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.
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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
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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
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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.
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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.
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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
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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.
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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
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This report was prepared by CBRE Thailand Research team, which forms part of CBRE Global Research—a network of preeminent researchers who collaborate
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© CB Richard Ellis (Thailand) Co., Ltd.