Next year marks the 40th year anniversary of the 1979 Condominium Act, allowing the sale of "strata title" condominiums in Thailand, and now there are over 700,000 completed condominium units in Bangkok and its vicinities.
The first generation of condominiums is now more than 30 years old -- some have aged well and some have not. There are developments which were poorly designed, poorly built and/or have been badly maintained, and are now in a vicious circle of depreciation, and no longer attractive to occupiers. In some cases, the total value of all units in a development is actually less than the value of its land plot had it not been developed.
Some condominiums built in the early days like Somkid Gardens and Chidlom Place have gone on to become iconic structures in their respective neighbourhoods and have withstood the passage of time due to their well-thought-out designs, good construction quality and overall common area management.
Prices of units in these buildings have in fact increased substantially, with the current average asking prices of units in Somkid Gardens almost five times the price they were compared to their launch in the late 1980s.
Other condominiums have a different story, with some built during the property boom before the 1997 Asian financial crisis, when the condominium market was largely driven by speculators. Condominium bookings were traded as if they were commodities, with little thought about design and specifications. Despite being situated in some of the most prime locations, resale prices in these buildings have not risen and there is very little demand for these units even at discounted prices.
By contrast, prime central business district land prices have risen by 1,000% over the last 30 years. This has prompted some single-ownership building landlords to demolish their old and obsolete buildings and redevelop their sites.
Other owners without the necessary financial resources to redevelop themselves have either sold or leased their sites to another developer who will then develop the site.
In some cases, the change in building regulations over the past 30-40 years allowing a higher plot ratio on the site made redevelopment an even more attractive proposition.
There has been no redevelopment of an existing condominium in Bangkok. The Condominium Act requires that co-owners unanimously pass any resolution to terminate the condominium. From past experiences, it is not possible to get 100% of condominium co-owners to agree on anything, let alone the sale and dissolution of their property. All it would take is one objecting co-owner to act as a sole minority and prevent a collective sale of the condominium.
En bloc sales of strata title buildings are very common in countries like Singapore, where approval for sale is required from only 80% of all the co-owners if the building is more than 10 years old, while 90% approval from all co-owners is required for buildings that are less than 10 years old. Co-owners have earned substantially more by collectively selling the whole building rather than selling their units individually.
There are also older high-rise buildings around the world that were originally well-designed and are capable of being renovated and upgraded. In the US, the birthplace of the "skyscraper ", there are high-rise residential buildings that are still sought-after despite being nearly 100 years old. In Hong Kong, some 40-year-old buildings achieve similar prices to what new buildings fetch in the same location.
In Bangkok, CBRE believes that better older buildings will continue to be attractive because their original designs are meant to be timeless and will continue to match the living requirements of both owner-occupiers and tenants.
Other buildings are not so fortunate. Their original designs have become obsolete, making renovation or upgrades not worthwhile. The outlook for these buildings is poor, with low occupancy rates and declining values.
The solution to this is to amend the regulations to allow the collective sale by all owners in a building easier by reducing the requirement of a unanimous vote, similar to Singapore. Otherwise, buildings will simply deteriorate and they will just become value traps for their owners and diminish the saleability of areas where they are located.
Pattaratorn Pornsirikul is an analyst at Research and Consulting, CBRE Thailand. He can be reached at bangkok@cbre.co.th Facebook: CBREThailand LinkedIn: CBRE Thailand Line@: CBRE Thailand Twitter: @CBREThailand website: www.cbre.co.th