This year will bring significant changes in the Bangkok property market, slower growth in many sectors and an incoming wave of new supply, according to CBRE, the international property consultancy.
The race for increasingly rare sites is still hot with the increase in land prices and scarcity of freehold land in prime locations. However, with new regulations on the horizon and a new Bangkok City Plan scheduled to take effect in 2020, developers are taking a step back to assess the situation.
New regulations and uncertainties: The real estate market will face a series of challenges, including a higher policy interest rate, tighter mortgage regulations, and the need to prepare for the expected introduction of the new city plan and a land and property tax in 2020.
As well, the general election on March 24 will have an effect on the economy and the progress of infrastructure projects.
Challenges in exports and tourism: Two key economic drivers of the economy, exports and tourism, will face challenges this year. It's still uncertain whether US-China trade tensions will have a negative or positive impact on Thailand's export industry.
Meanwhile, winning back Chinese tourists remains the biggest hurdle for the tourism industry since the sinking of a tour boat off Phuket that killed 47 Chinese visitors last July. Data on arrivals during the recently concluded Chinese New Year period will be watched closely as an indicator of their sentiment towards Thailand.
CBRE believes that Bangkok's tourism market will recover quickly from the drop in Chinese visitors, as it has shown great resiliency on many occasions in the past, even after severe political unrest.
Higher down payments cool residential market: Demand from speculative buyers and buy-to-rent investors will be lower due to high prices from high land cost, interest rates and higher down payments required by the Bank of Thailand. These factors will make it harder to profit from rental income or to resell under-construction units. The market will focus instead on end-user buyers and clearing unsold units in completed buildings.
As domestic demand shrinks, developers will turn to foreign buyers who purchase condominium units using their own funds. However, they cannot always be certain that these buyers will transfer units upon project completion, or about who will be living in these units. Foreign demand is also sensitive to the economies of home countries.
High competition in upper-end condo market: CBRE is seeing many developers launching condominium projects with asking prices of above 300,000 baht per square metre, and the new norm seems to be 250,000 baht per sq m. However, there will be winners and losers. With a lot of options for buyers to choose from, CBRE is seeing slow sales at many projects. Unsold units in completed projects are being offered at discounts to clear inventory.
New projects are not competing on price alone, as developers add other unique selling points to attract buyers. Home automation, rental management schemes and mixed-use developments are some of the selling points in the market today. In this highly competitive market, CBRE believes that the winners will not be projects with the best room layouts or design, but those that can sell the right lifestyle at the right price.
Evolving office demand: Following the global trend, the office market in Bangkok is changing, with agile workplaces and co-working space playing a major role in leasing large amounts of office space in Bangkok. The incoming new supply will also put pressure on older buildings to renovate and upgrade to remain competitive.
Over the next four years, some 2 million sq m of office space is scheduled to enter the market. CBRE estimates the absorption rate at 200,000 sq m per year.
Retail reinvention: As the global retail landscape shifts towards e-commerce and online shopping, Bangkok's retail market is gradually following the trend. Brick-and-mortar retailers are looking to offer something that cannot be had online, introducing experience-rich shopping centres or "retailtainment" destinations. Greater adoption of omnichannel sales (both offline and online) will reduce the space needed for many retailers.
CBRE expects the retail market to be positive after the economic recovery. Occupancy rates will remain high, but there is a significant amount of future supply coming. Weaker centres will struggle to retain and attract tenants with the dual threat of e-commerce and future competing supply, but rents will remain unchanged.
EEC and industrial incentives: The Eastern Economic Corridor (EEC) will come into much clearer focus this year when bids for transit-oriented development projects along the high-speed train routes to the EEC are finalised. CBRE believes that this will lift Thailand's attractiveness to foreign investors in the EEC. The government is also offering financial incentives and tax exemptions within the Free Zone in industrial estates to foreign manufacturers.
It is too early to tell whether Thailand is benefiting from the trade war between the US and China. However, CBRE has seen some interest from China-based manufacturers looking to relocate production bases to Thailand in the EEC.
Investment slowdown: The central bank increased its policy rate for the first time in seven years, from 1.50% to 1.75%, on Dec 19. Rising interest rates will increase developers' costs and slow domestic buyer activity.
Weaker domestic demand, rising land prices and incoming supply will make developers more cautious about launching new projects and acquiring sites in 2019.
There will still be high demand for prime freehold sites in Bangkok, especially along mass-transit lines. Scarcity of prime sites in the central business district (CBD), where the record price is 3.1 million per square wah on Lang Suan Road, will drive up costs further.
Consequently, CBRE expects to see fewer joint ventures between local developers with foreign partners in 2019 for residential developments as demand weakens.