients.

According to James Talbot, a partner in the firm: “We continue to hold successful exhibitions in Hong Kong, Singapore and Kuala Lumpur. We are also holding seminars on buying property in London. Since April this year we have sold in excess of £130m worth of London property to Asian buyers.” Due to the rising demand of London properties with Asian buyers, they have also started to look at other not so traditional areas. One of these areas is Thailand, where they have screened a number of local and International agents and have decided to team up with Soho Properties due to their in-depth local knowledge and enthusiasm.

According to Managing Director of Soho Properties Chris Heath: “As recently as October 2007 the Thai baht was worth seventy-three baht to the pound, today we have seen the baht grow in strength and the rate is currently 54 baht. This in turn has seen increased purchasing power for Thai buyers providing an excellent opportunity to invest in  a world City like London, a  city which has a foreigner-friendly policy including no capital gains tax, buying restrictions or selling restrictions.

As such, Soho Properties and King Sturge have agreed to work on London property exhibitions on an exclusive basis in Thailand. They have some exciting projects lined up for 2010, including a project by the well-respected UK property developers Berkeley Homes’  No1 Tower Bridge Road, which lies next to City Hall on the south of the River Thames adjacent to Tower Bridge and opposite the Tower of London — and in their opinion “the best residential developments to come to market for many years and undoubtedly likely to receive a huge international demand, particularly given  such a world famous address and location.”

Soho Properties set to become King Sturges’ sole agent in Thailand

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Source: www.propertywire.com

A new survey indicates where property investment experts reckon you can find the best bargains and also reveals where they are likely to buy in 2009.

Asia looks a better bet than other parts of the globe, but for cash rich individuals, London also offers bargains, according to the survey by Reuters.

Tim Murphy, Hong Kong-based founder of IP Global, owns over 100 apartments and houses around the world and started a firm that finds residential property for clients.

‘I’ve just come back from a trip to London and had a very interesting week. In the last few days there are even graver concerns about the UK economy and banks. But there are some incredible property deals, especially for built property,’ he said.

‘Developers want to unload their last assets. For the right deal, you can get anything from 35 to 60% discounts from a year ago. And the currency is a huge advantage. In US dollar terms, a property that was $2 million a year ago is $600,000 now,’ he explained.

In Asia, he recommends keeping an eye on Hong Kong and China. ‘Hong Kong will have a very difficult first half of the year. If there are bargains, I’ll buy, not now, but maybe after the summer. I’m quite optimistic long-term. Rents are coming down, but the cost of funds is coming down much more. If you buy a HK$2 million to HK$5 million dollar property the yield is 4 to 6%,’ he said.

David Edwards, Asia director for LaSalle Investment Management, the property funds arm of Jones Lang LaSalle said he will buy in 2009 and he is looking at the more volatile, faster correcting markets such as Hong Kong and Singapore, which he expects to bottom first.

‘It’s too early to say if it will be the second half of 2009 or the first half of 2010. There’s not enough visibility given the gyrations of panic. But it’s a good idea to build an equity position and get ready,’ he explained.

Aaron Fischer, head of property research at CLSA, is not sure if he will invest this year. ‘I just sold a house in Australia. If I were to pick countries with the smallest declines, they would be Japan and Indonesia. In Japan house prices don’t move,’ he said.

Brett McCarthy, fund manager at Sydney-listed Challenger Kenedix Trust, reckons that the Sydney market is a good prospect. ‘The city is going to grow for a long time and it’s geographically very constrained by national parks and mountains, so in the long term, you think the property price would go up in Sydney, but of course in the short term, some parts of the market have got a lot of pain,’ he said.

Robert Lie, Hong Kong-based Asia head for Dutch property investment firm Redevco, predicts that Asia will recover before other regions. ‘I’d say invest in China, but as a foreigner you have to live there 12 months before you can buy. I think Hong Kong prices will adjust pretty quickly and I do believe that if the global economy revives, Asia will recover first. There’s inherent scarcity in the market for land and apartments. And high-end prices will drop significantly, but they’ll come back,’ he said.

Simon Lyons, London-based joint CEO of Enstar Capital, revealed he has recently bought an apartment in the Swiss Canton of Vaud. ‘That outsiders can buy at all in Switzerland is a relatively new phenomenon. A limited number of property permits are granted to non-residents each year and only certain properties, primarily in tourist areas, are eligible for purchase, meaning demand is always ahead of supply,’ he explained.

Mark Callender, UK-based Head of Property Research, Schroder Property Investment Management, said it is not the right time to buy. ‘UK housing prices look about halfway down right now, so it’s not quite the right time to buy. And the expectation is for prices to drop by another 10 to 15% this year,’ he said.

Property experts look to Asia as offering best real estate investments for 2009

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Source: Bangkok Post

The listed developer Sansiri is expanding its reach overseas as part of a plan to cover every residential market segment.

