The Current Situation and Prospects
Without any doubt, Bangkok has become a hot spot in the Asian real estate market long time ago. Since 2008, the real estate market of the Thailand’s capital shot up and started to grow by enormously huge rates. Besides, the growth was supported by the large demand of both nationals and foreigners and high rates of GDP growth (see the chart).
Considering the fact that the majority of the Thais either live in or look to rent a dwelling in condos, the best way to analyze the market is to take a look at the number of newly-registered condominiums. That is definitely a case, and the chart shows a clear trend: the market is on the rise (despite a noticeable showdown in 2011). Back in 2006, the Thailand’s capital could boast only 23,212 registered condominiums. Yet in 2014 (the data for 2015 are still not available), the number of newly-registered condos amounted to 108,175, which required the growth of at least 15% per year.
The number of registered condominiums is soaring up, while the GDP growth becomes more and more sluggish Source: Bank of Thailand
Despite the widespread predictions about looming problems in the Bangkok’s real estate market due to political reasons – civil unrest and military overthrow – the industry seems to be doing quite well now. Several analysts expressed concerns over the real estate market and the problems that may appear due to the economy, which is starting to cool down. This point of view may be correct, as the GDP growth of the Thailand’s economy dropped from 7.3 to 0.9 percent. Yet, the economy’s troubles still have not had so noticeable impact on the market – yet have already prompted some real estate developers to abandon several large projects.
Another emerging trend is a decrease of Bangkok’s share in the Thailand’s real estate market, as developers are striving to seize the opportunity and build affordable housing elsewhere save Bangkok. Several reasons could prompt developers to put bigger emphasis on outside-of-Bangkok-housing: high prices of housing within the Thailand’s capital, growing demand in other parts of the country, and a lack of affordable, reasonably priced land for development in Bangkok.
Condominiums rise up nationwide; the share of Bangkok in the total number of registered condominiums is falling Source: Bank of Thailand
Reality of the Bangkok’s Real Estate Market
In the Bangkok’s real estate market, condominiums have started to noticeably prevail over houses since 2008. It can be explained by the high price of the lands within Bangkok Metropolis, and now, it is definitely not a surprise, the majority of Bangkok residents live in condos. Besides, huge sums of property credits supported the demand for housing (see the chart). By 2014, the outstanding credit (to both developers and purchasers) reached the mark of 2,256.7 billion Baht (equal to a little bit more than $63 billion), which appears to be a historic maximum.
The property credit runs high, while the Bangkok’s market is getting even hungrier for real estate Source: Bank of Thailand
However, the unconvincing performance of the national economy and external conjuncture cause reasonable concerns about the future of the Bangkok’s real estate market. A number of economists fear about a bubble that was, similar to the United States, created in the Thailand. Yet, there is a huge difference between the Bangkok housing market and a housing market of any other country: Thailand can boast a much bigger number of foreigners willing to buy and buying the property in the country in proportion to the country’s population. Therefore, the market is supported by a huge flow of cash streaming from abroad.
The House Price Index does not show signs of dropping Source: Bank of Thailand
Despite the fact that the economy’s state is getting bleaker, the House Price Index, calculated by the Bank of Thailand, does not demonstrate any sign of price fall. The prices have been continuously rising even during political unrest in the country. CBRE, a consultancy, notes that even though the rise of prices has been slowed down, it does not change the overall trend for now. According to its data, the condominium units in Sukhummit, Central Lumpini and Silom/Sathorn areas were sold for 179,762, 196,250 and 190,714 Baht per square meter in the third quarter of 2015.
A high-class Focus Ploenchit condo that includes 132 units is striving to sell them
However, the consultancy points out that there was a fall in sales of condominiums in all areas of Bangkok, which may appear to be a first sign of the future real estate market’s drop. Definitely, it may be considered as a sign of the real estate market cooling down in general, but it also may be a consequence of building a lot of new condominiums and houses in other Thailand’s cities.
In addition to that, the consultancy predicts that in 2018 Bangkok will see a sharp fall in completion of condominiums in its downtown, as a larger share of condos will be built in midtown or suburbans. The case is that the market is oversupplied by luxury, high-class condos (take a loot at Focus Ploenchit, for example), and the majority of developers will focus on affordable housing.
What One May Expect From the Real Estate Market of Bangkok?
Despite the sluggish growth of the economy, the occupancy rate of Bangkok’s offices noticeably grew in 2015, and this caused a moderate increase of the rent price that varied from 4 up to 10 percent. However, a drop in the completion of new buildings, especially in the downtown, may prompt a further rise of rent prices for office space.
The occupancy rate of apartments, though, has seen a modest fall, especially in such districts as the Central Lumpini area that can boast the highest average rent. Yet, it did not cause neither a fall in price nor serious concerns over the market’s prospects. And even though the market’s prospects are not as bright as they were 5 years ago, there is still a room for careful optimism.
First of all, the government has supported the capital’s real estate market by launching an imposing number of infrastructure projects. Thongma Vijitpongpun, the President and CEO of Pruksa Real Estate, pointed out that the time when government starts financing serious infrastructure projects opens up new opportunities for real estate companies. In particular, it means an easier access to cheaper to land, where companies may launch new residential projects. The government has a goal of transferring Thailand in general and Bangkok in particular into a transport hub of Asia, and this brings a lot of opportunities for the real estate market. After such a message from the government, many real estate companies have become more optimistic despite several cancelled projects and predicted “at least 5-7 per cent growth during the following five years”.
Another positive moment is that one of the major real estate developers, Sansiri, doubled the number of its project up to 21 this year, and its president declared that the company has no intentions of cancelling them. The president’s optimism was caused not only by the government initiative, but also by a number of factors like the drop in oil prices and lower interest rates.
After all, an important point is the development of new projects in other areas of Bangkok and even in suburban areas. While the most of the newly-built condominiums were built in the Sukhumvit, Central Lapini and Silom/Sathorn areas, soon it is going to change. Sukhumvit, near which the OnNut area is located, will still attract a lot of developers, renters and purchasers. The OnNut area also attracts a lot of purchasers and developers and, therefore, these two areas will continue to enjoy the rise in a number of condos.
Yet, the government’s infrastructure initiatives will give a rise to the project development in the other areas. In particular, it is going about the Ratchadaphisek and Phahonyothin areas. After all, the process of the gradual transition to the suburban project developments – the process that takes place elsewhere in the world, especially in London – will take off. It is a start of the major transformations in the real estate market of Bangkok.