WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? © CB Richard Ellis (Thailand) Co., Ltd. 1 WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? 2 CBRE GLOBAL RESEARCH WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? © CB Richard Ellis (Thailand) Co., Ltd. 3 WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? MARKET SITUATION One of the strangest features of the Bangkok condominium market for Western purchasers is that prices of older condominiums do not move upwards at the same rate as newly-launched projects; in some cases, they have not moved at all. In many developed Western markets it is possible to value a property per square metre by location but clearly in Bangkok this is not the case. A purchaser looking at any location in Bangkok will still see a huge difference in price per square metre for new off-plan sales compared to even the asking prices at older properties. Unlike the UK or Australia, actual sale prices are not publicly available data in Thailand even though this information is collected by the Land Department when the transfer of title takes place. Though asking prices for resale units do not always reflect real market prices, they are an indication of the same. Potential purchasers can easily see asking prices by looking online at the units being offered by major agents such as CBRE or using simple Google search terms such as “condominium for sale” followed by the name of the street. If we take one of the most popular locations such as Sukhumvit Soi 24, we can see a huge range of prices. The oldest condominium on the street is Grand Ville House I, completed in 1981, where asking prices are THB 60,000 per square metre. The development with the most number of units is The President Park (351 units), which was completed in 1994; its four towers have an asking price of THB 60,000 per square metre. The most recently launched project on the street is Park 24, launched in Q4 2013, where the current average asking price for units for sale by the developer is THB 210,000 per square metre. 4 CBRE GLOBAL RESEARCH WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? We are not always comparing “apples to apples” in terms of unit sizes as many older buildings have larger unit sizes. For example, the three bedroom units in The President Park are 223 and 264 square metres whereas the largest standard units in Park 24 are duplex two bedrooms of 106 square metres. Size alone cannot explain the huge price differences. Most Thai purchasers will simply say that a unit is old and they only wish to buy a new condominium. What makes old buildings unattractive? Age does not seem to do any harm in the UK where some buildings are more than 500 years old and get a premium price compared to new buildings. 1. Grand Ville House I Completed : 1981 Average Asking Launch Price : THB 25,000 / sq.m. Average Current Asking Resale Price : THB 60,000 / sq.m. 2. Park 24 Launched : Q4 2013 Expected Completion: Q2 2017 Average Asking Launch Price : (off-plan) THB 155,000 / sq.m. Average Current Asking Price : THB 210,000 / sq.m. 3. Bright Sukhumvit 24 Launched : Q4 2009 Completed : Q1 2012 Average Asking Launch Price : THB 110,000 / sq.m. Average Current Asking Resale Price : THB 175,000 / sq.m. 4. The Lumpini 24 Launched : Q4 2013 Expected Completion: Q1 2016 Average Asking Launch Price : THB 170,000 / sq.m. Average Current Asking Price : (off-plan) THB 170,000 / sq.m. 5. The President Park Launched : 1990 Completed : 1994 Average Asking Price : (Furnished Units on Completion) THB 48,000 / sq.m. Average Current Asking Resale Price : THB 60,000 / sq.m. Source: CBRE Research, May 2015 © CB Richard Ellis (Thailand) Co., Ltd. 5 WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? WHY HAVE PRICES NOT RISEN? Thailand’s first condominium act was made law in 1979 (B.E. 2522), legally permitting freehold title deeds to be issued for individual units in buildings. The first condominium to be completed in Bangkok was Siam Penthouse on Sukhumvit Soi 8 in 1981. The first big wave of condominium launches came in the years after 1989 up to the Asian Financial Crisis in 1997. Over 29,000 condominium units were completed in downtown Bangkok during that period. Many were built by inexperienced developers, bought by inexperienced, mainly speculative purchasers, and constructed by contractors stretched on capacity and supervision. Many of these buildings were not well designed, both in terms of layout and specification. Some had poor entrance lobbies, sometimes located in the centre of the ground floor car park, common corridors were badly decorated, and unit layout designs were inefficient. Improving these buildings has been difficult. Communal decision making by condominium co-owners has proved challenging with many examples of disputes between groups of co-owners. Siam Penthouse: Bangkok’s first condominium 6 CBRE GLOBAL RESEARCH WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? Getting agreement to raise money from all co-owners to spend on significantly upgrading common areas has, in many cases, not been possible. Even in the limited number of cases where co-owners have been able to reach agreement, funds raised and improvement work well