Next year marks the 40th anniversary of the Condominium Act BE 2522 (1979), allowing the sale of "strata title" condominiums in Thailand. Today there are more than 700,000 completed condominium units in the Bangkok metropolitan region.
The first generation of condominiums is now more than 30 years old; some have aged well and some have not. There are developments that were poorly designed, poorly built, and/or badly maintained, and are now in a vicious cycle of depreciation, no longer attractive to occupiers.
In some cases, the total value of all the units in a development is actually less than the value of the site, assuming there was no building there and the land was available for development.
Some condominiums built in the early days, like Somkid Gardens and Chidlom Place, have gone on to become iconic structures in their respective neighbourhoods and have withstood the passage of time due to their well-thought-out designs, good construction quality and overall common area management.
Prices of units in these buildings have in fact increased substantially, with the current average asking prices in Somkid Gardens almost five times what the units fetched at their launch in the late 1980s.
Other condominiums have a different story, with some built during the boom before the 1997 Asian financial crisis when the condominium market was largely driven by speculators. Condominium bookings were traded like commodities, with little thought given to design and specifications.
Despite being situated in some of the most prime locations, resale prices in these buildings have not risen and there is very little demand for these units even at discounts.
By contrast, prime central business district (CBD) land prices have risen by 1,000% over the last 30 years. This has provided an incentive to some single-ownership building landlords to demolish their old and obsolete buildings and redevelop their sites. Other owners without the necessary financial resources to redevelop by themselves have either sold or leased their sites to others to develop.
In some cases, changes in building regulations over the last 30-40 years, allowing a higher plot ratio on the site, has made redevelopment an even more attractive proposition.
However, there has never been a redevelopment of an existing condominium in Bangkok. The Condominium Act requires that co-owners unanimously pass any resolution to terminate the condominium.
From past experience, it is not possible to get 100% of co-owners to agree on anything -- let alone the sale and dissolution of their property. All it would take is one objecting co-owner to prevent a collective sale of the condominium.
En bloc sales of strata title buildings are very common in countries like Singapore, where approval for sale is required from only 80% of all the co-owners if the building is more than 10 years old, while 90% approval from all co-owners is required for buildings that are less than 10 years old. Co-owners have earned substantially more by collectively selling the whole building rather than selling units individually.
There are also older high-rise buildings around the world that were originally well-designed, and are capable of being renovated and upgraded. In the US, there are high-rise residential buildings that are still sought after despite being nearly 100 years old. In Hong Kong, some 40-year-old buildings achieve similar prices to new buildings in the same location.
In Bangkok, CBRE believes that the better older buildings will continue to be attractive because their original designs are meant to be timeless and will continue to match the living requirements of both owner-occupiers and tenants.
There are other buildings that are not so fortunate as their original designs have become obsolete, rendering the building incapable of being renovated or upgraded. The outlook for these buildings is poor, with low occupancy and declining values.
The solution for this is to pass regulations to make the collective sale by all owners in a building easier by reducing the requirement of a unanimous vote (similar to Singapore). Otherwise, buildings will simply deteriorate and they will just become value traps for their owners and diminish the marketability of the areas where they are located.
Pattaratorn Pornsirikul is an analyst in research and consulting at CBRE Thailand. He can be reached at bangkok@cbre.co.th; Facebook: CBREThailand; LinkedIn: CBRE Thailand; LINE@: CBRE Thailand; Twitter: @CBREThailand; Website: www.cbre.co.th