Condo market slowing down
The take-up rate has fallen below 50% in Q2, suggesting tougher times ahead for developers.
A new government is about to take office in Thailand but we have yet to see any news of concrete policies related to the economy and the property market. Meanwhile, the number of unsold condominium units continues to climb, amid negative forecasts from state agencies and some private analysts. This is affecting the confidence of prospective buyers.
Tougher loan-to-value (LTV) requirements from the Bank of Thailand are also starting to have an impact. A minimum down payment of 30% is now required for third and subsequent mortgages, with those for second mortgages at 10-20%, depending on how long a borrower has made payments on the first one. The rules are intended to curb risky borrowing and property speculation.
Even in cases where the new LTV rules don't apply, banks have been screening mortgage applications more strictly and many buyers cannot transfer their condominium units for lack of financing. This is directly affecting the cash flow of developers.
New condominium launches in the second quarter of 2019 totalled 9,914 units, about 13% more than in the first quarter but down dramatically from the final two quarters of 2018. Approximately 60% of all units are from listed developers.
If Thai buyers' confidence and economic conditions do not pick up in the second half of 2019, new condominium launches for the full year will probably level off at 50,000 to 55,000 units, down 15-20% from the previous year.
Eighty-six percent of all condo units launched in the second quarter were in areas along operating or under-construction mass-transit lines. This reflects a tendency of developers to stick to areas with good infrastructure and amenities where chances of sales are reasonably good. As well, high land costs along transit lines make any kind of development other than high-rise buildings economically unviable.
Areas along under-construction transit lines or extensions are becoming more attractive to developers and buyers, as land costs are still reasonable, and a quality condo can be had for less than 150,000 baht per square metre.
Although condos selling below 100,000 baht per square metre still have the largest share in the Bangkok market, new units in this price bracket are very scarce; prices between 100,000 to 150,000 baht per sq m are the new normal, with 200,000 baht and more common in prime locations in the central business district.
The average take-up rate of all newly launched condominium units in the second quarter was only 47%, the lowest in several quarters, reflecting the low confidence of Thai buyers.
However, it should be noted that many projects were not launched until June, with presales in some cases not taking place until the final days of the quarter. A few projects reported sales of 70% or more in the first one or two days of presales, but these were rare.
The long-term outlook for the economy is the main concern of all Thai buyers. The current trade war and its impact on export performance and GDP are being closely watched, as this will influence the sentiment of Chinese buyers, the largest segment of the foreign purchaser market.
Condominiums priced below 100,000 baht per sq m or less than 3 million baht per unit have shown the highest take-up rate. But many of these units are not close to mass-transit stations and not attractive to buyers who commute to inner-city jobs.
Surachet Kongcheep is managing director of Phoenix Property Development and Consultancy Co Ltd.