And while some segments of this market are expected to fare well in the coming months, increased competition and a scarcity of land are leading some of the country’s condominium developers to set their sights elsewhere.
Overall, the general consensus among real estate service firms such as Jones Lang LaSalle, CBRE and NAI Andrew Park is that demand is strong in the residential market, but prospects in the retail and office sectors appear the brightest compared to the condominium market where supply has outstripped demand.
“I think we’ve got to a point where the market has peaked, in terms of condominiums,” Graham Laird, CEO of real estate services firm NAI Andrew Park, told Thailand Property Report.
But, despite this, the upper high-end market is expected to continue to fare well, provided developers give buyers what they want.
”I would probably say there are four or five [deluxe condominium developments] that all appear to be doing quite well,” says Laird. “There is a lot of foreign interest, which is good to see, and I think they’re managing to sell out their foreign quota without too much trouble…I think as long as they deliver the quality of product that they are promising they will be alright.”
Nigel Cornick, CEO of developer Raimon Land, too feels that strong demand for quality high-end projects will continue. “We’ve seen consistently high demand for Grade A products over the course of the last two years,” says Cornick. “And that seems to be replicated with the other developers, certainly on the back of strong foreign interest. Plus, affluent Thais have always been keen on investing in prime real estate. All in all we’re pretty bullish on the Grade A CBD.”
High-end condominiums under construction at the moment that are attracting attention for all the right reasons include TCC Capital Land’s Empire Tower in Silom, The Met on South Sathorn Road, the Pano on Rama III, Major Development’s ‘The Watermark’ on the riverside, Goldenland’s ‘The Infiniti’ as well as LeRaffine’s Sukhumvit 39. All of these projects boast impressive amenities and facilities that one would find in a five-star hotel, and pay strict attention to detail.
Interestingly, areas previously viewed as being on the fringes of Bangkok’s CBD are now actually leading the pack in terms of pricing.
“If you look at Sathorn, which traditionally hasn’t been regarded as a Grade A condominium market, it’s only been in the last few years that particular locality has received the attention that it is now,” says Cornick. “I think one of the reasons why that has happened is that there’s a scarcity of land in the perhaps more attractive areas of Chidlom, Wireless Road, Langsuan…So with that developers have had to look to the fringe areas. And hence Sathorn has become more popular for this type of product, where they’re achieving in fact the highest prices per square meter in developments currently underway.”
According to Raimon Land research, prices for inner-city condominiums have risen by over 30 per cent in the last two years, and some high-end projects launched on Sathorn Road in the past few months are now priced at up to Bt130,000 per square metre.
“I think they’ll plateau there for probably 12 months,” says Cornick. “What you will see is [a really prime Grade A product] coming into the market that will then test those benchmarks and push prices up to the 150,000 mark.”
Raimon is preparing to launch two Bangkok projects in the coming year: one a joint venture to develop a riverside project that will sit on a 12 rai site on Charoennakorn Road opposite the Shangri-La Hotel and another in a key CBD location near Lumpini Park and Rajadamri Road.
Meanwhile, many Grade A condominium developers seem to be targeting a younger set of buyers, ones looking for more than just a luxury condominium.
“We don’t sell condominiums, we sell a lifestyle,” says Suriyon Poolvoralaks, managing director of Major Development PLC. “We want to serve the needs of the customer. They want more than a place to sleep.”
Suriyon says that times are changing, and young affluent Thais are moving away from the suburbs and into the CBD because of the infrastructure and traffic issues.
“We are a targeting a new generation of buyers,” says Suriyon, adding that while all of their projects are geared toward the premium market, each one is unique. “We don’t believe in doing the same project in different locations.”
Major Development plans to launch two new high-rise residential projects in Thonglor Soi 10 and Sanam Bin Nam worth up to Bt2 billion in the coming year. Suriyon says that this is part of their strategy to remain competitive – by focusing on only a few projects per year.
The company´s sales revenue this year and next year will be generated by four projects with a total value of Bt8.55 billion. They are the Fullerton Sukhumvit, worth Bt1.6 billion; the Watermark Chaophraya River Tower A, worth Bt3.9 billion; the Manhattan Chidlom, worth Bt1.25 billion; and the Watermark Chaophraya River Tower B, worth Bt1.8 billion. The company is in the process of transforming into a public company listed on the Stock Exchange of Thailand, and its application to raise funds for the two new projects is expected to be processed by the Stock Exchange of Thailand within the next three months.
Suriyon says in terms of public perception becoming a public company is essential, especially in the condo market. “The major factor is that we want customers to trust us. When you transform into a public company you have to [be a lot more transparent], the customer can see our figures.”
Another project under development in Bangkok that promises to provide young business executives with more than just a luxury roof over their head is Silver Heritage, which calls itself ‘the first hip condo in town’.
“We provide everything buyers need to enrich their satisfaction,” says Denai Taepanichcharoen, director of sales at Silver Heritage, adding that the project is completely focused on the customer.
Featuring 34 suites and two penthouses, the project is a brainchild of The Best Condominium Company Limited, managed by Chief Executive Officer Mrs. Thananan Karnjanakit.
“Silver Heritage is not just a conventional condominium block – we are set to change this. Silver Heritage is an attribution to those who are highly individual in their lifestyle, clothing and home decoration,” said Thananan.
The eight-storey Mediterranean inspired building comprising of 34 two and three bedroom suites and two penthouses is situated some 500 meters from the entrance of Sukhumvit 38 or Thonglor BTS Station, and can also be accessed from Rama IV Road. It features all the usual amenities expected of a luxury condo like swimming pools, fitness centres and opulent lobbies, as well as a team of professional butlers that will help with everything from shopping and bookings to shoe shines and – likely a hot selling feature among foreigners – correspondence with Thai government offices.
