Condo market rides the economic wave
This year's Condominium launches are set to return to the figure for 2007. By Kanana Katharangsiporn
The condominium market remains healthy despite political squabbles, with many projects set to launch this year after they were frozen in the first half of 2009.
Only 33,300 condo units were launched last year, but industry expects about 50,000-60,000 this year, the same as in 2007, said Tikhamporn Plengsrisuk, chief executive of market leader L.P.N. Development Plc.
There will also be about 40,000 condominium units registered in 2010, up by 20% from 2009. About 70% will have unit prices of between 1 million and 3 million baht and will be located on Sukhumvit, Ratchada-Rama IX, Phahon Yothin or Lat Phrao Roads.
"There are opportunities in the property sector. The economy is recovering and interest rates remain low, driving homebuyers to make decisions more easily," he said.
Financial institutions have been cautions in project finance lending since last year so the number of competitors has decreased, he added. Rising oil prices have also improved condo sales, as more people want to live closer to their office in the city to save on transportation costs.
While an increase in oil prices is pushing up construction costs, the large inventory of condos has triggered a price war, he said.
The government's stimulus plan should improve the market, but political turmoil may dampen it.
"We will monitor the situation very closely and manage flexibly," he said.
L.P.N.'s strategies include pricing-per-unit, new location expansion, project downsizing, brand efficiency and customer management. It will also develop non-condominium property through a subsidiary.
" Board of Investment regulations will support low-priced condominium development with many launched this year." He said. Oil prices and mass transit continue to boost the mid-priced segment, he added.
He predicts after the expiration of tax incentives, demand will recede somewhat.
Pumipat Sinacharoen, deputy chief finance officer of listed developer Asian Property Development Plc, expects a healthier condominium market this year than last year because of a more robust economy.
"Politics also affects consumer confidence and purchasing power. If the protests are so prolonged that people are afraid to go out of their home and that has an impact on purchasing power, that's dangerous for the market."
He said many developers, though they have a positive outlook for the property market and the economy, are not aggressive in business expansion. They only launch new projects in line with demand.
Condominiums clinging to the mass transit lines remain popular but a new trend is low-end condos in communities where supply is limited, said Mr Pumipat.
"Condominium demand existed for a while but had no catalyst until mass transit lines and new infrastructure boosted the market," he said.
Thongchai Busrapan, managing director of listed developer Noble Development Plc, said the condo market has performed well while the low-rise market slowed due to consumer behavior.
"Consumers have moved from townhouse to condominiums," he said. " Many now buy them as investments to rent out."
The recent proportion between buyers for residence and those for investment was 70:30, which is a good sigh because the investors are not shortterm speculators, he said.
"It's proven that condos appreciate at a high rate and are easy to rent out. In some locations, the yield for resale units is at least 10%."
There are only around six listed developers and a few non-listed firms working with condos now, he said, as financial institutions are cautious in project finance lending. At the same time, overseas investors have withdrawn from the condominium market.
He feels politics rarely impact the condo market because it is a long-term purchase. Noble Development does not expect an economic decline, but admits a prolonged political deadlock could change its outlook.
"We have had political problems for five years. If the prime minister dissolves Parliament and calls an election, another colour will demonstrate. Map Ta Phut has no solution. So who dares to take an investment in this climate?"
Noble remains focused on development near BTS stations between Ekamai to Ari, with unit prices of 5 million baht and unit sizes of 50 square meters on average, or 100,000 to 120,000 baht a sq m. This is smaller than the 80 sq m of the past 10 years.
According to a market analysis by Nexus Property Consultant, current real demand for condominiums is for one-bedroom units sized around 40 sq m with a unit price of about 2 million baht or a price per sq m of lower than 70,000 baht. The preferred location is a main road or near the mass transit.
The company also forecast around 20,000 units will be launched this year with an average price of 85,000 baht a sq m, up from 15,810 units priced 84,000 baht a sq m last year.
Condominium supply this year will increase to 149,154 units from 128,805 units in 2009. Expected sales this year will total 17,104 units, up from 15,541 units, it said.
Patima Jeerapaet, managing director of property consultant Colliers International Thailand , said the condominium sector has shown robust growth over the past two quarters and is likely to continue in the second quarter because of the extension of some tax incentives.
As a result of the boom, demand will soften in the second haft of the year, allowing developers to consolidate. The market has been primarily driven by the realization of an enormous untapped market of young first-time buyers who can only afford smaller, cheaper apartments, he said.
"The development of mew mass transit lines will further fuel growth in this sector," he added.
The majority of condominium sales were from local buyers, he said. In the first quarter of 2010, there were about 14,000 newly launched units. Those selling well were along the BTS and MRT.
Well-known developers retain an obvious advantage in sales. The best-selling condominiums were mostly grade B to C, he said, because Grade A is usually for foreign buyers or expatriates already in Thailand.
The exchange rate and uncertain politics makes it hard to attract investment from abroad, he said.
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