Pockets of oversupply in Bangkok's lower-end condominium market, coupled with demand that remains suppressed by higher household debt, have led many residential developers to divert time and resources towards higher-end condo projects and landed property.
By shifting their focus towards higher-end condo projects, developers are hoping to circumnavigate the rising number of mortgage rejections and to combat continually rising land prices. However, they should also be aware of limited demand in the luxury condo segment due to its much smaller base of potential buyers.
Oversupply in the mid-low (60,000 baht per square metre or below) condo market is the result of rapid supply growth between 2011 and 2013 due to mass-transit network expansion and the aftermath of the Bangkok floods. The segment saw the launch of 43,000 new units in 2013, nearly three times as many as were launched in 2011. Unsurprisingly, the rapid supply growth, in conjunction with a continual rise in household debt levels, has resulted in declining presales rates at many newly launched projects. Since 2014, new launches in the mid-low segment have remained subdued with high household debt and rising mortgage application rejections limiting demand.
The examples below illustrate how some of Bangkok's strongest developers are changing their strategy:
1. LPN has historically focused on developing low-end affordable condos, but is now looking to expand further into higher-end condos. Following a sustained period of weak demand for low-end units, management has signalled its intention to expand into higher-end developments.
After the success of its first high-end project, Lumpini 24, LPN is looking to expand its presence in the higher-end market via its Lumpini Suite brand, including the upcoming Lumpini Suite Phetchaburi-Makkasan. The Lumpini Suite brand will have significantly higher average selling prices than the developer's standard projects.
2. Sansiri has also shifted focus towards high-end condo developments with a growing number of projects under its brands, The Monument and The Line. In 2013, ultra-luxury and luxury condos contributed just 9% of Sansiri's new launches by value, jumping to 53% in 2016. Sansiri has also diversified into developing non-branded ultra-luxury condominiums, such as its 98 Wireless and Khun by Yoo developments.
popular with buyers: Kraam is a super-luxury condominium worth 3.5 billion baht on Sukhumvit Soi 26. Unit prices start at about 15 million baht in the 29-storey building. photo: NYE Estate
With many developers continuing to divert time and resources towards new luxury condo developments, the question must be asked: Is this trend sustainable and can demand keep up with the supply boom? Another equally pressing matter is whether the shift towards higher-end products will continue allowing developers to weather the current period of lacklustre demand in the mid and low-end segments.
The number of new project launches in the ultra-luxury (250,000 baht or more per square metre) and luxury (150,000 to 250,000 baht per square metre) condo segments has jumped significantly over the past few years. In 2012, just over 1,000 luxury condo units were introduced, with no new launches in the ultra-luxury segment. In contrast, by 2015 the number of ultra-luxury and luxury units launched had skyrocketed to more than 8,500. In 2012, ultra-luxury and luxury condos accounted for just 1.9% of total condo unit launches, but the figure jumped to 13.7% last year.
If developers continue to launch new ultra-luxury and luxury condos at the same rate as in recent years, demand may struggle to keep pace. Previously, the limited supply of ultra-luxury and luxury condos resulted in relatively high presales rates. However, the aforementioned boom in supply has resulted in declining presales rates. Average presales rates for luxury condos fell from 85% in 2014 to just 58% in 2016.
To counter declining presales rates, some developers (such as Sansiri and SC Asset) have allocated greater resources to selling to foreign buyers, organising roadshows in Singapore and Hong Kong. There remains significant interest in luxury condos from foreigners who are unable to purchase landed property in Thailand for regulatory reasons. In fact, foreign interest in some luxury condos has been so great that the 49% foreign quota has been hit.
Prospective buyers of luxury condos are spoiled for choice, feeling little pressure to rush into a presales commitment. Wealthy Thais may be inclined to invest in luxury condos because they perceive a lack of attractive alternatives. However, the decision for wealthy Thais is less clear-cut than for foreigners as the former have more choices: they can purchase a luxury condo unit in central Bangkok or a luxury home in a suburban area. While luxury suburban homes offer greater living space to accommodate a larger family, luxury condo units offer superior potential for capital gains and greater geographical convenience.
One prime example of an ultra-luxury project that resonated with buyers in terms of both location and design is the Kraam luxury condo developed by NYE Estate, near Phrom Phong skytrain station. The project's luxurious interior design and attractive location helped drive an impressive presales rate of 70%. However, several competing luxury projects continue to struggle with relatively low presales rates because of inferior design and/or location.
While expanding away from low-end condos to the luxury segment has proved fruitful for some residential developers, caution may be advised. With the ultra-luxury and luxury segments becoming much more competitive about any future luxury condo launches. Without a unique design, location or selling point, a new luxury project runs the risk of getting lost in the currently overcrowded market. n
Sarun Kunakool CFA, is a senior manager for research and consultancy at the international property services firm JLL. For more insights, readers can connect with him at https://www.linkedin.com/in/sarun-kunakool-cfa-77055137 or visit www.jll.co.th or www.facebook.com/JLLThailand, or contact JLL by email: firstname.lastname@example.org
AIMING HIGH: The Line Sukhumvit 101, a joint venture between Sansiri Plc and BTS Holding Plc, will be located near Punnawithi skytrain station. Right, a room designed by Philippe Starck at Khun by Yoo. photos: sansiri