executed, prices in these buildings have still not kept pace with prices for off-plan sales in a similar location. A number of buildings completed in the second condominium cycle, which started in 2002, have fared better. Prices at Athenee Residence on Witthayu road (completed in 2008) and The Park Chid lom on Chitlom road (completed in 2007) have in many cases doubled to over THB 200,000 per square metre from the average launch price of around THB 100,000 per square metre in 2004. These prices are still below the achievable price for a similar sized project with a similar specification launched off-plan today in a similar location. For example, the initial asking price of Nimit Langsuan, launched off-plan in Q1 2015, was THB 300,000 per square metre. The low current price for projects completed before 1997 could be blamed on poor design, specification and maintenance but for projects completed since 2002 the reason for prices not growing as fast as new off-plan sale prices is simply age; buyers like new buildings. © CB Richard Ellis (Thailand) Co., Ltd. 7 WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? Source: CBRE Research, May 2015 8 CBRE GLOBAL RESEARCH WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? 1 Somkid Gardens Launched: 1989 Completed: 1992 Average Prices: - Launch: THB 32,000 / sq.m. - Current Asking Resale: THB 140,000 / sq.m. 2 All Seasons Mansion Launched: 1994 Completed: 1998 Average Prices: - Launch: THB 75,000 / sq.m. - Current Asking Resale: THB 130,000 / sq.m. 3 The Park Chidlom DESIGN SPECIFICATIONS MAINTENANCE AGE Launched: Q4 2004 Completed: Q2 2007 Average Prices: - Launch: THB 95,000 / sq.m. - Current Asking Resale: THB 230,000 / sq.m. 4 Athenee Residence Launched: Q4 2014 Completed: Q3 2008 Average Prices: - Launch: THB 100,000 / sq.m. - Current Asking Resale: THB 230,000 / sq.m. 5 185 Rajdamri Launched: Q3 2010 Completed: Q1 2014 Average Prices: - Launch: THB 220,000 / sq.m. - Current Asking Resale: THB 310,000 / sq.m. 6 Nimit Langsuan Launched: Q1 2015 Expected Completion: Q2 2018 Average Launch Price: THB 300,000 / sq.m. The building is expected to start construction at the end of 2015. Source: CBRE Research, May 2015 © CB Richard Ellis (Thailand) Co., Ltd. 9 WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? Will price gaps between old and new buildings continue to grow? OR WILL THIS CHANGE? There are a number of factors that could close the price gap between new and old buildings: 1. Land Availability in City Centre One argument is that when no new buildings can be built in a location due to scarcity of suitable land then demand will focus on the value opportunity in older condominium developments. However, despite the building boom that began in 2002 (briefly interrupted by the global financial crisis), there are still underdeveloped plots in most prime locations and we are still quite a long way from running out of development sites in the city centre. Historically in Bangkok, when there has been a shortage of development sites, the city centre has simply moved. Since 1945 the centre of Bangkok, as defined by the location with the most commercial activity in terms of office buildings, retail centres and hotels, has moved from Yaowarat and Chinatown to Si Phraya, Surawong and Silom in the 1960s and 1970s to Sathorn, Lumphini, Phloen Chit and Sukhumvit in the last twenty years. 10 CBRE GLOBAL RESEARCH WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? Will Bangkok’s city centre move again? We think not because the mass transit systems have anchored the centre. The BTS sky train system was completed in 1999 and the MRT underground train system was completed in 2004. The centre may expand along mass transit lines as it is doing now in Ratchadapisek and new subcentres will emerge but the centre will remain the same with the best office buildings, best shopping centres, best hotels and best residences. This may be good news for city-centre older buildings as development sites have become more limited in the most popular locations. Figure 1: Historical Movements of Bangkok’s City Centre Road Expressway BTS Sky Train Line MRT Underground Train Prior to 1945 Yaowarat & Chinatown 1960 - 1970 Si Phraya, Surawong & Silom 1970 Onward Sathorn, Lumphini, Phloen Chit & Sukhumvit Source: CBRE Research, May 2015 © CB Richard Ellis (Thailand) Co., Ltd. 11 WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? 2. Increasing Land Prices vs. Existing Building Value In some cities, the land value alone as a potential redevelopment site has been worth more than the total value of the land and old structures. Therefore, co-owners of old buildings join together and agree to sell all the individually owned condominium units to a developer for redevelopment, with the total sum per square metre for the whole building being higher than the total value of units if they were sold on an individual basis to different buyers. Will this happen in Bangkok? The balance between land prices and construction costs is changing. For the first time in central Bangkok, land price as a percentage of the total development cost on a sellable square metre basis now exceeds the construction cost element. In some cases, land prices have