Condominiums A Good Long-term Investment

The Nation

Govt steps needed to boost confidence among high-end: CBRE

Purchasing a condominium unit as a long-term investment is emerging as an interesting option in the light of political and economic uncertainties, falling interest rates, the downturn of the stock market and falling yields of government bonds, says international property consulting firm CB Richard Ellis (CBRE).

According to the latest survey conducted by the Bangkok research team, the stock of existing condominiums in Bangkok was 48,128 units as of the first quarter, an increase of 9.53 per cent or 4,188 units over the same period last year.

This figure can be subdivided by area, with 21.4 per cent in the Central Business District (Silom, Sathorn and Suan Plu roads), 4.4 per cent in Central Lumpini (Wireless, Ploenchit, Langsuan and Rajdamri roads), 34.6 per cent in Sukhumvit (Sukhumvit Soi 1-63 and Sukhumvit Soi 2-44), 8.2 per cent in Pathumwan (Phayathai and Phaholyothin roads), and 29.6 per cent in Riverside (Rama III, Charoenkrung and Charoennakorn roads).

Based on the latest survey by the CBRE Research team, in 2005 there were 1,788 newly launched units positioned at the luxury and high-end of the market compared to only 1,097 in 2006, representing a significant decrease of 38.6 per cent.

In 2007, it is expected that there will be a similar number of new luxury and high-end condominium launches as in 2006. CBRE recommends that buying a luxury condo is a good investment option as there will be limited supply in the future.

According to CB Richard Ellis Thailand managing director Aliwassa Pathnadabutr, luxury and high-end condominium units in downtown Bangkok have been attracting a huge amount of interest from long-term investors even though the market has slowed down as a result of the political and economic situation.

However, over the past few years, long-term investors who make a profit from reselling or earning rental income from their units have remained keen to purchase condominium properties in Bangkok because of their understanding and confidence in the market.

Based on their experience, they are satisfied with investment returns in the form of capital appreciation and rental yields of 5-7 per cent, which is higher than the current deposit account interest rate of 3.5 per cent, she said.

Aliwassa added that although growth in sales has been slowing since late 2006, CBRE found that completed luxury condo units located in such prime locations as Saladaeng continue to generate good sell-out prices. There has also been demand from long-term investors seeking to purchase good quality condominium units.

Investors in the luxury and high-end markets are not concerned about finance, but they now lack confidence in the market due to several negative factors in the political scene, the economy and in society. However, if the government initiates measures to support and increase confidence in the market, CB Richard Ellis believes that those investors will re-enter the market quickly, which will be reflected in sales and transfer rates.

Measures stimulating the Bangkok condominium market should include the reduction of the Specific Business Tax and transfer fees, and an increase in the foreign ownership quota within a building from 49 per cent to 70 per cent. The stimulus should also be activated in all market segments in order to inject new capital into the market.

"Prices have been increasing continuously for several reasons, including the rise in demand, construction costs, and higher land costs due to the scarcity of good land plots, especially in the Central Business District," Aliwassa said.

"The current prices have appreciated by 30-50 per cent over the past five years. This has been particularly demonstrated in the average prices of luxury condominium projects in the Sathorn area, which in 2002 were Bt58,100 per square metre, and are now Bt80,000 per square metre.

"In 2002, the average prices of luxury condominium projects in the Central Lumpini area were Bt77,500 and are now Bt108,000, while Sukhumvit area prices are now Bt88,000, but were only Bt49,000 in 2002," she said.

In comparison with other countries in the region, luxury condominium projects in Bangkok continue to be much cheaper.