Price drop lifts appeal of condos

Condominiums have once again become attractive to end-users as prices have corrected while interest rates are declining, according to Jones Lang LaSalle, a real estate services consultancy.

Government incentives, including reduced transfer fees and tax deductions on mortgage payments, have also increased the affordability of high-end condominiums for end-users, JLL said in its latest Bangkok Economic Insight report.

In addition to already lower marginal lending rates, competitive Thai banks have offered homebuyers extra-low financing costs in the first two or three years of borrowing.

JLL said that 17,200 high-end condo units had been completed in central Bangkok, and another 5,200 are scheduled for completion over the next two-and-a-half years.

As this new supply is completed and economic conditions remain challenging, rents for these high-end units will continue to come under pressure, said Suphin Mechuchep, managing director of JLL Thailand.

"Rational end-users and investors are more likely to acquire and dispose of these units at prices that reflect appropriate gross and net yields going forward, as new high-end supply is completed," she said.

While domestic interest rates remain near all-time lows, the risk going forward is of an upward trend, a condition that would add to the downward pressure of declining rents on prices of high-end condominiums, the Bangkok Economic Insight report said.

Therefore, speculators have become exceptionally cautious, seeing less potential for short-term capital gains as rents are falling as a result of strong competition in the leasing market.

"Having said that, demand from investors has not dried out," the managing director said.

"Investors continue to account for a considerable proportion of buyers in well located condominium projects, particularly those that are located near BTS and MRT stations."