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FAIR SAILING FOR BANGKOK CONDOS

Bangkok Post Mar 1, 2009 The capital's condo market is likely to drop a gear this year Of the four scenarios forecast for the Bangkok condominium market this year, the most likely outcome is a fair performance, says Apisit Limlomwongse, managing director of Nexus Property Consultants. FINGERS CROSSED: Apisit Limlomwongse is hoping for the best. The company's Bangkok condominium market forecast for 2009 shows that, at best the average supply of approximately 20,000 units a year since 2004 will decrease to 10,000. Demand too is foreseen to drop from an average of around 20,000 units a year to 10,000. "Overall this scenario is not that bad. It's balanced and the outcome by year-end would be an increase in occupancy from 81% to 83% with the average price rising a little by 1.5%," says Mr Apisit. But a fair outcome, which Mr Apisit sees as most likely, would be for a 40% drop in supply, dragging occupancy down from 81% to 80%. As the market starts realising that performance is deteriorating, prices too would slip by 2.1%. "This scenario is most likely because 40% of the supply might vanish this year," he said. "We foresee that while developers would be launching projects this year, the total won't be substantial and the overall supply would drop from around 20,000 to maybe just 12,000 units. Demand would drop from 20,000 to 8,000." Mr Apisit says that a good outcome is still possible because performance depends on many factors including economic policies that produce sound results, and a stable political environment. Should the Bangkok condo market drop another gear and start performing badly, then supply could sink by as much as 80% with developers mostly not launching new projects and switching to survival mode and only releasing the stocks they still have. Completion of some projects could also be delayed. "An 80% drop in supply is a huge plunge, from around 20,000 there would only be 4,000 left. If the situation turns bad demand could drop by 100% meaning that although there would be buyers there would also be others who would withdraw [from earlier commitments]. So it's possible to sink to zero or, if it gets really bad, to plunge further into negative territory." Under this scenario overall occupancy would drop from 81% to 79%, but prices would fall by a modest 3.5% because Bangkok still has a healthy foundation of old stock. "It's as if we have been driving at high speed for a long time and although we might slow down for a while, this decrease doesn't pull the average down substantially," said Mr Apisit. If the situation turns ugly, and the worst-case scenario becomes reality, demand for this year would be wiped out completely along with demand from last year, as buyers who had booked earlier cancel their plans. By this Mr Apisit means that practically nothing would be built this year and because panic-stricken people would start dumping their downpayments and reselling the units they previously bought, last year's rise in demand would also disappear, leaving a total of around 91,000 units reached prior to 2008. "If those who bought last year don't take transfer and dump their units, this would affect occupancy, which would plunge to 64%. This would be a heavy blow, with 20,000 units being returned to the market which would not be making any progress at all. "As I see it, the poor sentiment under the worst case scenario would proportionately lead to the price dropping by 20%. This is as bad as it can get." However, Mr Apisit said if Thailand is lucky then the deepest price plunge would be somewhere between 3.5% expected if the situation turns bad and 20% should the situation turn for the worst. The performance of the local condo market, he said, depends heavily on how the global economy fares, given how property markets in the US, UK, Hong Kong and Singapore have all been hard hit. He says the market might not be helped that much by the government's stimulus package, which allows mortgage principal payments of up to 300,000 baht per year plus interest of 100,000 baht to be deducted from taxable income income. The reason is that the breaks apply only to those taking transfer of units this year, and in fact not many projects would be completed in the next 10 months. "It looks easy, but it might not be. There are projects that were launched in the last couple of years that won't be completed this year." Mr Apisit has also observed that the buying trend this year differs from last year in that affordable speculative demand has almost completely disappeared with real occupation demand driving it forward. "Real occupation demand is either buying to live in or rent out, but not flip. It is very clear that these two groups will be the main players in the Bangkok condo market." The rental market too is divided into two groups, with those targeting Thais who pay maximum 20,000 baht a month in rent realising that this segment is difficult this year and thus unlikely to buy many condos. While condos targeting expatriate tenants can be sold this year, it would be those that can generate 50,000 baht or a maximum 100,000 baht a month in rental return that would change hands. A property that generates 50,000 baht a month in rent would be priced at around five to six million baht. Mr Apisit added that Thai buyers who in recent years have been snapping up studio and one-bedroom condos along the Skytrain and underground routes might put off their decisions to purchase property this year. They mainly hold corporate jobs and earn high salaries, but are worried about not receiving bonuses, or in some cases of losing their jobs. The trend for developers to stay still is seen to be positive for the market because it would help it stabilise a little bit. A slowdown of 12 to 18 months would help demand catch up with supply.

 

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