Bangkok--28 Jul--CB Richard Ellis
According to Ms. Aliwassa Pathnadabutr, managing director of international property consultants CB Richard Ellis, the overall property market in the first half of 2006 continued to grow, but at a slower pace. Demand for some sectors remained strong while the others were more competitive. The challenges property developers faced in the first six months include increases in construction and land costs, new Bangkok zoning regulations, and uncertain economic and political situations, resulting in weaker property buyer confidence.
Residential Sector - Housing
1H 2006
During the first half of 2006, CB Richard Ellis witnessed a slowdown in supply and weaker demand in the Bangkok Metropolitan Region (BMR). According to the Government Housing Bank, the number of newly registered developer-built single detached houses and townhouses, as of Q1 2006, declined to 4,729 and 3,049 units, respectively, or 22.6% and 5.7% drop compared to the same period last year, while the number of new self-built single detached houses continued to rise by 29.8% to 6,362 units. New residential construction permits dropped 2% to Baht 2.15 million year-on-year while the total amount of new residential credit provided to project development increased by 24.3% to Baht 8.7 billion, higher than Q1 2005 but 29% lower that Q1 2004, according to Real Estate Information Centre.
On the demand side, the total number of new residential mortgage loan increased 8.9% as of Q1 2006, compared to the same period last year to Baht 60.1 billion. Most developers reported slower sales performance for most projects as a result of weakened property buyers’ confidence whereas house prices increased in the range of 4.5% - 8.0% year-on-year.
2H 2006
Banks are apparently becoming much stricter on approving mortgages and there are reports of much higher rejection rates. The environment of higher interest rates, high construction costs, and weak consumer confidence is proving challenging.
CB Richard Ellis expects that developers will postpone new project launches and there will more focus on units with a low total cost such as townhouses. Developers are being conservative, trying to match supply with demand, and adjusting pre-built with pre-sales.
Residential Sector — Condominium
1H 2006
The Bangkok condominium market remained strong during the first two quarters. The total number of condominium stock in Bangkok’s downtown was 44,295 and 86.3% is occupied.
CB Richard Ellis saw more newly launched condominium projects in downtown Bangkok. A total of 13 projects with 3,970 units were launched; most of them targeting the mid market and offering smaller unit sizes, compared to 9 projects with 2,696 units launched in the same period last year. Plus Property Partners accounts for 32% of the total units from the projects launched, followed by Supalai for 20% and Noble Development for 18% in terms of the market share of new launches. These projects have sold over 61% as of June 2006. This indicates strong demand for middle-end condominiums in downtown since transportation cost has increased and becomes one of key factors changing lifestyle of new generations.
Although the majority of local developers are now focussed on smaller-size units aimed at the middle class, there is still demand for the luxury sector. CB Richard Ellis has seen very strong sales at Emporio Place on Sukhumvit 24 with 64% sold, following a launch in March 2006. We have also seen a strong response to the pre-launch sales of Millennium Residence @ Sukhumvit on Sukhumvit Sois 16-20, with 25% sold.
2H 2006
As a result of increased land prices and construction costs, it is more difficult for developers to launch new projects. They will also need to be able to control costs efficiently. The majority of new supply will target the middle class and will be located proximate to the mass transit systems. There is still demand in the mid market, but it is price and location sensitive. The luxury sector relies on location, quality of the project, and confidence in the developer. CB Richard Ellis forecasts that approximately 4,700 condominium units will be completed in the second half of 2006, 6,300 units in 2007, and 2,300 units in 2008.
Residential Sector — Expatriate Rental Apartment
1H 2006
The apartment supply in downtown Bangkok totalled 9,920 units, a decrease of 33 units from the end of 2005, due to conversion of some units into serviced apartments, while the number of expatriates in Bangkok continued to increase by 16.1% year-on-year to 64,352 expatriates with work permits in Bangkok as of May 2006.
