Higher quality and limited development sites pushing prices up in Bangkok
Prices of top-end condominiums in both completed buildings and off-plan projects in Bangkok’s central business district (CBD) continue to grow. 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, according to Jones Lang LaSalle, a professional services firm specializing in real estate.
Suphin Mechuchep, Managing Director of Jones Lang LaSalle, said “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. 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 last 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.”
Construction nears completion on Raimon Land’s luxury ‘The River’ project in Bangkok. (Photo/Raimon Land)
Jones Lang LaSalle observed that recently completed developments are enjoying an average sales rate of approximately 85% while newly launched projects have witnessed the lower average sales rate of 50%, which is a relatively healthy rate when taking high levels of new supply that have entered the market over the past years into account.
Data from Jones Lang LaSalle revealed that the number of top-end condominiums in completed buildings across Bangkok’s CBD rose from 10,324 at the end of the first quarter of 2006 to 21,464 at present. An additional 3,867 units are expected to be completed between now and the end of 2013.
Prices on the rise
According to Jones Lang LaSalle, top-end condominium units in some completed developments have enjoyed price increases by as much as 40% over the past three years. Certain newly launched projects are offering prices ranging between THB190,000 and THB230,000 per square meter, compared to a price range between THB150,000 and THB200,000 per square meter offered by comparable new projects launched in 2010. Units in prime locations within the CBD such as Ploenchit, Witthayu, Langsuan, Saladeang and Sathorn areas 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 that are pushing up prices of new condominiums.
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. 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,” Mrs. Suphin explained.
Government’s plan to raise minimum wage expected to push up construction costs
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% since early last 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 THB 300, residential prices are likely to rise further as development costs would inevitably increase. Some pundits forecast a 5-7% 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.
Stimulus measures unlikely to affect top-end residential market
After the Bank of Thailand imposed mortgage limits in early 2011, condominium buyers are reportedly holding off on purchases until new stimulus measures initiated by the newly formed government take effect. One of the notable prospective policies is the three-year 0% interest loan for first-time homebuyers. However, all these measures are unlikely to have an impact on the top-end condominium market.
Most people who bought top-end condominiums are not first-time homebuyers. While the government announced intentions to launch measures to help home buyers, we anticipate that these measures would be aimed mainly at providing help to homebuyers in the middle to low end segments,” Mrs. Suphin comments.
Jones Lang LaSalle 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 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 purchase property as an inflation hedge.