NEW HOMES IN BANGKOK : Demand and value decline

[elef]

NEW HOMES IN BANGKOK : Demand and value both on the decline

Published on January 27, 2005

 

Confidence is down, AREA survey finds

 

Both the demand for and the value of new homes in Greater Bangkok are decreasing, reflecting a decline in the confidence of buyers and developers, according to the latest survey by the Agency for Real Estate Affairs (AREA).

 

Sopon Pornchokchai, managing director of AREA, said that a number of property developers had delayed launching housing projects because of the current investment climate.

 

He said domestic interest rates and rising oil prices had decreased the purchasing power of potential homebuyers.

 

In 2004, a total of 431 housing projects were begun in Greater Bangkok. These consisted of 62,437 units, valued at Bt236.03 billion.

 

This was a 57-per-cent increase over 2003.

 

Sopon said the average home price was Bt3.7 million, up from Bt2.7 million per unit in 2003.

 

He added that 1,124 housing projects still had units available for sale as of December. Of these, 360 had more than 20 units available.

 

At year-end, there were 67,769 home units available on the market. ?The figure is not much compared to 120,000 units available during the financial crisis of 1997, and they are expected to be absorbed within the next six months.?

 

About 50 per cent of vacant units are in projects launched last year.

 

Of the total housing units available in Bangkok and surrounding areas last year, 19 per cent increased in price, 5 per cent decreased, and 76 per cent remained stable.

 

According to the survey, detached housing projects in 2004 amounted to 40 per cent of all projects, followed by townhouse and condominium projects with 29 per cent and 24 per cent, respectively.

 

Units priced between Bt1 million to Bt2 million amounted to 23 per cent of the total new launches, followed by those between Bt3 million and Bt5 million, which accounted for 20 per cent of releases.

 

Sopon said that the Yannawa area ? close to Silom ? was the most popular for developers, accounting for 4,842 units worth Bt23.19 billion. Ransit Klong 1 to 7 was second with 4,028 units built in 2004, worth Bt7.48 billion.

 

The third most popular area was Lam Look Ka in Pathum Thani.

 

Out of the total project value of new projects launched last year, a total of 38 per cent were from listed property firms.

 

Land and Houses remained the top housing developer in both volume and value, with 3,309 units valued at Bt18.83 billion.

 

Sasithorn Ongdee

 

The Nation

[Nervous_Dog]

I can almost hear it coming, the sound of a cash err crash

 

DOG

[whosyourdaddy]

I am more worried about the massive goverment projects that are overpriced and may not be used. underground extentions, bridge to huahin, airport and other huge projects. If they are not utilized they will certainly cause a crash.

[Nervous_Dog]

why? Government works are never really about the infrastructure, the're more about putting cash into workers pockets and economy.

 

Private Sector will be more likely to pull down banks, where as Governerments can useuall get money from somewhere

 

DOG

[chelseafan]

Well if that Thai authoritys wanted to increase houseing, they could be more lienant to farangs owning their own homes, correct me if I'm wrong, but I can buy an apartement but now a house ?

[rickfarang]

You can buy a condominum.

I belive that technically, you can buy a house, but you may not hold title to the land it is built on.

 

There is a constitutional prohibition on foreigners owning land. Not even the PM could win an exception to that to enable him to keep a pledge made to Elite Card purchasers.

[Guest]

Thailand still suffers from a serious connected lending problem. That is, loans are still made on the basis of connections to cronies rather than on the basis of economic merit. This fuels unsustainable growth.

 

A project developer faces the upside of a potentially profitable project and very few of the costs associated with a failed project. His cronies at the bank are unlikely to pursue him - it only rarely happened after the '97 crisis - and even if they do, it is very difficult to enforce mortgages and contracts under Thai law. Recall the obvious transparency problems in the TPI, SSM and Jasmine bankruptcy cases.

 

This provides tremendous economic incentives for speculation. If the situation is "heads I win and tails we just flip the coin again," there is little risk in speculating on real estate projects. Because there is little or no risk, very little time or resources are devoted to at the down side? This makes economic sense. Why worry?

 

Despite all the hot air, very little has changed in this area since the mid-90s. It is also worth remembering that the Thai property market crashed about a year and half before the '97 financial crisis. And then look at who was in the government during the build up to the crisis; many familiar faces we see today.

 

But, of course, we all know - as Thai mythology tell us - that the crisis was really caused solely by evil Farang currency speculators. It had absolutely nothing to do with systemic problems in the Thai legal system and economy. We're safe now. Don't worry; be happy!

[gummigut]

I'd have to disagree with "Value on the Decline".

 

Prices will remain stagnant. Though I don't know how they take into account incentives (free cards, entertainment centers, etc...). They probably don't take this into account.

 

The condo's is where a buyer is going to have the most leverage. You either put a building up or you don't. So, when it's up, they've got to do something with it.

 

A moo baan can be developed a segment at a time (and that's what we're seeing). So there's less pressure on developers to move from their price.

 

Prices will remain stagnant and fears of a crash are abated because gearing in the property development companies is roughly 1 to 1. Not 2.7 (or was it 3) to 1 pre-crash.

 

Developers have the cash to whether the storm and wait for the demand to ease up. Though how developers didn't see this coming is a bit beyond me.

 

Demand in the mid-range is still expected to be pretty decent.

 

<<burp>>

[Guest]

I agree that buyers will have the most leverage with condos. It takes awhile to put up a building, and if the market starts to change while it is going up, you have a problem.

 

You may also be right about prices remaining stagnant rather than declining. But they certainly won't go up at the high rates we saw last year or the year before.

 

You ask: "Though how developers didn't see this coming is a bit beyond me." When the downside risk of a failed project is not all that great, there is no reason to look to hard at the risks of a failed project.

 

Developers probably have become a bit smarter (your comment on gearing) since there is some risk, albeit not the proper amount to justify the loans made.

 

You say: "Developers have the cash to whether the storm and wait for the demand to ease up" I think you mean "go up." You are probably right that they have more cash now than they did before the crash, and that is an improvement. But how long can they wait?

 

And this raises an even more important question: where will the new demand come from in the near term (next year or two)? The government has already shot its wad with stimulus measures.

 

Those stimulus figures have not created a sustained and growing domestic sector. The growth in the the Thai GDP over the last few years is almost entirely the result of export growth.

 

Bottom line: who is going to buy these new properties? Opening the market to foreign ownership seems like one sensible measure, but is that politically possible?

[SingaporeSteve]

Gadfly1 said:

 

Bottom line: who is going to buy these new properties? Opening the market to foreign ownership seems like one sensible measure, but is that politically possible?

 

 

Well that depends on how much land Mrs Fearless leader and the maids own BEFORE they change the law