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Top-end condo prices still rising

BUSINESS: Despite rising condominium prices in Bangkok, the number of buyers is still relatively high with recently completed developments enjoying an average sales rate of approximately 85 per cent, according to a report by property consultants Jones Lang LaSalle (JLL).

Saturday 10 September 2011, 08:32AM


The Bangkok skyline continues to fill up with condominium blocks with sales of new condo units averaging 85 per cent.

The Bangkok skyline continues to fill up with condominium blocks with sales of new condo units averaging 85 per cent.

Newly launched projects have witnessed a lower average sales rate of 50 per cent, which JLL describes as “a relatively healthy rate” when high levels of new supply that have entered the market over the past years are taken into account.

Despite slower sales and high levels of new supply entering the market over the past years, rising development costs and sustained demand have driven price growth. Prices of top-end condominiums in both completed buildings and off-plan projects in Bangkok’s central business district (CBD) continue to grow, the report indicated.

Data from JLL revealed that the number of top-end condominiums in completed buildings across Bangkok’s CBD doubled from 10,324 at the end of the first quarter of 2006 to 21,464 now.

An additional 3,867 units are expected to be completed between now and the end of 2013.

“Though top-end condominiums are only a small segment of the market and are not necessarily representative of the Bangkok condominium market as a whole, we have discovered some interesting movements in this sector,” wrote Managing Director of JLL Suphin Mechuchep.

“Generally, the sector has continued to perform fairly well. Though demand from foreign buyers has not yet fully recovered, interest from this group has picked up since the conclusion of the national elections in July.

“In addition, Thai buyers remain active, with most of the recent purchases being made by high-net-worth Thais who are buying for their own occupation or as an investment.”

According to JLL, top-end condominium units in some completed developments have enjoyed price increases of as much as 40 per cent over the past three years. Certain newly launched projects are offered at prices ranging between B190,000 and B230,000 a square meter, compared with a range between B150,000 and B200,000 offered in comparable new projects launched last year.

Units in prime locations within the CBD such as Ploenchit, Witthayu, Langsuan, Saladeang and Sathorn, where land for new developments is becoming scarce, fetch the highest prices.

While sustained demand provides room for price increases, higher development costs, mainly including land and construction costs, have been another major factor pushing up prices of new condominiums.

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“With new commercial and residential developments having mushroomed over the past years, vacant land and sites for redevelopment in Bangkok’s CBD have become increasingly scarce,” Mrs Suphin wrote.

“In addition, most developers of top-end condominium projects are aiming for the highest quality. All these have contributed to the rise in condominium prices.”

Many developers are positioning to increase prices of their residential units as a result of higher prices for construction materials and rising labour costs. Steel prices, which are up by 10 per cent since early this year, are having the greatest impact on condominium prices relative to other residential developments. The prospective increases in the minimum wage will also have a direct impact on construction costs.

“With the government’s plan to raise the minimum daily wage to B300, residential prices are likely to rise further as development costs would inevitably increase. Some pundits forecast a 5-7 per cent increase in the prices of new condominiums,” said Mrs Suphin.

“Despite the recent cut in Oil Fund levies which has led to lower transportation costs, there is no guarantee that prices of construction materials will be lowered. In addition, if the new wage plan materializes, construction material manufacturers would likely be affected,” she added.

After the Bank of Thailand imposed mortgage limits earlier this year, condominium buyers are reportedly holding off on purchases until new stimulus measures promised by the newly formed government take effect.

One of the notable prospective policies is three-year zero per cent interest loans for first-time home-buyers. However, all these measures are unlikely to have an impact on the top-end condominium market.

JLL believes that prices of top-end condominiums in Bangkok will rise further despite stronger competition. This is because developers are well capitalized and remain confident that rising development costs and product quality justify the rising prices.

Although foreign interest has been rising since the conclusion of the July elections, due to the global economic outlook remaining shaky, Thai buyers will continue to be the main source of demand, lured by rental income, low interest rates and the desire to buy property as an inflation hedge, the JLL report says.

 

 

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