Insight: Resilience of Bangkok Property
Despite the political turmoil the capital and the recent flagrant act of terror in August last year, Bangkok’s property market may do well for some time.
Despite being hit by political turmoil, the robustness and resilience of the Thai market proved to be stable throughout the various turbulences. According to Suphin Mechuchep, managing director at JLL, part of the strength in the Bangkok market comes from a good balance between demand and supply in the market, as well as the political stabilisation in the second half of 2014.
Moreover, there are other factors that will add to the optimism of the market. For starters, Thailand’s reform roadmap—amidst the stability so far—will enjoy more clarity in policy and direction, and all of this will bolster investors’ and businesses’ bullishness and overall consumer confidence. Moreover, the military government had gone ahead with various major capital spending initiatives, seeking to stimulate the economy through major infrastructure investments, all of which are expected to lift the country’s macro-economy soon, which will in turn help to grow the capital’s various property sectors.
The main property players remain well-funded and have the means to acquire income-yielding assets, or to grow their land banks. In fact, some of these developers have launched their own real estate investment trusts (REITs), which are in turn partly funded by a vibrant stock market in the country. All these ensure a sustained institutional demand for property further upstream, which keeps the market growing at a healthy pace. Beyond local factors, global trends including a low interest rate and low oil prices translating into residential markets having improved household balance sheets (as energy costs now take up less income) are expected to bring about a boost in the local property market.
The trends seen in the market corroborate these observations. According to data from Colliers, over 11,000 condominium units were launched in the city in the second quarter this year, about 9.5 percent more than in the first. Over 75 percent of these new launches were in the area connecting Bangkok along new subway lines. Moreover, significant numbers of luxury condominium units were bought up by investors despite selling prices being high and a competitive leasing market (with investment yields only hovering at about 3.5 percent, based on JLL estimates). Most of such investors have bought for capital appreciation, as opposed to seeking rental income, since prime condominiums in central Bangkok see an average of 20 percent price rises between when they were offered for sale off-plan, and when construction is over.
Some fret about the weakness seen in local demand. According to the Thai Chamber of Commerce, the confidence of new home buyers (also known as the New Residence Buyer’s Confidence Index) fell from January to June 2015 to 63.9, the lowest in the past year. The weakness is said to be due to various factors, including a dim outlook that Thais in general have taken about their own economy. However, that gap is increasingly filled by foreign buyers, as many major Thai developers have gone overseas to market their projects, particularly in China, Hong Kong and Singapore. This has led to a rise in the average take-up of condominium units, especially for units in the price range of $260 to $520 psf, which registered a rate of 90 percent. Those in the higher range of $651 psf also did well, at 80 percent. What is clear therefore, is that the demographics and dynamics of the Bangkok market is changing, and that could be just where the next big opportunity is.
Text by Willy Teo
This story first appeared in PALACE.