Bangkok’s Deluxe Condominiums: Prices Expected to Keep Soaring
Prices of Bangkok’s high-end condominium units are projected to keep rising in the months and years to come. This is a forecast that Jones Lang LaSalle, a multinational financial and professional services company specializing in real estate, supports despite the heavy competition.
The Driving Forces
There are several factors that have been identified as those that are driving up the prices of the luxurious condominium units. Real estate firm Jones Lang LaSalle points to rising land, construction, and labor costs as the major cause of the price increase. Although the steady demand for such property provides room for developers to inflate their prices, the mounting costs of land (and its scarcity) are also responsible for pushing up the rates. Jones Lang LaSalle’s Managing Director, Suphin Mechuchep, says that “With new commercial and residential developments having mushroomed over recent years, vacant land and sites for redevelopment in Bangkok’s central business district have become increasingly scarce. In addition, most developers of top-end condominiums are aiming for the highest quality. All these things have contributed to the rise in condominium prices.”
Another possible contributing factor is the increase of higher prices for construction materials. The prices of steel, which have gone up by as much as 10 percent from the beginning of the year, are greatly affecting condominium prices, compared to other residential establishments. In addition to building materials, rising labor costs (and the prospective increase in the minimum wage) are also pushing construction costs up. Managing Director Suphin elaborates on this by saying that residential prices are likely to rise further due to the proposed plan to increase the minimum daily to Bt300, and that a 5 to 7 percent increase in condominium prices might be what the future holds.
Most property developers choosing to venture into top-end condominium projects in Bangkok are well capitalized. They remain confident that the climbing costs of development and the surge in the quality of their products more than justify the higher prices, and they are willing to bet on this justification.
The Price Increase
Over the past three years, some top-end condominium units have enjoyed price increases of as much as 40 percent, according to the firm. Prices offered by certain newly launched projects range from Bt90,000 to Bt230,000 per square meter, in comparison to the price range of Bt150,000 to Bt200,000 per square meter of last year’ comparable business ventures. Units in prime locations, like Lang Suan, Phloenchit, Wireless Road, Sathorn, and Sala Daeng, are fetching the highest in prices.
According to Jones Lang LaSalle, the average sales rate of recently completed luxury developments are at 85 percent, while projects that were newly launched enjoyed a lower, but still relatively healthy, average sales rate of about 50 percent. The firm’s data also reveal that top-end condominiums in completed buildings across Bangkok’s central business district increased significantly from 10,324 at the end of March 2006 to 21,464 at present. The number of units is expected rise further by about 3,867 units, which are to be completed by the end of next year.
The Major Buyers
The sector has done fairly well, in general. Thai buyers still make up the majority of buyers of the luxury property units, with the high demand spurred by the desire to property as a hedge against inflation, the lure of rental income, and the appeal of low interest rates. Suphin said that Thai buyers remain active and that high-net-worth Thais, who are buying for their own occupation or as an investment, have made the most recent purchases. Despite the incomplete recovery of the demand from foreign buyers, this group’s interest has blossomed since the July elections.
Government Stimulus Measures
Condominium buyers are apparently holding off on purchases after mortgage limits were imposed earlier this year by the Bank of Thailand. They seem to be waiting for the time when the new government’s stimulus measures, most notable of which is the provision of mortgages that are interest-free for the first three years for first-time home-buyers, take effect. However, these measures will have little, if any, effect on the top-end condominium market as most buyers in this sector are not first-time home-buyers.
High-end condominium rates will continue to rise in response to the increase in land, construction, and labor costs. Despite this, the market seems to be enjoying a healthy level of interest from Thai and foreign buyers, alike, this year. Will the high-end condominium market remain strong next year? Only time can tell. Crystal ball, anyone?