Demand Brisk But Luxury Bangkok Condominium Launches Slowing

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The inner-city Bangkok condominium market still looks promising and seems unaffected by negative sentiment, according to James Pitchon, the executive director of the property firm CB Richard Ellis.

So with limited new supply and evidence of strong demand from Thai and foreign end-users for the luxury sector, we believe that the market is healthy although more subdued than two years ago

The inner-city Bangkok condominium market still looks promising and seems unaffected by negative sentiment, according to James Pitchon, the executive director of the property firm CB Richard Ellis.

He points to healthy demand in both the mid-market and high-end Bangkok Condo segments as underscored by two recent launches.

On the mid-market Bangkok condo side, Noble Remix on Sukhumvit Soi 36 last month drew a very good response with more than 200 units booked in the one-day pre-launch sale. At the luxury Bangkok condo end, CB Richard Ellis has sold around 200 units at Emporio Place on Sukhumvit 24, which is being developed by TCC Capital Land.

"From these two projects I think you can say that from mid-market upwards there is still demand for projects in the right location. And I think proximity to the skytrain is a critical factor."

Mr. Pitchon added that other key issues buyers tend to focus on are project quality and design.

But the divide between the high and medium ends of the Bangkok condo market is now starkly clear with the former commanding prices above 100,000 baht per square metre.

However, the rate of launches at the luxury end has slowed considerably since 2004 and this year CB Richard Ellis expects only two. One is The Millennium, which will be developed at the old driving range in Sukhumvit 18. Covering 12.75 rai, it could possibly be the largest site of any Bangkok condominium complex. There will be four high-rise towers with views of the Chao Phraya River and the Thailand Tobacco Monopoly lake. This is expected to be a family-driven development for owners and the rental market.

The other project is Sukhothai Residence, with Hong Kong Resorts, the owner of The Sukhothai Hotel, planning to build a condominium within the hotel compound on Sathorn Road. "We feel that the co-branding of the hotel and the condominium will have a very strong appeal to buyers," said Mr. Pitchon.

The "skytrain generation" is a major driving force of the market. These are people who work in the city centre and want to live, at least during the week, downtown and on weekends they may go out to their parents' homes.

"This is really new demand that didn't exist 10 years ago, with Thais choosing to live in a condominium rather than a townhouse or a house."

Mr. Pitchon noted that aside from the skytrain generation and other Thai buyers, CB Richard Ellis has been seeing more overseas purchases, most notably expatriates based in Hong Kong.

"And the reason they are buying is that they intend to spend part of the year in Bangkok. So there is a healthy level of demand from end-users and at these kinds of prices above 100,000 baht a square metre, we see a very limited amount of speculation."

Noteworthy is the fact that overseas demand is essentially lifestyle-driven, with the aim being to obtain a holiday or retirement home in Thailand.

Foreign interest is now making the Thai real estate market more international but Mr. Pitchon says the trend is just starting. "There are one million British people who own property in Spain so Thailand is still at the beginning of a trend."

He hastened to add that he wasn't saying that one million British people would buy property in Thailand, but even if 10,000 did so it would have a considerable impact on the market.

"I think people are choosing Bangkok for accessibility. First of all, you have all the amenities of the big city. ... Access to golf courses is good and we have seen some people buy both in Phuket and Bangkok."

This means that Thailand as a holiday or retirement destination is going to grow in importance and any measures that the government could introduce to promote this would be very positive.

"For example the current restriction prohibiting foreign condo purchasers from borrowing money in Thailand to fund their purchase, if that prohibition were removed then that would significantly increase demand."

Are prices of 100,000 to 130,000 baht a square metre realistic? Mr. Pitchon says they reflect rising construction costs.

"On a net sellable area the construction cost of a luxury project today is somewhere between 45,000 to 60,000 baht a square metre depending on the height of the building and the specifications, excluding land cost."

Despite these high prices one should remember that there is a strong correlation to replacement cost so nobody can build cheaper next door to you, he added.

Condominium owners should note that the introduction of the new city planning regulations will limit the size of buildings in certain areas and any restriction will add value to the current stock.

"So with limited new supply and evidence of strong demand from Thai and foreign end-users for the luxury sector, we believe that the market is healthy although more subdued than two years ago," Mr. Pitchon said.

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