Elvaston Place in Kensington is one of London’s most desirable addresses.

The company’s first international project is in London’s most expensive area, High Street Kensington. It has bought a 600-million-baht condominium on Elvaston Place, with six units sized from 60 square metres. Prices range from 60 million to 160 million baht. It plans to open sales next April in Thailand only.

President Srettha Thavisin said the London project would be a success as the company already had many affluent Thai customers. It is now studying other countries in Asia and Europe.

“We’ve been planning and studying the overseas property market, especially the UK, for the past five years,” he said. “We’ve decided to debut our first project in the the UK because property market there is on a downtrend which favours developers that have enough capital.

“Demand for high-grade residences is still high there coupled with only few new development projects due to limitations under the UK law.”

As well, the pound is weakening and a rising number of non-UK residents are buying homes for their children who study there. Demand for second homes in one of the world’s most attractive cities also draws buyers, he said.

Sansiri expects its overseas projects would lift its sales by 5% to 10% within three years.

The company aims to develop B-level residential projects in Thailand within the next three years in order to complete all market segments. Sansiri aims to develop 19 projects this year.

Shares of SIRI closed on Friday on the SET at 2.82 baht, up six satang, in trade worth 2.7 million baht.
Sansiri picks London for foreign debut

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Source: Bangkok Post

The property developer MR Sukhumvit Ltd expects improved political stability to help revive flagging demand in the luxury condominium market, says Arthur Choo, development and marketing director.

“The luxury market in Thailand is sluggish but in Singapore it is worse,” he said. “I think things look better all around the world now. In Thailand, political risk is more important than the economic situation as overseas investors have withdrawn from the country.”

As the market remained unfavourable, the company decided to freeze a development plan for retail spaces in front of its Millennium Residence luxury condominium project.

“If the market resumes, we can start it [development] and complete it within a year. It’s not that difficult,” said Mr Choo.

To date, 200 of the Millennium Sukhumvit’s 302 units in its two buildings have been sold for about 3.5 billion baht. About 30% of the sold units were bought by foreigners. As the company had collected 35% of unit prices as downpayments, the remaining 65% would be realised within the year.

Mr Choo said construction of the project, which will comprise four buildings, would be completed in November, when units would be transferred. Despite carrying the remaining units, the company is not worried about the sales.

Since August last year when the US financial meltdown began, the developer has sold only 20 units. It is now offering a discount of 5% to stimulate sales.

However, the discount has not hurt its margin as current prices were revised up from 110,000 baht per square metre on average to 130,000 baht now.

Developer sees revival in Thailand’s real estate

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Source: The Nation

Some of Thailand’s bigger landowners have begun serious studies of the government’s proposed Property Tax Act and are preparing to use or sell unused plots of land within the next three years before the new law becomes effective – should it be approved.

The sudden interest, revealed by a survey conducted by The Nation earlier this week, follows Finance Minister Korn Chatikavanij’s announcement of plans to seek Cabinet approval for proposed reforms of the property tax collection system before the end of this year, as a part of wider tax reforms.

Property developers and landowners have now become anxious to learn details of the draft law so they can manage their property holdings before 2012.

Pailin Chuchottaworn, CEO of integrated oil refiner and petrochemical manufacturer IRPC, earlier said his company planned to seek partners to operate or sell some its undeveloped properties, in order to reduce the possible property tax burden should the draft bill become law.

“We’re considering what we should do with these businesses. If there is a good opportunity for them to grow, we’ll keep them. If not, we’ll sell them,” he said.

KPN Lifestyle CEO Korn Narongdej, who, as the son of Kasem and Porntip Narongdej, is a member of one of Thailand’s larger landowning families, said his family had to study the proposed bill before it took effect.

“We don’t yet know about the details of this Act, but we’ll study it and maybe prepare our business before it comes into effect,” he said, adding that if the proposed law was implemented, the family would be willing to pay taxes accordingly.

Udon Plaza managing director Worapol Weerachatyanukul, whose company owns 200-300 rai of land in Udon Thani province, said his company was opening up its unused land for farmers to grow sugar cane. This move to manage the land was planned before the Finance Ministry announced its proposed changes to the law.

The family of beverage tycoon Charoen Sirivadhanabhakdi, which owns one of Thailand’s largest “land banks”, has also developed a business strategy to develop its land around the country, said a source close to the family.

The Sirivadhanabhakdi family has two property businesses: TCC Land and TCC Capital Land, the latter being a joint venture between TCC Land and Singaporean-based CapitaLand.

The source said the group had five master-plan projects worth nearly Bt100 billion to develop its land in various parts of the country. Before the proposed Act takes effect, the group will launch its plans to reduce the burden of the new property tax.

Following Cabinet and parliamentary approval, the government plans to introduce the new property tax next year, with a grace period of two years before it becomes effective in 2012. It will replace present household and local-government taxes levied on property, with a target of raising Bt60 billion to Bt70 billion a year.

