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News Release

Bangkok

The Million Dollar Question

Can Demand Keep Pace with the Surge in Luxury Condo Development?


By Sarun Kunakool

Pockets of oversupply in Bangkok's lower-end condo market coupled with demand that remains suppressed by higher household debt, has led many residential developers to divert time and resources towards higher-end condo projects and landed property. By shifting focus towards higher-end condo projects, developers are hoping to circumnavigate the rising number of mortgage rejections and to combat continually rising land prices. However, developers should also be aware of limited demand in the luxury condo segment, due to its much smaller base of potential buyers.

Oversupply in the mid-low (THB 60,000 per sqm or below) condo market is the result of rapid supply growth between 2011 and 2013, due to the rollout of the mass-transit network expansion and the aftermath of the Bangkok floods. 43,000 new units were launched in the mid-low end condo segment in 2013, nearly three times as many as were launched in 2011. Unsurprisingly, the rapid supply growth, in conjunction with a continual rise in household debt levels, has resulted in declining presales rates at many newly launched projects. Since 2014, new launches in the segment have remained subdued with high household debt and rising mortgage application rejections limiting demand.

The examples below illustrate how some of Bangkok's strongest developers are changing their strategy:

  • LPN has historically focused on developing low-end affordable condos, but is now looking to expand further into higher-end condos. Following a sustained period of weak demand for low-end condos, LPN's management has signalled their intention to expand into higher-end condo developments. After the success of its first high-end condo project Lumpini 24, LPN is looking to expand its presence in the higher-end condo market via its Lumpini Suite brand, including the upcoming Lumpini Suite Petchburi-Makkasan. The Lumpini Suite brand will have a significantly higher average selling prices than the developer's standard projects.
  • Sansiri has also shifted focus towards high-end condo developments with a growing number of projects under its The Monument and The Line brands. In 2013, ultra-luxury and luxury condos contributed just 9% of Sansiri's new launches (by value), jumping to 53% in 2016. Sansiri has also diversified into developing non-branded ultra-luxury condo projects, such as its 98 Wireless and Khun by Yoo developments.

With many developers continuing to divert time and resources towards new luxury condo developments, the question must once again be asked, is this trend sustainable and can demand keep up with the supply boom? Another equally pressing matter is whether the shift towards higher-end products will continue allowing developers to weather the current period of lacklustre demand in the mid and low-end segments.

The number of new project launches in the ultra-luxury (THB 250,000+ per sqm) and luxury (THB 150,000 – 250,000 per sqm) condo segment has jumped significantly over the past few years. 2012 saw the launch of just over 1,000 luxury condo units, with no new launches in the ultra-luxury segment. In 2016 the number of ultra-luxury and luxury units launched had skyrocketed to 7,000 units. In 2012, ultra-luxury and luxury condos accounted for just 1.9% of total condo launches (by unit), with this figure jumping to 13.7% last year.

If developers continue to launch new ultra-luxury and luxury condos at the same rate as over the past few years, demand may struggle to keep pace. Previously, there was limited supply of ultra-luxury and luxury condos that resulted in relatively high presales rates. However, the aforementioned boom in supply has resulted in declining presales rates.  Average presales rates for luxury condos fell from 85% in 2014 to just 58% in 2016.

To counter declining presales rates, some developers (such as Sansiri and SC Asset) have allocated greater resources towards selling to foreign buyers, organizing sales roadshows in Singapore and Hong Kong. There remains significant buying interest in luxury condos from foreigners who are unable to purchase landed property for regulatory reasons. In fact, foreign interest in some luxury condo developments has been so great that the 49% quota has been hit.

Prospective buyers of luxury condos are currently spoilt for choice, feeling little pressure to rush into a presales commitment. Wealthy Thais may be inclined to invest in luxury condos due to a lack of attractive investment alternatives. However, the investment decision for wealthy Thais is less clear cut than for foreigners as they have the option between purchasing a luxury condo unit in Bangkok's Central Business Areas (CBA) or a luxury home in more suburban areas. While luxury suburban homes offer greater living room to accommodate a larger family, luxury condo units offer superior potential for capital gain and greater geographical convenience.

One prime example of an ultra-luxury project which resonated with buyers in both location and design is the KRAAM luxury condo developed by NYE Estate, near BTS Phrom Phong. The project's luxurious interior design and attractive location helped drive an impressive presales rate of 70% when the project was launched in 2016. However, several competing luxury projects continue to struggle with relatively low presales rates due to inferior design and/or location. ​

While expanding away from low-end condos to the luxury segment has proved fruitful for some residential developers, caution may be advised. With the ultra-luxury and luxury segments becoming much more competitive and signs that initial presales rates may be declining, developers must be more vigilant of any future luxury condo launches. Without a unique design, location or selling point, new luxury project runs the risk of being lost in the currently overcrowded market. ​

Sarun Kunakool CFA, is a Senior Manager for Research and Consultancy at an international property services firm, JLL. For more insight, readers can connect with him at https://www.linkedin.com/in/sarun-kunakool-cfa-77055137 or visit www.jll.co.th or www.facebook.com/JLLThailand, or contact JLL by email: info.thailand@ap.jll.com.