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Residential, resort oversupply seen

Thursday, 31 July 2008

source: Bkk Post July 31 2008 Collins: New brokers could feel pinch For those who went through the 1997 property and finance meltdown, it may be disturbing to see the past mirror itself in today's heavyweight residential and resort sectors. Robert Collins, managing director of the property agency Savills Thailand, said that some aspects of the residential and resort sectors now show similarities to Thailand's pre-1997 office market. He notes the sheer volume of residential supply, particularly condominiums, not just in Bangkok but in key resorts as well, which is being brought into the market by big, experienced developers plus some newcomers. ''It's not necessarily a huge bubble growing. We are seeing sort of a mirroring of how the office market pre-1997 was particularly overdeveloped,'' he says. He recalls office vacancy rates of 40% a decade ago, but notes also how the market adjusted to reality fairly smoothly. For several years no new supply entered the market and existing supply was absorbed, the result being a relatively stable market today. ''Office rentals today are only really just back to where they were in 1992, and they are very stable, it's been a long recovery process.'' Fast-forward to today's residential and resort markets, and signs that there could potentially be a downturn in certain sectors if the volume of the new supply entering the market continues at the current level. Mr Collins sees a potential impact on his own industry, given that several brokerages have entered the market, especially in Phuket, Samui, Pattaya and Hua Hin since 2000-01. ''Any protracted slowdown in the marketplace is going to have quite a significant impact on all these new players.'' He notes that in the years immediately following 1997 the number of property agents in Bangkok contracted sharply, with several major international companies either withdrawing or drastically reducing their services and staff numbers. The risk that new brokerages now face is greatly magnified by their dependence on foreign buying which, Mr Collins pointed out, is losing steam amid the current global slowdown. Brokers and others are counting on land values in resort markets, particularly Phuket and Samui, holding firm. However, the reason these values have held up is mainly due to a lot of trading by speculators and agents. ''But those value points really need to be underpinned by highest investment use, from a retail perspective in the resort or pure five-star hotels. On the villa sales trade I think we are likely to see a slowdown, probably not that protracted. ''While buyers in the very high-end villa sector aren't mortgage-dependent ... they need to be cash buyers in the first place. We are seeing that the global slowdown has affected the UK and parts of the US to a great extent, that easy availability of cash is not there to the same extent it was before.'' Another weak point is that the Thai resort market is dependent on regional buyers, particularly out of Hong Kong, and developers in other parts of the world where prices are coming down are now trying to attract the same buyers. Given current conditions, there is likely to be pressure on high-end property in Thailand in the medium term. ''It's fair to say, though, that the market domestically still has a few bright spots, particularly well-planned and well-executed developments in good locations conceived by financially strong developers. Those projects that fall into this grouping are still performing very well.'' Another area that should thrive is property with equally good demand from both domestic and international buyers. ''Condominiums that appeal to Thais and foreigners really outperform the market trend. Where there is equal demand, the projects are very healthy.'' Where individual owners are concerned, Mr Collins says that those owning a completed unit are unlikely to see prices go down because construction costs have risen considerably. ''I think the pressure is going to be placed on the new supply that is off-plan ... as was the case after 1997, property prices had come down quite sharply yet completed property sold quite well in that immediate period. ''This time going forward, with construction costs up so sharply, we may see that a lot of new supply that is planned in the medium term may in fact be put off for quite some time. We are not predicting that existing supply will lose value. The pressure is going to be in the lofty expectations of some of the new supply that's due to come online.''

 

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