Caught between slow economic growth, high household debt and growing supply, the residential market in Bangkok has had a very challenging 2019, says CBRE, an international real estate consultancy. Developers have put the brakes on launching new projects as market sentiment declines. Foreign sales have also been affected by the strong baht and weak global economic growth, especially in China.
Weak domestic demand has prompted developers to reconsider new condominium project launch dates, revise products and postpone land acquisition for new developments. Despite a strong start to 2019, the market has slowed more visibly since the second quarter. This year CBRE Research saw the lowest number of new downtown condo units launched in the third quarter since 2015, at 1,268 units, compared with 7,147 in the same period last year.
While CBRE believes the average sales price for condos in Bangkok will not drop because land costs remain high, the pace of price increases will slow compared to previous years. The average sales price in downtown Bangkok grew by only 0.9% year-on-year to 279,740 baht per square metre in the third quarter of 2019, while the average sales price in midtown Bangkok rose by only 0.05% to 99,943 baht per sq m.
Affordability will be the key issue in 2020, as local residents have less spending power because of increasing household debt and a weak economy.
The government and the Bank of Thailand have taken various measures this year to stimulate the residential market. The tighter loan-to-value (LTV) regulation, which CBRE believes was a well-intended move to keep the market from being flooded with speculative buyers, has dampened domestic demand, as mortgages become harder to obtain. Both the transfer fee and mortgage registration fee have been reduced to 0.01% from 2% and 1%, respectively, for property priced less than 3 million baht.
The central bank cut its policy interest rate twice this year to encourage spending, from 1.75% to 1.25%, which is similar to the rate during the global financial crisis. However, with a weak economy and limited spending power, CBRE Research believes it did not have a significant impact on the property market.
The baht has continued to appreciate since the beginning of the year, resulting in Bangkok properties being more expensive for foreign investment buyers.
As of the third quarter of 2019, the baht has appreciated by 9.5% against the yuan and 6.1% against the US dollar, compared with last year.
"With growing uncertainty in the residential market, developers will need to minimise and diversify investment risks, creating a broader revenue stream," said Aliwassa Pathnadabutr, managing director of CBRE Thailand.
"Many developers have already started looking at recurring-income properties or mixed-use developments, especially on large plots, to make their projects more attractive, with complementary uses in a single compound. Key resort destinations such as Hua Hin, Pattaya, Phuket and Krabi present opportunities for developers as Thailand's infrastructure is expanding significantly and the tourism industry remains as strong as ever."