The average occupancy rate remained stable at a high level of 90%. Average rental rates for grade A and B apartments were Baht 365 and 285 per square metre per month, respectively, a slight increase compared to the same period last year. Some grade A apartment buildings that have efficient layout, good design, and located in a prime location may achieve Baht 400 — 450.
2H 2006
The demand for rental apartments in Bangkok is expected to remain strong as the number of expatriates is expected to grow steadily at around 8,000 people a year, while the total supply is set to increase slightly; only 829 new apartment units expected between now and 2008. Occupancy rates are thus anticipated to remain at high levels. Looking at the competition aspect, CB Richard Ellis believes that 30-50% of new condominium units, which will be completed in 2006, 2007 and 2008, will be available for rent and this will create stronger competition in the apartment market. Existing apartments will find it harder to compete against some of the new condominium projects unless they refurbish.
Residential Sector — Serviced Apartment
1H 2006
The serviced apartment sector in Bangkok remained competitive, with an average occupancy rate of 77%. The total supply of serviced apartments in downtown Bangkok was 8,768 units as of the second quarter, a 6.4% increase compared to 2005. The new supply completed in the first two quarters includes Hope Land, Sofitel Grande Residence, Sofitel Residence Asoke, Unico Grande Sathorn, LeBua at State Tower, and the renovated Somerset Park Suanplu. Most of the serviced apartments were in the process of applying and waiting for hotel licenses in order to serve short-stay customers and this trend is believed to continue. The average of grade A serviced apartment rents was Baht 1,010 per square metre per month and the average of grade B was Baht 700 baht.
2H 2006
Supply will increase, with new 304 units completed in the second half of this year. The serviced apartment market in downtown Bangkok is expected to improve in the second half of 2006 as demand for serviced apartments in downtown Bangkok is increasing steadily, as reflected by the continued increase in number of expatriates. Rent trends are expected to remain stable in both grades.
Office Sector
1H 2006
Seven new office buildings were completed, adding 216,116 square meters to the total Bangkok office supply of 7,426,452 square meters. The increase was due to the opening of Exchange Tower, Q. House Lumpini, The Column Tower, Central Place Pinklao, I Tower (Comlink), Fenix Tower, and Supalai Grand Tower. The average total office vacancy in Bangkok stood at to 14.1% and 10.2% for grade A supply in the central business district (CBD). The total amount of occupied office space increased by 125,546 square metres.
Smaller office units in grade A buildings achieved higher rent than large ones. The 200-300 square-metre grade A CBD office rent was Baht 714 per square meter per month, 18.5% increase year-on-year and 36% higher than the pre-crisis peak level of Baht 525. Overall average Bangkok office rents in both the CBD and non-CBD increased by 14.1% on a year-on-year basis; Baht 629 for grade A buildings and Baht 452 for grade B buildings.
2H 2006
The overall Bangkok office market is expected to remain healthy because only 56,300 square meters will be added by the end of 2006, while the total take-up in the rest of 2006 is expected to be 250,000 square metres and rents will rise, but less than our forecast at the beginning of 2006, because of the politics that slow down office tenants’ decision. However, grade A offices in the CBD will remain in high demand as no new grade A supply in the CBD is expected from now until Q3 2007. Rents and take-ups are expected to increase in 2007.
Retail Sector
1H 2006
The retail sector in Bangkok remained active. The total supply of retail space in Bangkok as of the second quarter of 2006 stood at 4.44 million square meters, a 2% increase compared to 2005. The vacancy rate declined from 5.7% at the end of 2005 to 5.4% in the second quarter. Since 2005, some existing retail centres, especially those operated by the major players in the market, have been undergoing renovations in order to remain competitive.
Rentals have generally become stable since the second half of 2005, due to the high level of new supply added to the market. Rents in grade A shopping centres in prime CBD locations ranged from Baht 1,800-3,000 per square meter per month on the ground floor whilst in the midtown areas, the rentals ranged from Baht 1,500-2,700 and from Baht 1,200-1,500 in the suburban areas. Rents in mix-used developments and standalone were Baht 600-800.
