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News Release

Bangkok

Growing Price Resistance Results in Slower high-end Condo Sales

But demand remains healthy


While it is apparent that the medium-end to low-end condominium segments are oversupplied because demand has failed to keep pace with a fast growth of new supply fuelled by extensions of mass transit systems to the outskirts of Bangkok, more questions are raised about whether or not the high-end condominium segment is facing the same trouble. In fact, these questions are difficult to answer. While demand remains strong, there is a growing resistance from prospective buyers against continued growth in condominium prices. This resistance results in slower sales in the high-end segment.

Generally speaking, the high-end condominium segment with units priced over THB 150,000 per square metre is not yet oversupplied, particularly in completed developments, where over 80 percent of the units were sold on average.

Having said that, sales rates of condominiums in projects launched over the past few years have slowed. Coupled with a rapid growth in supply, the slowdown in sales has been driven by prospective buyers’ growing resistance against rising prices.

For example, in the luxury segment, there remains strong demand for good-quality condominiums in prime locations priced between THB 180,000 and THB 200,000 per square metre, whereas most of the condominiums in this segment are asking prices at over THB 200,000 per square metre. But generalising the market could be misleading. It must be noted that the ultra-luxury segment with units fetching prices above THB 250,000 per square metre is in a different scenario, whereby most of the newly launched projects that offer units priced above THB 300,000 per square metre report healthy sales rates.

Another example reflecting buyers’ growing resistance against rising condominium prices is backlogged units in many completed developments. While some of these units occupy less desirable locations within the building or have less efficient space design, others are those whose asking prices have been pushed up way above the original prices offered when the project was newly launched. In most cases, asking prices of high-end condominiums are raised up by approximately 20 percent from when they were offered for sale off-plan.

Some developers have recently offered discounts on these backlogged units, but the discounted prices remained well above the price levels offered before construction completion. This strategy has proved to work well, reaffirming the price resistance of buyers. It is also likely to gain popularity as construction of more condominium development projects has completed. In addition, more buyers who purchased units for a speculative purpose and have failed to resell the units for the price they expected have adopted this same approach.

Despite slower sales and growing resistance against rising prices, many listed developers are planning to launch new high-end condominium projects this year, and prices in these new projects will definitely be even higher. While developers refrain from lowering margins, rising land costs have contributed significantly to a continued growth in condominium prices. 
A continued growth in supply and prices will put a further downward pressure on sales. As a result, the market situation will become a lot more challenging for most condominium developers over the next 36 months. 

However, there is no sign of developers becoming willing to lower asking prices to or below the presale levels.
Developers of high-end condominium projects have yet to encounter financial conditions that would force them to accept much lower margins or loss. So do speculative buyers, most of whom are high-net-worth individuals who would be more willing to keep the units for own use with a hope for a capital gain in a long term than to resell them at discounted prices.
In addition, as prices of units in future high-end condominium projects will rise further, prices of backlogged or resale units will become more competitive, easing the pressure on prices in older projects.

On the adverse side, more challenging market conditions, along with lower availability of land plots suitable for new high-end condominium development, will discourage developers to launch new projects from 2016 or 2017 onward, meaning the growth in new supply is likely to slow in the near future. While most developers will be unlikely to apply a price discount approach, more of them will likely offer other forms of incentives. All these should allow remaining unsold supply to be gradually absorbed before a new wave of development begins. 

By Bunthoon Damrongrak, Head of Residential Agency - JLL