An oversupply is emerging in the Bangkok condominium market, which has led some developers to pin their hopes on selling more units to foreign buyers, especially Chinese who have become a major market in the last few years.
Unlike developers of single detached houses and townhouses, condominium developers can't stop once they start construction. Housing developers, on the other hand, plan their projects in phases and can delay a new phase if market demand is weak. And with Bangkok accounting for about half of all the condos in the country, the glut in the capital is becoming an issue.
Bangkok had 591,138 completed condominium units at the end of 2018. Another 90,000 are now under construction with completion expected in 2019 and subsequent years. Unsold units totalled around 48,000 at the end of May, and the number is likely to increase as more buildings are completed.
Listed developers are the main drivers of the condominium market, and it is difficult for them to simply stop building. They face pressure to grow every year, in terms of both revenue and profit. While they keep launching new projects that they hope will attract buyers, they are also spending more time trying to offload sold units.
But Thai purchasing power has been weak for the last five years or so and has yet to fully recover. Many Thais are still concerned about the political situation and whether the new government can get the economy moving again. Consequently, developers are looking for buyers with high purchasing power in other countries, especially Chinese in Hong Kong and the mainland and other Chinese speakers.
Foreign buyers from Hong Kong and China accounted for 43% of the 92.16 billion baht transferred from abroad by all foreigners to purchase condominium units in Thailand in 2018, according to the Bank of Thailand.
But Chinese buyers lately have grown more worried about how far their money will go. The value of the yuan against the baht has decreased by 10-12% since the start of 2017. It's not a huge drop compared with what happened to the Russian rouble a decade ago, but it's enough to dent the confidence of some Chinese purchasers.
Their concern is that if they buy now and have to take transfer of completed units in one or two years, the yuan might be even weaker, depending on economic conditions and how the trade war with the United States plays out.
As well, most Chinese buyers in Thailand are looking to buy condominium units in Thailand for investment only, so if the investment return is low, many may not want to transfer their units. In this regard, developers who have been marketing to Chinese buyers need to be truthful about expected returns and must not make any unrealistic promises.
But Chinese buyers are still looking to buy condominium units in Thailand, especially Bangkok, as property prices are still lower than in China and can be expected to appreciate modestly in the future. As well, they are happy to live, travel and work in Bangkok, given the lower cost of living and greater convenience compared with China.
The most important factor is all Thai developers, due to some are looking to sell their 49% to Chinese buyers and are not concerned about weak Thai purchasing power. Some have decided to develop new condominium projects because they already have foreign buyers lined up and are confident they can sell their 49% foreign quota, even if selling the remaining 51% quota to Thai buyers is far from a certainty these days.
Surachet Kongcheep is managing director of Phoenix Property Development and Consultancy Co Ltd.