Real-estate firm points to increased land, construction, labour costs
Real-estate services firm Jones Lang LaSalle believes that prices for top-end condominium units in Bangkok will rise further, despite strong competition.
This is because developers are well capitalised and remain confident that rising development costs and product quality justify the higher prices.
Although foreign interest has been rising since the outcome of the July elections, the global economic outlook remains shaky, so Thai buyers continue to be the main source of demand, lured by rental income, low interest rates and the desire to purchase property as a hedge against inflation.
Jones Lang LaSalle’s managing director Suphin Mechuchep said that although top-end condominiums were only a small segment of the market and were not necessarily representative of the Bangkok condominium market as a whole, the company had discovered some interesting movements in this sector.
Generally, the sector has continued to perform fairly well. Although demand from foreign buyers has not yet fully recovered, interest from this group has picked up since the elections in July. 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, she said.
Jones Lang LaSalle said recently completed luxury developments were enjoying an average sales rate of about 85 per cent, while newly launched projects had a lower average sales rate of 50 per cent. This is still a relatively healthy rate, when high levels of new supply entering the market over recent years is taken into account.
Jones Lang LaSalle’s data reveals that the number of top-end condominiums in completed buildings across Bangkok’s central business district rose from 10,324 at the end of March 2006 to 21,464 at present. An additional 3,867 units are expected to be completed between now and the end of 2013.
The real-estate firm said top-end units in some completed condominium developments had enjoyed price increases of as much as 40 per cent over the past three years. Certain newly launched projects are offering prices ranging from Bt90,000 to Bt230,000 per square metre, compared to a price range of Bt150,000 to Bt200,000 per square meter offered by comparable new projects launched last year. Units in prime locations within the central business district where land for new developments is becoming scarce, such as Phloenchit, Wireless Road, Lang Suan, Sala Daeng and Sathorn, are fetching the highest prices.
While sustained demand provides room for price increases, higher development costs, mainly for land and construction, have been another major factor pushing up prices.
“With new commercial and residential developments having mushroomed over recent years, vacant land and sites for redevelopment in Bangkok’s central business district have become increasingly scarce. In addition, most developers of top-end condominiums are aiming for the highest quality. All these things have contributed to the rise in condominium prices,” Suphin said.
Many developers are expected to increase the 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 Bt300, residential prices are likely to rise further, as development costs will inevitably increase. Some pundits forecast a 5- to 7-per-cent increase in the prices of new condominiums,” Suphin said.
After the Bank of Thailand imposed mortgage limits earlier this year, condominium buyers are reportedly holding off on purchases until stimulus measures initiated by the new government take effect. Notable among these prospective policies is the provision of mortgages that are interest-free for the first three years for first-time home-buyers. However, these measures are unlikely to have any impact on the top-end condominium market.
“Most people who buy top-end condominiums are not first-time homebuyers. While the government has announced its intention to launch measures to help home-buyers, we expect that these measures will be aimed mainly at home-buyers in the middle to low-end segments,” she said.