Possible futures for Thai condominium market?
By Jon Fernquest
Thailand could soon be facing an oversupply in
several key residential and resort real estate markets.
On the demand side, the current global economic slowdown will likely lead to reduced foreign demand for high-end real estate in Thailand.
High-end real estate (residences, resorts) at such at popular Thai locations as Phuket, Samui, Pattaya and Hua Hin, depend on foreign buyers for much of their sales.
Foreign buyers in the very high-end villa sector are cash buyers and the slowdown in the US and UK means that less of this cash is available than in the past.
The Thai resort market is highly dependent on regional buyers, especially from Hong Kong. As the supply of resort properties increases worldwide, Thai resort properties face more competition in attracting foreign money.
Some experts disagree that there will be a downturn in foreign demand. According to Wason Khongchantr, managing director of Agency for Real Estate Affairs (AREA) a property consultancy:
Another factor boosting the Bangkok property market would include foreign investment in real estate which should resume this year.In the first quarter of 2008, foreign investment in the property sector in Bangkok totalled 17 billion baht, according to the Bank of Thailand.
Mr Wason anticipated that foreign investment would bounce back from 30 billion baht last year to 50 billion baht in 2008, the same amount as in 2006.
On the supply side, the current level of new residential and resort developments entering the market may not be sustainable. Changes in laws regarding foreign ownership could make it more sustainable.
Legal changes
The law on the percentage of a condominium that can be owned by foreigners was changed from 40% to 49% several years ago. This change was limited to a period of five years and the period has already expired. New condominium units are still being sold to foreigners based on the 49% rule. Several of these sales may actually be illegal.
Whether the limit is 40% or 49% the limitation on foreign ownership makes doing business difficult and complex for Thai condominium developers.
In the high-end condomimnium market there are many developments that have sold out the foreign quota (49%) but struggle to sell the non-foreign quota (51%) to Thai nationals.
Foreign demand for large and expensive luxury units is much greater than Thai demand for these units.
There is a very good reason for this difference. The problem is that foreigners are barred from owning land so a condominium unit is the only way that a foreigner can personally own their own large home in Thailand. Thai nationals can buy a large house for the same 40 million it would take to buy a large luxury condo.
Condominiums targeted at both Thais and foreigners
Small studio, one- and two-bedroom condominiums are selling briskly to Thai nationals. Rising construction costs mean that condominium units that have already been completed are unlikely to drop in value. Planned developments may be cancelled or delayed contributing to reduced supply increasing the value of already completed units.
In the future, condominium developments that diversify their clientele so that they appeal to both Thai Nationals as well as international buyers may avoid the problem of unsold units due to the 49% ownership law mentioned above.
It might be possible to combine two separate developments into one development to meet satisfy both the 49% legal requirement and different buying preferences of Thai nationals and international buyers at the same time.
One condominium building would have the small units that most Thai buyers prefer while the other building would have the larger expensive units that international buyers prefer. The two buildings would be registered as one condominium but branded as two separate real estate developments.
Random facts
Here are some additional interesting facts to store away for future use.
Thai law has allowed 100% foreign ownership of condominiums in the past, but this is when the Thai economy wasn't doing so well and therefore needed an infusion of cash. Real estate sector policy does seem to have been rather myopic in the past.
Both Thai and foreign owners of condominiums do have rights whether they realise it or not. The Condominium Act B.E. 2522 requires a unanimous vote of all (100%) of the condominium owners (co-owners) in a building to demolish a condominium building. Approval of 75% of the owners is required to sell common area land.
Read previous articles on villas (Phuket rental villas compete with hotels, small private island near Phuket).
(Source:
Bangkok Post, 31-07-08, page B4, NINA SUEBSUKCHAROEN, temp-link)
(Source: Bangkok Post, 29-07-08, Neil Simmons, temp-link)
(Source: Bangkok Post, business, 25-07-08, KANANA
KATHARANGSIPORN, temp-link)
Vocabulary:
high-end - high quality products for wealthy people หรูหรา ที่ดีที่สุดในทุกๆ ด้านdevelopments, real estate developments - projects to build some form of real estate (condominium, homes, industrial park, etc) การพัฒนาอสังหาริมทรัพย์
depend on Y, dependent on Y, rely on Y - need Y, cannot do without Y ขึ้นอยู่กับ
a villa - a large house for holiday use บ้านพักตากอากาศขนาดใหญ่
resume - start again after stopping (ธุรกิจ) ที่ฟื้นตัวอีกครั้ง
sustainable - can be continued for long periods of time, without being forced to stop แบบยั่งยืน ที่ดำเนินต่อไป
expired - ended, finished, no longer valid หมดอายุ สิ้นสุด
condominium developers - companies that build condominiums บริษัทผู้สร้างที่พักอาศัย
a quota - a limit on a quantity (that can be sold, that can be imported, etc...) โควต้า
a foreign quota - a limit on the number of units or space that can be sold to foreigners โควต้าที่ชาวต่างชาติได้รับอนุญาตตามกฎหมาย
Thai nationals - people who are citizens of Thailand เชื้อชาติไทย
barred from Y - not allowed to do or have Y ห้ามไม่ให้(เป็นเจ้าของ)
X targeted at Y - planning that your product or service X will be bought by the type of customer Y วางแผนการขายที่ลูกค้าเฉพาะกลุ่ม
selling briskly - selling quickly ขายหมดเร็ว
clientele - (formal) customer ลูกค้า
diversify - add variety to that you already have ทำให้หลากหลาย
diversify their clientele - add different types of clients to your group of customers, to increase the variety of different kinds of customers that you have เพิ่มกลุ่มลูกค้า (พยายามสร้างสินค้าให้ตอบสนองความต้องการของลูกค้าหลายกลุ่ม)
X appeals to Y - Y likes X เป็นที่ต้องตาต้องใจ หรือชื่นชอบของ
co-owners - the individual owners of condominiums in a condominium buidling เจ้าของร่วม
the common area - the areas in a condominium building that are owned jointly by all individual owners of condominiums in a building พื้นที่ส่วนกลาง