Finance Minister Korn said the new tax measure, which should be ready for Cabinet approval later this year, would overhaul the property tax collection system.

At present, household taxes are based on revenue generated by a property, so unused land plots are not taxed, while local-government taxes are based on prices in 1971 and 1972, so the rates are very low.

The collection of local-government taxes currently accounts for only 10 per cent of the revenue of local administrative bodies. This compares with 70-80 per cent of local administrative revenue being collected in this fashion in developed countries.

The new property tax is expected to encourage the owners of large tracts of unused land to lease their properties for agricultural or other purposes, and this will help stimulate economic growth.

The Finance Ministry has set a maximum tax rate for property used for commercial purposes of 0.5 per cent of its appraised price.

The ceiling tax rates for property used for residential and agriculture purposes will be set at 0.1 per cent and 0.05 per cent of the appraised price, respectively.

Thailand’s proposed property tax

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The Nation: 2 August 2009

Rental charges for grade-A office space in Bangkok’s central business district are expected to fall significantly in the second half, having slid 2.5 per cent in the second quarter, says UK-based global real-estate firm DTZ.

However, the company’s research suggests the city’s retail and residential markets will improve significantly.

The company said the occupancy rate of grade-A office buildings in the CBD had declined for five consecutive quarters, due to both weakening demand and supply overhang from buildings completed between last year and this year’s second quarter that had yet to be fully taken up. The average occupancy rate of grade-A office buildings in the CBD fell 2.4 per cent in this year’s second quarter.

Deteriorating demand from the corporate sector has forced landlords to offer more concessionary terms to attract and retain tenants. Most landlords are now attracting tenants with various discounts and allowances to stimulate demand, but this has had little impact in the take-up rate, DTZ said.

Average grade-A CBD rents in the second quarter were 2.5 per cent lower than the previous quarter, at Bt652 per square metre per month. The “core CBD area”, including Wireless, Phloenchit, Rajdamri, Sathorn and Silom roads still registered the highest rents at about Bt700 per square metre per month, but even these were 2.1-per-cent lower than in the previous quarter.

The company said rental rates were likely to continue to decline through the second half on the back of a dim business outlook.

Demand in the office market is being driven largely by companies that aim to take advantage of the current market situation to acquire space at lower rates. However, the fall in rents will be mitigated by the low level of potential supply this year, because there are currently very few office buildings under construction in Bangkok’s CBD. Some 122,300 square metres of office space will be completed this year and next, of which 95 per cent will be in the grade-A category.

DTZ said that most landlords had kept retail-space rents stable, reflecting a more optimistic outlook in line with improved consumer sentiment. Average rent for grade-A retail space in the CBD remained at Bt2,280 per square metre per month. Rents for grade-A first-storey retail space in prime CBD areas were steady at Bt2,500 to Bt3,000 per square metre per month. Similarly, average rents in midtown and suburban areas held firm at Bt1,530 per square metre per month.

Following the improvement in consumer sentiment, many retail developers unfroze projects and continued development activities. Nevertheless, new retail supply this year will be slightly less than it was last year. At least 107,000 square metres of new retail space is expected to be completed this year and next, 44 per cent of which will be in the CBD.

DTZ said the Bangkok retail sector was expected to perform better for the rest of the year, because purchasing power and consumer sentiment continued to improve. Rents for grade-A retail space in prime CBD are expected to remain steady due to limited new supply, while midtown and suburban-area rents are likely to hold firm in line with healthier market conditions.

The firm said Bangkok’s residential market showed more signs of activity in the second quarter of this year, including more visitors to show flats and an increasing take-up rate. The government’s stimulus package continues to catalyse market activity, and attractive campaigns and discounted prices offered by developers are also helping to stimulate demand.

The average cumulative take-up rate of units launched by developers was 66.2 per cent in the second quarter, up 2.5 per cent quarter on quarter.

Despite the higher demand, prices were relatively unchanged in the second quarter because the secondary market had become more competitive, resulting in developers pricing their projects at more realistic levels to boost sales, DTZ said.

The average capital value for all grades of CBD condominiums stood at Bt82,000 per square metre at the end the second quarter, reflecting a drop of 0.3 per cent quarter on quarter and 0.6 per cent year on year. The average capital value for grade-A units in the CBD remained unchanged at Bt101,200 per square metre. However, average grade-A rentals declined 6 per cent quarter on quarter to Bt457 per square metre per month as a result of weaker demand.

DTZ said the Bangkok residential market was expected to continue to see good demand, with prices remaining steady, in the second half of the year. Development activity is expected to increase as developers’ confidence picks up and demand is likely to be boosted by an interest rate cut of 0.75-1 per cent, government tax incentives and more reasonable prices.

The residential market will be supported by domestic buyers the rest of the year, because foreign buyers are not expected to return until next year, DTZ said.

Bangkok office rentals down, improvement elsewhere

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