Bangkok condo market bargains?
Bangkok Post: 17 May 2009
PLENTY OF BARGAINS ARE THERE TO BE HAD IN THE CONDO MARKET
Among other opportunities are properties held by cash-strapped foreigners looking to bail out on their investments.
Thailand's lingering political problems have led to a significant slowdown of new and second-hand condominiums, but prices have not dipped substantially, says James Pitchon, executive director of CB Richard Ellis (CBRE).
The discounts offered by those eager to exit the market are between 10% and 15% below the market's perceived average price - or what buyers think a building is worth versus what developers say it is. By contrast, condo prices in Singapore and Hong Kong are down 30%.
New launches are down, of course, given the poor economy, particularly in the luxury condominium sector, with the supply of completed freehold condominium in downtown Bangkok standing at about 55,000 units.
Mr Pitchon says the slowdown is healthy for the market given the present demand. However, he warns that 2009 is really a stress test for condos, because as many as 11,000 to 12,000 units that were begun two or three years ago are being completed within this year. "When it comes to transfer of title we'll find out if the original buyers were speculators, end-users or investors."
Interestingly, despite the Songkran unrest, CBRE concluded transactions within the luxury segment in which it specialises both during Songkran week and the week after.
The turmoil in fact turned into a catalyst for people who were thinking about getting their money back. Although there were buyers and sellers prior to the unrest, the gap between them was often too wide. Right now, if a unit owner is willing to offer a 10-15% discount he should be able to attract buyers.
"We have seen foreigners who bought off-plan wanting to resell and willing to discount to their purchase price or, in a limited number of cases, to below their purchase price," says Mr Pitchon.
Thai buyers, he says, certainly see these discounts as an opportunity. "I think this will probably be a continuing trend - foreigners wanting to exit the market, particularly those who are speculating. They need the money - a lot of people's investment portfolios are down.
"There is a view that that prices are not going to rise, so their choice is to get out, but to transfer title means paying the full remaining 70% of the purchase price. There is no financing for that for foreigners."
However, CBRE is seeing a very different attitude among Thai buyers. Thais are currently receiving almost zero interest on bank accounts and there are very few alternative investments within the country. More importantly, most of the money in Thailand stays within Thailand, with very little capital flight.
"So the options are you can keep it in the bank, put it in the stock market or other financial instrument, or put it in property. And right now with deposit rates close to zero, even a yield of 3-5% is better than receiving nothing in the bank account."
Also helping the property market is a real worry in the world that inflation might start to head up as the economy recovers. Although the effect of the global financial crisis is deflationary, there are those who believe that there is a danger that the amount of money being thrown into the financial system may result in inflation. This view is mostly held among older investors who remember the 1970s.
"To build new will cost more in an inflationary environment, and property is still seen as a hedge against inflation provided you are not buying into a bubble market," says Mr Pitchon. "CB Richard Ellis does not believe that Thailand is in a bubble market," he added.
A good example of a bubble market is London, where property prices in Kensington and Chelsea increased by 450% from 1995 to 2007-08, and since then have dropped by 10-15%.
However, in Bangkok in many cases projects that are 10 years old have not even seen a doubling of prices. While the prices of new buildings and units have increased, this usually reflects better quality, as many units now come fitted with floor covering, kitchens and air-conditioning and are not bare shells as in 1995-97.
But with so many new units nearing completion, some developers could come under pressure to discount prices of their unsold inventory when they complete their buildings.
"But each developer will make their own decision. Whether to try and hold, whether to reduce pricing, hold and rent it would depend on the developers and their relationship with the banks. There is pressure from developers' inventories, but we don't know what the outcome is going to be yet."
Aside from this, Mr Pitchon pointed to speculators who baulk at completing transactions when they see that prices are not rising. Some foreign speculators have shown willingness to settle for getting some of the downpayment back, and the buyers clearly benefit because they would be able to purchase units just prior to completion at the prices of two to three years ago.
"This will not happen at every building," cautions Mr Pitchon. "It will depend on the level of speculative buying or pressure on the developer to sell inventory."
However, this pressure is still unlikely to lead to a significant drop of prices in better-quality building, as it would apply only to the few units that have to be resold or sold at discounts by a developer because of the circumstances he faces.
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