increased from 25% to 60% of the total development costs. THEN Land Price Construction Cost NOW Land Price Construction Cost If the selling price of an old condominium unit is THB 50,000 per square metre, the value of the whole building (all sellable units) would equate back to a land price of THB 250,000 per square metre or one million baht per square wah*. That means a developer could buy the whole building to demolish and the effective land price would be lower than some vacant sites in a similar location. In some areas, we are close, but not quite at that level. CBRE expects land prices will continue to increase and so in the future the value of some buildings could be greater if they were demolished and the land was sold for redevelopment. *We have allocated all the value to the land only. The calculation was based on the assumption that the building is built on 10:1 plot ratio with 50% efficiency of net to gross buildable area. 12 CBRE GLOBAL RESEARCH WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? Figure 2: Condominium Co-owner Agreement on Dissolution Singapore 80% Co-owners’ Agreement and 80% of Sellable Area (For buildings more than 10 years old) Thailand 100% Co-owners’ Agreement Source: CBRE Research, May 2015 The Thai Condominium Act requires 100% agreement of all co-owners to dissolve a condominium. In some other countries such as Singapore, it requires 80% co-owners’ agreement and 80% of sellable area to dissolve a building that is more than 10 years old. In Thailand, we think it is highly unlikely that condominiums will be able to achieve 100% agreement from all co-owners to sell at a similar price per square metre, at the same time, to one buyer. We must experience a further significant rise in land values and a change in the law, reducing the percentage of co-owners’ agreement needed, to create a situation where all the owners are ready to sell out and dissolve the condominium in order for the building to be demolished and redeveloped. This means that we are unlikely to see purchasers speculatively buying units in old buildings in the hope that agreement can be reached to sell out to a developer. © CB Richard Ellis (Thailand) Co., Ltd. 13 WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? 3. Rising Rents Push Up Prices Another factor that may push up prices of old condominium buildings is the residential rental market. More than 95% of tenants who rent residential properties in Bangkok with rents of more than THB 20,000 per month are expatriates. Most expatriates who come to work in Thailand prefer to rent a home for a limited number of years rather than purchase a property. The good news is that the number of expatriates continues to rise. There are now 77,600 expatriates with work permits in Bangkok. This excludes the expatriates working outside of Bangkok on the industrial estates in Ayutthaya, Pathumthani, Chachoengsao and Chonburi while living in Bangkok, which means actual numbers are higher. The number of expatriates with Bangkok work permits has increased by 27% over the past five years. Figure 3: Number of Expatriates in Thailand by Location Based on Work Permits, 2010-2014 Bangkok Provincial BKK Growth Rate Y-o-Y Persons 90,000 20% 80,000 15% 70,000 60,000 10% 50,000 5% 40,000 0% 30,000 20,000 -5% 10,000 0 -10% 2010 2011 2012 2013 2014 Note: Excludes expatriates from Laos, Cambodia and Myanmar and diplomats Source: Alien Occupational Control Division, Department of Employment 14 CBRE GLOBAL RESEARCH WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? The majority of expatriates want to live in a limited number of downtown areas - Sukhumvit, Lumphini, Sathorn - and many prefer to live in two or three-bedroom units. Over the last two years, 73% of CBRE’s 800 residential leasing deals were two-bedroom or larger units. There are currently very few apartment buildings (single ownership buildings for rent) under construction and only 8,250 two-bedroom or larger condominiums (multi-ownership buildings) are under construction in the downtown area; 71% of the new condominium supply will be one-bedroom or smaller. CBRE estimates that 40% of downtown condominium units have been bought by buy-to-rent investors. Therefore, the supply of two and three-bedroom units will remain limited. Although the lump sum housing allowances for expatriates have not risen for about twenty years, demand for two and three-bedroom units is rising while the supply is relatively stable so there is a reasonable possibility that lump sum housing allowances will have to increase because demand exceeds supply. Currently, there are only some older condominiums that can successfully attract tenants. The main reason for this is the overall image of the buildings and the poor state of decoration of the units’ interiors. Many owners have not significantly renovated the interior of the units which have the same kitchens and bathrooms as they did when they were originally completed twenty years ago. These units are simply not attractive and achievable rents have fallen or in some cases the units are unlettable because of their condition. Supalai Place (completed in 1993) in Sukhumvit Soi 39 is one of the few older buildings that attracts