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Is the Luxury condo boom in Bangkok over?The Thai luxury condo market has historically seen a five- to seven-year cycle of rising demand, and the overall trend is still positive for the next few years. In the short term, take up for new condominium buildings will continue to be positive, with a number of them being sold out way before completion. The second-hand market has remained slow, especially in building over 5 years old. Why? The culture in Bangkok amongst property buyers is to buy new. In reality, the masses who buy into new condominiums and pay a premium price for them, are likely to be hit the most if things do turn sour. But this does not seem to have deterred buyers. However, those who are expecting good rental returns might be disappointed in the short term as the entry of new units will continue to exert pressure on rental rates. Also, many tenants are not 'wowwed' by the newness of a condominium in the same way a buyer is. Instead, they are often more interested in the unit area, quality of interior decoration and rental price. One could expect, though, that rental values will climb in the longer term in tandem with the rising price of condominiums. However, this may not be the case. Many people expect the condominium market to remain buoyant for the next few years followed by a downward correction in prices. Units of older condominiums whose prices have not increased so rapidly over the last 3 years are likely to be the least affected. Construction costs have also increased over the last few years, squeezing developers' profit margins and further increasing the price of new condominiums. Older condominiums should also see an increase in their values to mirror the increases in replacement costs, but due to the high supply of new units, and the 'buy new' culture in Bangkok, the increased prices of older condominiums has not been proportionate to the increase in construction costs: it is now possible to buy into an older condominium unit at a lower price per sq.m. than it would cost to build one. In the medium term, prices are expected to either settle for say 4-5 years before the next boom, or we will see a fall in prices. Recent increases in interest rates will cause most mortgage owners and borrowers to think twice about buying, and further increases in interest rates are expected. These interest rate increases, in line with increases in construction costs, will also burden the developer, forcing them to increase unit prices. So what will be the outcome? Less people buying, unit prices increasing, followed by even less people buying. The high price of buying and increased cost of borrowing push demand down. But what about supply? Construction levels remain high, but have been controlled somewhat due to restrictions in bank lending, which will help to lessen the impact of any economic depression. Let's face it, the boom and bust cycle is a reality: Bangkok has seen a period of rapid growth, so it is inevitable that, with the oil-price fallout, the bust is on its way. It's not a question of if; it's a question of when. Foreign interest in the Thai property market should continue to remain robust though, as property prices in Bangkok are still very cheap relative to other capital cities. The long term view? As everyone knows, property prices will always go up. One area of particular interest for investors, who are patient enough to sit on their investment for a decade or so, is land. Buy a nice plot of land near to the beach. In a few years time, sell it and retire. Currently prices for condominiums in Bangkok for the lower segment of the market are 40,000-50,000 baht per square metre; the middle level 60,000-75,000 baht; and at the high end 80,000-130,000 baht. Links to other articles: |
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