2H 2006
The overall vacancy rate is expected to decrease due to the completion of the renovated Central World Plaza until all the units open in this development which is expected by the end of 2006. Rentals will depend on the country’s economic conditions, consumer confidence, and retail sales. Changing consumer behaviour to increasingly shop nearer to home and government zoning regulations has forced some superstore operators to expand using smaller formats.
Industrial Sector
1H 2006
During January-June 2006, land sales totalled 1,210 rai, a 56% decrease compared to the same period in 2005 as a result of prolonged political problems. The majority of land sales involved three major developers including Amata, Navanakorn, and Hemaraj. The supply of Serviced Industrial Land Plots (SILPs) increased by 1,747 rai in the first six months, representing 1.9% increase in the total stock. The average vacancy rate remained stable at 15.8%.
2H 2006
The industrial market in Thailand is expected to improve once investors see political stability. Demand will continue to come from auto-parts and electronic industries. There appears to be a continued wave of Japanese investment and the prospects for both industrial estate land sales and rentals of Ready Built Factories (RBFs) are good. At least 900 rai of new SILP supply is expected in the second half of 2006.
Hotel Sector
1H 2006
The Bangkok luxury hotel sector performed well. The 543-room Millennium Hilton Bangkok was the only new luxury hotel that started operations in the first half of 2006. Seven luxury and first-class hotels were under renovation in the first half of 2006.
The occupancy rate of Bangkok luxury hotels was 71% in the second quarter of 2006, representing an increase of 1.4% year-on-year. The average room rate of Bangkok’s luxury hotels increased to US$ 143 from US$ 129 in the same period last year, accounting for 11% increase.
In the first five months of 2006, the number of international tourist arrivals increased by 20.3% year-on-year and 15.5% increase compared to the same period in 2004. The number of visitors from the Middle East increased the most, by 85.4% year-on-year.
2H 2006
There will be approximately 1,300 rooms completed in the luxury and first-class hotels, an 8.8% increase in the total supply in the second half of this year. There is optimism about growth in visitor numbers and hoteliers are positive about high season in Q4 2006.
Investment Sector
1H 2006
There has been a strong level of investor interest despite the uncertain political situation. Some major transactions included the Government Pension Fund acquiring Diethelm Towers at a reported price of Baht 3 billion, Giant Mauritius Holdings owned by Lehman Brothers acquiring 626.85 million shares of Grand Asset Development Plc at Baht 3.03 billion, Lasalle Investment Management acquiring Crowne Plaza Karon Beach Hotel at Baht 3.8 billion, Puravana Holdings acquiring Le Royal Meridien Phuket Yacht Club at Baht 1.3 billion, Central Plaza Hotel acquiring Kata Phuket Hotel at Baht 60 million and Phuket Islandia at Baht 180 million, DB Real Estate (Deutsch Bank) acquiring Blue Canyon Country Club at Baht 2 billion, Central Hotel & Resort acquiring the Jiva Resort & Spa at Baht 350 million.
Types of property investor can be divided into listed local developers, family-own local developers, funds, international developers, and investment bankers. In the past, these developers would look at income-producing properties as main targets, but at present, they expand their focus to potential suspended buildings and vacant land in order to develop new projects. Land prices have increased in the region of 30% - 50% because good-shape freehold land plots in prime areas of the CBD are very limited.
2H 2006
CB Richard Ellis expects to see more transactions in the remaining months. Typically, local investors focus on properties in different prime locations, while overseas developers concentrate the CBD area only.
Conclusion
The overall economic and politic environment will be the key factors to drive Thailand’s property market in the remaining months of the year. An improvement in consumer confidence, lower oil prices, and lower interest rates could all prove to be significant factors to stimulate the Thai property market in the second half of 2006.