Thailand is no stranger to a glut of real estate projects, even after the bursting property bubble of the mid-90s, which brought the economy down with it, sending shock waves through every strata of society. While some do not see history repeating itself this time around, a continuous rise in mortgage loans propelled by intense competition among financial institutions offering a high loan-to-value (LTV) ratio to homebuyers, along with numerous mixed-used projects in the pipeline, have stirred uneasiness for financial regulators.
Meanwhile, strong competition in certain property sectors and rising development costs, driven by escalating land prices, have made it more difficult to execute a single-use property project, which is easy to market and offers high returns on investment. To cope with this challenge, mixed-use developments are likely to become a popular solution, not only for large-scale complexes, but also single-building developments. Many property developers have switched their strategy to target the medium to high-end segments because of mounting risks related to oversupply and buyers' debt-servicing ability.
Low-end market has many financial institutions concerned when considering mortgage loan applications. This segment has a lot of non-performing loans (NPLs), and buyers of residential units priced lower than 2 million baht are the most risky as their profiles are not good. Most of them have unstable or irregular income and their financial statements are not strong enough to secure mortgage loan approval. As a result, this segment has a high mortgage loan rejection rate.
An oversupply of condominium projects along the Purple Line and in Bang Wa has also been detected although the outstanding supply in this segment is not worrying as the quantity of being launched is not large. This stems from a shift to the middle to upper-end segments from the lower-end market by major developers, which began last year.
In the upper-end segment, units priced from 3 million baht, concerns about NPLs or returned units from those who are unwilling to receive unit transfers are minimal, as buyers in this segment have good profiles and ample purchasing power. There are speculators for condo projects, but the ratio is not as high as previously seen, and most of today's speculators are able to get units transferred if they cannot be re-sold.
Even though there are a number of condo units returned by buyers who decided to cancel their purchases or halt down payment, the quantity is not concerning for developers as it rarely exceeds 20-30%. A condominium project with 70-80% units sold is considered the break-even point for developers. With their strong financial status, they can handle those remaining unsold units or offer campaigns to re-sell them.
Condo units priced from 3-7 million baht in attractive locations such as near mass transit stations have a secondary market to help absorb them, for which foreigners, in particular, are prospective buyers.
Influences of Mass Transit
Bangkok's residential property market will see a growth of up to 7 per cent in 2018 from this year, thanks to the government's proposed expansion of investment for infrastructure projects. This corresponds with the views of major project developers who, on the whole, continue to view the market as one with growth opportunities.
The Popularity Of Each Line Can Be Seen From Its Ridership, As Well As The Number And Prices Of Residential Units Along The Line. These Factors Show Not All Lines Are Equal. Currently, The BTS Light Green Line, With 750,000 Passengers Per Day, Has Seen The Most Developments Of Residential, Office, Retail, And Hotel Properties. It Is Followed By The MRT Blue Line, With 350,000 Passengers Per Day, Where Developments Have Been Concentrated Along Ratchadaphisek Road.
For The MRT Purple Line, Many Condominiums Were Launched During Its Construction With High Expectations. However, With Currently Only 51,000 Passengers Per Day, It Will Be Less Attractive For Developers To Invest Further In Projects Along The Line Until The Passenger Numbers Improve.
Residential Developers Are Also Acquiring Land Plots Before The Completion Of The New Lines Under Construction. Speculative Residential Property Buyers Are Willing To Purchase Soon After Construction Starts On The Lines. End-User Buyers Who Represent Real Demand Only Make Decisions When They See There Is Significant Progress On The Lines And The Projects They Are Planning To Buy Can Be Completed About The Same Time The Line Becomes Operational. Many End Users Need The Line To Be Operating Before They Decide To Live In The Property. Office And Retail Tenants Will Only Decide To Rent In A Location When They Are Certain That The Line Will Open By The Date That They Occupy The Property. For Retailers, Their Business Depends On The Traffic Generated By The Line.
A Property Consultant Predicted That The BTS Light Green Lines Would Continue To Be The Most Popular Thanks To The Number Of Developments Which In Turn Increases Their Ridership. The Most Popular Line In Terms Of The Number Of New Launches And Future Supply Of Condominium Units In 2017 Was The BTS Light Green North Extension, With Around 4,900 Units Launched And Under Construction, Followed By The MRT Dark Blue Extension 2 (4,500 Units), And The MRT Dark Blue Extension 1 (2,200 Units) And The BTS Light Green South Extension (900 Units).
The Development Of Residential Projects Next Year Will Continue To Focus On Areas Accessible By The Train Network, Especially The Orange Line, The Blue Line, And The Extension Of The Green Line That Is In Progress. The Number Of Passengers, And Therefore The Popularity Of Locations Near Train Stations On This Line For Development, Could Increase Significantly. The Market Will Expand To The Outskirts Of Bangkok, With The Trains Making It Convenient For People To Travel Into The City As Well As To Anticipate Their Approximate Travel Times.
As Construction Has Just Started, It Is Too Early To Tell The Real Demand For The Locations Next To The Stations Along These Lines. Not All Mass Transit Lines Are Equally Attractive Today And That Will Continue To Be The Case In The Future.
Bangkok Property Market 2018