Condo developers eye recurring incomes

Condo developers eye recurring incomes

Raimon Land plans to spend 100 million baht to renovate 70 shops at Vue, a four-storey lifestyle community mall on Charoen Nakhon Road near IconSiam, to be food-inspired hotel rooms this year. (Photo supplied by Raimon Land Plc)
Raimon Land plans to spend 100 million baht to renovate 70 shops at Vue, a four-storey lifestyle community mall on Charoen Nakhon Road near IconSiam, to be food-inspired hotel rooms this year. (Photo supplied by Raimon Land Plc)

The recent restrictive measures from the Bank of Thailand have continued to cast a shadow over Bangkok's condominium market since the beginning of this year.

Condominium sales have dropped, putting pressure on developers' financial targets. Some developers have sought to diversify their risk in pure residential development projects for sale by seeking to develop alternative sources of revenue from recurring income properties.

Growing concerns about excessive residential mortgage lending by commercial banks prompted the central bank to reduce loan-to-value ratios for second and subsequent home mortgages starting from April 1, 2019.

CBRE believes the new measures have significantly reduced the number of speculative buyers and buy-to-rent investors of residential condominium units.

A slowdown in the condominium market has encouraged major residential developers to consider diversifying their portfolio into other property sectors such as office, hotel, and serviced apartment. Most of these companies are listed on the Stock Exchange of Thailand and their financial performances are regularly accessed. With stable recurring income, they are better able to offset the volatility in revenues from the residential-for-sale market, as well as sustain revenue and profit growth.

"We have seen an increase in both the number of landowners willing to lease land for a long term and the number of developers who are looking to develop leasehold land projects," said Kulwadee Sawangsri, executive director and head of capital markets for investment and land, CBRE Thailand.

"Over the last four years, CBRE has completed nine long lease land transactions worth more than 10 billion baht. With the imminent changes in the new land and building tax law which requires landowners to pay significant tax on vacant land, we expect more high-quality land to become available for long-term rent," Ms  Kulwadee added.

Ananda Development and Origin Property have both shown strong interest in the hospitality sector after Thailand welcomed a record 38.27 million tourist arrivals in 2018, an 7.5% year-on-year increase.

Both companies have announced plans to develop several hotels and serviced apartments in Bangkok and the Eastern Economic Corridor.

Ananda Development has partnered with Ascott Limited to develop five serviced apartments worth 12 billion baht in total, four of which will be located in Bangkok and one in Pattaya. The company has also purchased 42.5 million shares equivalent to 5% in Dusit Thani, a leading Thai hospitality company.

On the other hand, Origin Property set up a new subsidiary, One Origin, to invest up to 20 billion baht into recurring income properties in the next five years. Previously, the company has signed a management contract agreement with InterContinental Hotels Group to manage three hotels in Bangkok and Si Racha in Chon Buri province, expected to be operational within 2021.

Even mass market developer LPN Development has formed a joint venture with Nye Estate to develop an office tower on a leasehold site on Rama IV Road, worth 3.79 billion baht. The company has been struggling to get a foothold over the past few years since purchasing power in the mass market has become weaker and buyers are much more vulnerable to mortgage rejection by banks.

Nye Estate is also developing Silom Square, another office building on a 50-year leasehold plot located on the corner of Silom and Convent Roads. The company previously developed purely residential projects before entering the office market in 2016.

Raimon Land is another company to have jumped into the recurring income business after signing a 30-year lease for a prime six-rai plot located on Ploenchit Road opposite Central Embassy. The company has recently started piling on the site to be developed into a 52-storey office building with net leasable space of 65,000 square metres with an investment of 11.5 billion. The company also has future plans to develop a 250-key hotel on Sukhumvit Road.

CBRE believes developers need to plan their diversification strategies wisely. They must have a strong team with sound knowledge of operations and understanding of market dynamics in the property sector they are venturing into.


Pattaratorn Pornsirikul is a senior 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

 

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