BTS and MRT Hold the Keys to the Condo Market
Figures currently available for the first quarter of this year regarding real estate development in Bangkok have shown ‘that 85 percent of all condominium units launched…this year were near existing, under-construction and planned BTS or MRT lines.’[i]
While this is hardly surprising, it does reinforce the fact that as BTS and MRT lines inexorably move out further and further across Bangkok, the price of the limited land available on which to construct condominiums is set to continue to rise appreciably.
Land values are expected to increase by anywhere from 10 to 15 percent over the next year or so[ii] even though there are some areas where mass transit lines will not become operational for some years to come. Savvy developers with good cash flows have recognized that they could buy up big now and will be sitting on a profit just in the unimproved land values over the next few years.
According to statistics released by the research and consultancy firm Knight Frank Thailand, the first quarter saw a total of 13,737 new condominiums units released onto the market in Bangkok, with 44.2 percent of them sold already.
All of the so-called premium and A-Grade condominiums were located near an already-functioning mass transit route and these totaled 6,504 units, or 47 percent of the overall brace of new releases.
The average selling price per square metre of these newly-launched condominiums located along currently operating mass-transit routes was 162,949 baht, with the most expensive being in central Lumpini where the average reached 320,000 per square metre.
The distance from a mass-transit BTS or MRT station, not surprisingly, has an affect on the amount being asked per square metre by developers. For example, for buildings that are 120 metres or less away from a mass-transit station, units average 92,933 baht per square metre. For distances of 270 to 300 metres away this drops to 72,290 baht per square metre. For buildings that are on a mass-transit route but happen to be two kilometres or more away, the price per square metre drops to just 43,378 baht on average.[iii]
Notably, the first quarter of this year saw just 2,076 new condominium units (or around 15 percent of the total) released in areas where there are no mass-transit routes.
According to Knight Frank Thailand, the majority of those condos located just outside the mass-transit routes are overpriced. ‘Prices have approached the levels seen in the city fringe area where mass transit is available. As a result, we will see the pace of sales slow on the periphery as buyers wait for prices to drop,’ suggests Risinee Sarikaputra, the director of research and consultancy with Knight Frank Thailand.
As land becomes scarce in the most desirable areas, for example, along Sukhumvit Road, it is suggested that a new trend may emerge: developers will look to buy old buildings to use for developing a new condominium. This represents a change from when a row of old shophouses would be acquired for the same purpose.
The president of the Thai Condominium Association, Prasert Taedullayasatit, was quoted as saying that it is ‘very difficult to find a vacant plot in prime areas like Sukhumvit Road to buy for new development. Developers will rush to owners of old office buildings or hotels, asking them to sell their property.”[iv]
Land prices in the inner city of Bangkok have risen by 158 percent in the 16 years between 1998 and the end of 2014, according to the Agency for Real Estate Affairs (AREA). In 2014, land prices between Sukhumvit Soi 1 and Soi 21, that is, between the Nana and Asoke BTS stations, averaged 1.7 million baht per square wah (a wah is the equal of four square metres), exceeding the 1.5 million baht per square wah for the prestigious Silom area.
Even with the possibility of a land and building tax and an inheritance tax being levied in the future, there is a belief that many wealthy landlords or rich families who own unimproved land in the inner city will not be inclined to sell their plots at any kind of discounted rate.
The Treasury Department will be making new land price appraisals to apply for the period between 2016 and 2019 and these are expected to see a general increase of between 10 and 15 percent in the price of land across the country in the next year or so.
It is expected that the appraisal for land prices on Silom Road will jump from a present 850,000 baht per square wah to between 900,000 and one million baht per square wah. The main effect of the new appraisal prices will be in terms of their impact on transfer fees and other property-related taxes.
The seven Stock Exchange of Thailand (SET) listed property developers (namely: Asian Property, Land and Houses, LPN Development, Pruksa Real Estate, Sansiri, Supalai, and Quality Houses) were surveyed and all are expecting project condominium sales growth of around 48 percent this year.
Another survey, conducted by Phatra Securities, an affiliate of Kiatnakin Bank, indicated overall residential project value in Greater Bangkok will reach 400 billion baht during 2015, a rise of 17 percent on last year. Part of this is driven by the delayed investment from the first few months of last year, caused by the political crisis, as well as the continuing expansion of the mass-transit systems.
Phatra Securities is forecasting new residential supply for condominiums to grow by 132,000 units this year, an increase of 16 percent from 2014.[v]
The bottom line is that in spite of slow economic growth and even high household debt, while ever employment remains strong for Bangkok residents, the marketplace will continue to be attractive as long as consumers are able to gain access to the ever-increasing mass transit systems.
[i] Spectrum, 31/5/15, p. 20
[ii] Property Focus, Bangkok Post, p. 25
[iii] Spectrum, 31/5/15, p. 20
[iv] Property Focus, Bangkok Post, p. 26
[v] ibid, p. 54