Low confidence slows condo market

Low confidence slows condo market

Developers focusing more on cheaper units to match real local purchasing power.

The sluggish Bangkok condominium market reflects low confidence among both developers and buyers in the Thai market. Stricter mortgage regulations from the Bank of Thailand have also had a direct impact on sales.

Many developers have reduced launches of new projects and shifted their focus to units priced below 100,000 baht per square metre, in recognition of modest purchasing power and to appeal to first-time buyers and first-time workers.

A total of 11,362 condominium units were launched in the last quarter of 2019, which was a 20% drop from the previous quarter. The full-year total of 41,568 units was down 37% from 2018. Total project value was 200 billion baht.

Developers postponed some launches because of lower confidence in the market and weak purchasing power.

In addition, Chinese buyer interest fell significantly as a result of yuan depreciation against the baht and slower growth in China's economy because of the trade war with the US.

Projects with selling prices lower than 100,000 baht per sq m or below 3 million baht per unit accounted for 55% of all new units last year, compared with 43% in 2018. This trend is expected to continue in 2020.

The majority of condominium units, existing and new, in the capital are priced between 100,000 and 200,000 baht per sq m.

Average selling prices increased from 2015-18, but dropped last year because of the lower proportion of units priced between 100,000 and 200,000 baht per sq m. However, the average selling price of new units in Bangkok is still 41% higher than it was in 2015.

The average take-up rate of all condominium units in Bangkok from 2017 to the fourth quarter of 2019 was 86% of the total of 287,714 units, leaving 40,000 units still available.

However, the number would be dramatically higher if it included unsold units from before 2017 and those in the hands of investors and speculators.

Thai purchasing power in 2019 was lower than it has been for a few years, reflecting low confidence in the economy. Banks have been stricter about screening mortgage applications, in light of more stringent loan-to-value (LTV) conditions imposed by the central bank.

Some of those conditions were relaxed this month, but buyers seeking second mortgage loans can still expect a lot of scrutiny.

Foreign buyers, especially Chinese buyers, decreased by 40% in 2019 because of yuan depreciation and limits on money transfers to other countries.

In addition, China's economy has grown more slowly because of the trade war with the US, although indicators are beginning to turn more positive as the two countries have signed a phase one trade agreement.

In any case, developers should not count too much on the foreign buyer market in the near future as the baht remains quite strong.

Conditions in the Bangkok condominium market in 2020 will be similar to those in 2019. Much will depend on buyer confidence in the economy and the government's ability to create stimulus measures.

The average selling price of condominium units in Bangkok in the fourth quarter of 2019 was around 100,000 baht per sq m, a decrease from the third quarter.

In fact the market has seen a steady decline from earlier levels of around 120,000 baht per sq m as more developers are offering units priced below 100,000 baht per sq m or 3 million baht in total, a price that appeals to the majority of Thai buyers.

In addition, developers are trying to attract new first-time buyers and to educate them about what they need to do to successfully apply for mortgages.

Because higher mortgage rejection rates at banks are directly affecting developers, some developers are even offering longer down payment periods to buyers to give them more time to improve their credit standing.

Developers will be monitoring the market carefully and will try to speed up construction of projects that might benefit from government measures to stimulate the property sector. These include lower mortgage interest rates for the first three years for qualified borrowers at state banks.

Surachet Kongcheep is managing director of Phoenix Property Development and Consultancy Co Ltd.

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