tenants. It has an average rental yield of 8.6% compared to 4.3% in newer buildings such as Millennium Residence in Sukhumvit Soi 20. This is partly due to the fact that sale prices in Supalai Place have moved very little since its completion. The average asking price in 2014 is around THB 66,000 per square metre compared to THB 154,000 per square metre in Millennium Residence. © CB Richard Ellis (Thailand) Co., Ltd. 15 WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? MILLENNIUM RESIDENCE If rents rise as we expect them to, because of the increase in the number of expatriates and the shortage of two and three-bedroom rental units, yields will increase. SUPALAI PLACE There will then be a possibility that condominiums with lower prices and high yields such as Supalai Place will start to attract buy-to-rent investors who will buy units, fully renovate them and rent them out. This could increase demand and prices for resale condominium units in older buildings. However, this will only be possible in buildings in areas that are favored by tenants and in renovated buildings where the common areas are attractive and the building has a reputation of being well maintained. 16 CBRE GLOBAL RESEARCH WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? CONCLUSION CBRE forecasts that Bangkok’s city centre will not move significantly but there is a high possibility that it will expand along the edges of downtown areas. People in Bangkok want to live in the city centre as mass transit systems are not well linked and have not covered all areas. We do not believe planning laws will become more liberal and allow plot ratios to exceed 10:1. Therefore, the continued rising land price and construction cost will further push up prices of new condominiums in prime downtown locations and there will only be a small pool of purchasers who could afford such high prices. CBRE believes that potential purchasers will start to see value in older buildings where the design and common facilities are reasonable, especially where price per square metre may be one third the price of new condominium supply. The potential for this will be increased in buildings where co-owners agree to spend considerable sums on common area improvements which either improve the aesthetic appearance such as the main lobby or are critical to the operation of the building such as replacement of existing equipment including lifts, water pipes and transformers which are at the end of their life. In other developments, particularly those with unattractive common area designs or where co-owners cannot agree to spend money, the outlook is poor and the buildings will continue to deteriorate, some to a point where they may become almost uninhabitable. There will be an increase in the popularity of older buildings as the price gap between old and new widens, but it will only be in a few attractive buildings which are capable of being sufficiently refurbished to a level where the cheaper price will overcome Thai buyers’ distaste for old buildings. © CB Richard Ellis (Thailand) Co., Ltd. 17 For more information about this regional major report, please contact WILL PRICES RISE IN BANGKOK’S OLD CONDOMINIUM BUILDINGS? RESEARCH James Pitchon Head of Research, Thailand +66 2 119 2901 [email protected] Chotika Tungsirisurp Senior Manager +66 2 119 2929 [email protected] Kitipa Fahumnuayphol Analyst +66 2 119 2926 [email protected] Waranchalee Suwanpimolkul Analyst +66 2 119 2925 waranchalee.suwanpimolkul @cbre.co.th RESIDENTIAL SALES SERVICES AD HOC Pornpimol Phuengkhuankhan Director +66 2 119 5797 pornpimol.phuengkhuankhan @cbre.co.th For more information regarding global research and activity, please contact: Nick Axford, Ph.D. Global Head of Research +44 20 7182 2876 [email protected] Richard Barkham, Ph.D., MRICS Global Chief Economist +44 0 20 7182 2665 [email protected] Henry Chin, Ph.D. Head of Research, Asia Pacific +852 2820 8160 [email protected] Neil Blake, Ph.D. Head of Research, EMEA +44 20 7182 2133 [email protected] Spencer Levy Head of Research, Americas +1 410 951 8443 [email protected] Follow Neil on Twitter: @neilblake123 Follow CBRE CBRE GLOBAL RESEARCH This report was prepared by CBRE Thailand Research team, which forms part of CBRE Global Research—a network of preeminent researchers who collaborate to provide real estate market research and econometric forecasting to real estate investors and occupiers around the globe. All materials presented in this report, unless specifically indicated otherwise, is under copyright and proprietary to CBRE. Information contained herein, including projections, has been obtained from materials and sources believed to be reliable at the date of publication. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. Readers are responsible for independently assessing the relevance, accuracy, completeness and currency of the information of this publication. This report is presented for information purposes only exclusively for CBRE clients and professionals, and is not to be used or considered as an offer or the solicitation of an offer to sell or buy or subscribe for securities or other financial instruments. 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