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Condo market set for slowdown

source: Bangkok Post Nov 24 2008 Just as the industry was getting some relief from the high costs that characterised the first half, it was brought to its knees again by the lack of confidence triggered by the global crisis, The condominium market, after an upward trend over the past few years, is set to slow next year, in line with the economy and the overall property market. The challenges now facing developers include a drop in investment capability and financial liquidity, lower consumer confidence and growing competition among completed units joining the market. Developers should be very wary of adding more of these at a time when cash is king. In the first half of the year, most condominium developers were anxious about cost-push due to higher oil and steel prices, driven by hedge funds and rising demand from major consumers like China. Many developers tried to lock the prices of materials with contractors to avoid losses from volatile costs. As soon as the Beijing Olympic Games ended in late August, prices of oil and steel nosedived to a normal level. The improving situation could have benefited the condominium market but the American financial meltdown, triggered by the sub-prime crisis, attacked the global economy in early September. Though the Thai property market appeared to escape a direct impact from the new crisis, observers could not confirm it would be safe. The aftermath of the crisis would have severe repercussions for the financial market, a major source of funds for condominium developers and homebuyers. "The aftermath of this crisis will take longer than 24 months," said Samma Kitsin, director-general of Real Estate Information Centre (REIC). "In 2009, financial institutions will limit both project loans and mortgage loans as they are concerned about a possible impact from the shortage in the US financial system." This financial scenario could worry developers of condominium projects. Most projects are pre-sale and customers may be rejected by financial institutions when their units are ready to transfer. "If the crisis spreads to Thailand quickly, potential buyer may delay decisions and need to wait and see. Even investors and speculators will turn to holding cash in hand as condominium speculation will not attract them as in the past and they cannot expect an appreciation in unit prices as they want." The fallout from the global financial crisis may affect all price ranges - from a 700,000-baht compact-sized unit to a big-ticket penthouse on the top floor. The feeling of low confidence is shared by Thai and foreign buyers, despite city-lifestyle condominium remaining in demand. As a result, condominiums completed next year - along with unsold completed units from this year and resale units - are likely to intensify competition in the condominium market. Developers are banking on new mass-transit routes taking shape soon and paving golden paths to projects along the lines, but so far they are still holding their breath. According to an REIC field survey, condominium supply along the current and future mass-transit lines totalled 175 projects and 66,232 units from October 2007 to September 2008. On these units, 69% or 45,471 units were sold. The total of condominium units included 11,737 completed units (81% sold), 35,137 units under development (68% sold) and 19,358 unconstructed units (62% sold). REIC also found that 27 new condominium projects with around 9,000 units would be on the market next year. Of these, at least 14 projects with more than 5,000 units would be located along the MRT route, especially in the Ratchadaphisek area. From these figures, the director-general suggested developers should be more cautious about launching new projects next year or should delay launches if they lack sufficient funding as it could be hard to find financial sources amid the global liquidity shortage. "[Condominium developers] need to depend only on [their] own liquidity as negative impact from this crisis - the credit crunch - is very extreme, which will not only affect developers but also buyers," he said. Developers may face the double challenge of unsold units remaining and untransferrable units returning. At the same time, they may have to face new competition from completed resale units being offered by speculators.

 

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