Many overseas buyers of condominiums in Bangkok are surprised that prices for newly launched projects can be four to five times higher than for buildings that are 10 or 20 years old in almost exactly the same location.
In many countries, for example in Hong Kong, prices for well-built developments have kept pace with those of new developments.
In Bangkok, it is not just location that drives price. More important factors are the age, design and specifications of the building and how it has been managed and maintained.
Somkid Gardens located on Soi Somkid in the Lumpini area, once considered the best quality condominium in Bangkok, achieves resale prices of between 120,000 and 140,000 baht per square metre and yet high-rise developments launched last year in the Lumpini area, such as Pace Development’s Nimit Langsuan are selling for over 300,000 baht per square metre. Sansiri has been quoted as saying the average price for its 98 Wireless Road project, also in the Lumpini area, is 550,000 baht per square metre.
There are similar huge price differences between old and new projects in other prime locations in Bangkok such as Sukhumvit and Sathon.
There are a number of reasons for this big price gap between old and new buildings. One is the preference for new property. Eighty percent of downtown condominium purchasers are Thai and historically there has been a reluctance by Thai buyers to buy previously occupied properties. This is now changing and there is more of a market for previously occupied condominium developments, but it is still quite illiquid, mainly because there are few limits on future supply compared with other countries.
For example, there were around 1.2 million residential property sales in the UK in 2015, but there were only 150,000 newly completed residential units, not all of which were sold, a ratio of 8:1 second-hand sales to new property sales.
In the Bangkok metropolitan region, there were about 160,000 transfers of completed residential properties in 2014 of which about 65,000 were condominiums. Only about 15,000 were resales by individuals of condominium properties after the completion of the buildings. This is roughly a ratio of four new sales to one second-hand sale, completely the opposite to the UK market.
Most trading of condominium property in Thailand takes place during the construction period, involving purchasers buying off-plan and selling prior to completion.
Bangkok is still a free market in terms of new development. There are planning rules and regulations governing the type of property that can be built and its size, but there are far fewer restrictions on new development than in many other markets.
Hong Kong and Singapore are highly controlled property markets where the government tries to manage property prices by controlling supply though planning regulations and land allocation. Similarly in the UK, new building is heavily restricted by planning regulations. More new residential properties were completed in the Bangkok metropolitan region in 2015 than in the whole of the United Kingdom in the same year, highlighting the restrictions on new buildings.
Artificially restricting new supply tends to push up the price of existing stock and encourages renovation and refurbishment.
Prime residential development sites are becoming scarcer in Bangkok and prime land prices are continuing to rise, at least doubling or trebling over the last 10 years.
The increase in land price, rather than increases in construction costs or developers’ profit margins, has been the main reason for increases in the prices of newly launched condominiums in downtown Bangkok.
The price difference between old and new developments should now be sufficiently wide to encourage buyers to look at older buildings, but there are other reasons why old buildings are less popular and achieve lower prices.
For a start, design issues with many older condominium blocks deter buyers. One of the major issues is often the lack of an impressive lobby that does not create a sense of arrival but is tucked away on the ground floor of the car park.
Another negative factor is low ceiling heights in the units. Some older buildings have ceilings as low as 2.4 metres while most new luxury high-rise condominiums have ceiling heights of 3.0 metres.
Some older buildings have inefficient layouts — the sellable area may be 300 square metres but in many cases the utility of the space is no better than in a more recently completed 200-square-metre development. Some older buildings even have columns in the middle of rooms which increases inefficiency.
The look and feel of the common areas is one of the weakest points that keep prices down for older buildings. In some cases, the basic design prevents common areas being renovated sufficiently to compete with newer buildings, but in many cases, it is simply the inability of co-owners to agree to spend enough money on suitable improvements.
Prices for new condominium developments have continued to rise as land prices have risen and CBRE sees little possibility of land prices in the centre of the capital falling.
A handful of buildings that are more than 20 years old are seeing price rises, but only those that are well located, well designed with good entrances, common areas and unit layouts. As well, these buildings have been and continue to be well managed and maintained with regular improvement programmes. Buildings that do not have the above features are seeing limited price increases and low demand.
Another reason for low sales activity, even in the better older buildings, is the tendency among vendors to overprice their units and a reluctance to compromise. Each building has a price level where a potential purchaser will see value. There is little point in basing asking prices on new development prices. Instead, it would be better to check with the building manager on what the latest transaction rather than the asking price was in a building.
As the prices of new residences continue to rise, more buyers will look at older buildings as they compare the trade-off between having more space in an old building or a smaller unit in a new building for the same amount of money.
However, the attractiveness and possibility of price rises for older buildings will depend on design, specifications, maintenance and refurbishment of common areas.
James Pitchon is executive director and head of research and consulting with CBRE Thailand. He can be reached at bangkok@cbre.co.th; Twitter: @CBREThailand; Facebook: www.facebook.com/CBRE.Thailand; website: www.cbre.co.th.