Prices for Silver Heritage range from Bt12.8 million to Bt29.7 million. The project will be finished by the end of this year, and is 70 per cent sold out.
In terms of buying for investment purposes, Raimon Land’s project ‘The Lakes’, located on Ratchadapisek Road adjacent to Sukhumvit Road and within walking distance of the MRT and BTS is a good example of a product that came onto the market at the right time.
“If you look at the charts you’ll see that we launched it in September in 2003,” says Cornick. “At that point on the supply and demand curve it was probably the ‘sweet spot’ of the market. So when we launched it, it invariably was successful and sold out very quickly. The average prices were about Bt65,000 per sq m. It had all the right components for it to become a prime building. Having said that, it was built to that Grade A quality. Since then, what we’ve seen is prices almost doubling. All the front units now sell for about Bt125000 per sq. m. So that is for sure an indicator not only of the quality of the product but also the way the market has gone, so some of that increase has been driven by market conditions.”
But while the premium side of the market appears steady, it’s the upper middle market that Laird predicts is in for a bit of a bumpy ride.
”I think that’s where there are problems. I think that you’ve got a few good solid developers who have done well and will continue to do well, but I think you’ve got people in that bracket that don’t have the experience who are not developing the product that they’re promising and I think there are going to be a bunch of rather unhappy buyers out there.”
That said, Laid offered a few words of advice for perspective buyers: “I think they need to look very carefully at the history of the development company, see what they’ve done in the past, look at the quality of the consultants they’re using, which architect they’re using, what work has that architect done in the past…just generally go through a thorough due diligence. I think too many people rush in and buy without doing their homework properly and therefore set themselves up for being very unhappy down the road.”
But, on the bright side some less than reputable companies have been weeded out already, says Laird, citing a Raimon Land research report that indicated that quite a lot of projects did not go ahead last year because the banks were not prepared to finance them.
”They had not reached a threshold of presales that the banks had established and therefore the banks would not proceed with lending. I think that’s just healthy…If the banks are making sure that developers are carrying out proper feasibility studies and are setting fairly tough thresholds for developers to meet then I think we have a chance at the market remaining fairly healthy.”
In recent years there has been an influx of foreign contractors on the scene, which many say has pushed the bar up in terms of quality. But, while Bangkok is now offering a standard of product previously unavailable, Laird notes there is still a way to go.
“I think there are certain developers who have set a much higher standard of design than existed before,” says Laird. “Having said that our design and build quality on an international scale is still not up there with some of the developments in Singapore of Hong Kong. I think we still lag behind. But it has improved considerably from back in the 1990s.”
Meanwhile, increased competition in Bangkok’s residential market is leading some developers to look at other areas of real estate. Listed property developer Charn Issara Development Plc announced it plans to focus on new projects in Cha-am and Phuket due to the strong competition in the Bangkok residential market.
”The market has changed a lot. The number of developers has increased from only 200-300 in 2002 to over 800 in 2004 and with land prices having risen 20 per cent combined with only a few plots in prime locations now available and higher interest rates, the cost of property development has climbed," CI managing director Songkran Issara was quoted in local media, adding that the company was now looking for investments in office buildings to add to its recently established Bangkok Commercial Property Fund (BKKCP).
Local niche developer Kudu, which is behind the successful ‘The Trees’ and ‘The Lofts’ projects, is heading down a similar road.
Kudu Managing Director Arthur Napolitano says they have no new residential projects on tap, but instead are gearing up to launch a new Grade A office building in the CBD that will join the ranks of Q House and All Seasons Place in terms of quality.
“We see that the returns are better in office than residential for the time being,” says Napolitano. “It’s a part of the market which is still on an upward momentum whereas we believe in the residential market a lot of stuff has come out in the last 12 months and will be coming out for the next 12 to 24 months. I see quite a lot of competition coming up and we think the office market is underserved. I would say it’s basically becoming increasingly difficult for Thai developers because there’s a lot of money coming in from Singapore in particular. If you look at ‘The Met’ and TCC Capital, these guys have got deep pockets. Some are partnering up, others are not, and so it’s making it very difficult to buy good sites at reasonable prices. At the same time there are companies like Raimon Land that are still doing extremely well. But basically we see the landscape over the next 12 months as being quite difficult unless you have a slam-dunk location. It’s difficult to find small plots to build smaller housing communities like the Trees or the Lofts.”
Major Development’s Suriyon agrees, and says developers need to differentiate themselves from their peers if they want to succeed.
“The competition is very tight now because of the international developers coming in, so that’s why we have to be ready for that competition,” he says. “That’s one of the reasons we’ve taken steps to transform into a public company. In the future, only the strong builders will survive, especially in terms of high rises because you need a lot of investment.”
Which brings us back to the lifestyle factor, says Suriyon. “In the future, I think the projects that have the most attractive features will survive.”
So, in the end, what does it take to develop a successful Grade A project in such a competitive market? It might be clichéd, but it still holds true. Location, location, location. But in real estate, determining exactly what a good location is can get a bit tricky and depends on a number of factors.
“I think the best location is not necessarily the best site,” says Cornick. “A site that is well-located and close to a major road network [would do well]. If it’s close to a Sky Train station that’s good but generally speaking a lot of the people that live in Grade A condos aren’t really focused on getting onto the Sky Train so it isn’t necessarily a key issue – but it probably is if you’re renting it out. Good views are an important aspet, so anywhere that looks over Lumpini Park, the Sports Club, Lake Ratchada, the river, etc…views are at a premium in Bangkok.”
And for Bangkok’s high-end developers that have managed to concoct the right formula for success and are giving the market what it wants, the view looks pretty good.
Sourced from the Property Report
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