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Monday, November 5, 2007

Asking prices of luxury condos in Thailand continue to climb

Political jitters in Thailand after the coup in September may have dampened property growth, but the market has proven surprisingly resilient. Developers are hoping democratic elections scheduled for late December and clarification of the Foreign Business Act — which prohibits outright ownership of land to non-Thais and limits condo sales to foreigners — will stimulate investor demand and prices.

Rentals and capital values in some sectors, notably luxury condos in Bangkok, have continued to rise over the past 12 months.

Around the capital, most of the 5,400 units launched in the first half of the year are mid-priced projects. Although activity in the high-end condo sector has markedly slowed compared with last year, there is still steady, albeit cautious, demand from offshore investors, says Nigel Cornick, CEO of Raimon Land, who has lived in Bangkok for more than 16 years.

Rentals and capital values in some sectors, notably luxury condos in Bangkok, have continued to rise over the past 12 months

Anticipating an upturn

Raimon Land is one of the largest condo players in Bangkok and also has major apartment projects in Phuket and Pattaya. "Demand has been a little sluggish on the domestic side, but around 60% of our buyers are foreigners," says Cornick. "We anticipate an upturn in demand after the December elections."

Cornick believes astute buyers can lock in excellent future returns. "The jump in values could be significant once the political uncertainty fades," he adds. Foreigners account for 17% of buyers for completed Bangkok condo units, and at the luxury end, the top buyers are still from the UK, the US, Europe, emerging Europe and the Middle East. Cornick predicts a growing response from Asian buyers, especially those from Singapore and Hong Kong.

Singaporean investors snapped up 10 units in Raimon Land's top-end The River when the two million sq ft development along the Chao Praya River was pre-launched in April (official launch is in October 2008) at a weekend property investment exhibition in Singapore. Prices of the project range from 90,000 baht (RM 9,719) to 250,000 baht psm.

Increased interest from Singapore surprised Cornick. "Up until now, we have had very low response from Singapore and Hong Kong," he says. "But because their own markets have done so well, they could have cashed out of their investments at home and are holding spare funds. They have also seen Singapore developers go into Bangkok. It's a growing awareness that the Bangkok market will have some upside."

Raimon Land is not worried about Singapore developers such as CapitaLand, City Developments, Fraser & Neave, and Hotel Properties Ltd that have entered the Bangkok luxury apartment market over the last two to three years. "We don't see the Singapore developers as being more competition mainly because it's more a question of finding the right site and location," says Cornick. "We don't feel that in the next five years there are going to be that many opportunities to develop high-end freehold condos in the CBD."

He adds that there are few sites available, "and we've got two of them". Cornick is referring to the giant The River development, and 185 Rajadamri, the former Cambodian embassy where Raimon Land will develop a benchmark 600,000 sq ft ultra-luxurious condo comparable to the likes of SC Global Developments' The Marq on Paterson Hill in Singapore. Prices will start from 200,000 baht psm and look to push through the 300,000 baht psm barrier.

Growing affluence in Asia
"We already had considerable interest in the project prior to the official launch, in the first or second quarter of 2008," says Cornick, who says he's also looking at marketing the condo in Singapore next year. "There is growing affluence in Asia. More people have disposable income and the ability to buy more than one piece of real estate."

While desirable apartments around high-end CBD locations such as Sukhumvit, the riverside, Silom/Sathorn and Central Lumpini average 85,000 baht psm, high-end projects kick off at around 100,000 baht psm. Asking prices for some luxury condo developments are already at 200,000 baht psm — which a year ago would have sold for half that price.

In 1H2007, 54% of the total value of condominiums sold was from developments in this upper price bracket, which numbered 956 apartments. Stand-out performers were Siri @ Sukhumvit, which sold all 460 units at an average of 100,000 baht psm within a few weeks of its launch; Life @ Sathorn 10 (near BTS Skytrain), where the 285 units are almost fully sold; and The Address @ Chitlom (main CBD) where many units sold for more than 100,000 baht psm.

Raimon Land sees expanding opportunities outside Bangkok, and Cornick predicts 40% of its revenue will come from Phuket and Pattaya over the next few years. The developer has a project pipeline of 20 billion baht in Bangkok, 13 billion baht in Pattaya and around four billion baht in Phuket.

When it comes to resort locations, he sees more interest coming out of Hong Kong than Singapore. "Hong Kong expats are significantly more active than Singapore expats in the resort areas," observes Connick.

Most recent demand for resort condos has centred on Huahin, a three-hour drive from Bangkok. So far this year, Huahin accounts for 46% of total condo sales value among the key resort destinations of Phuket, Pattaya, Huahin and Samui. This success is largely due to strong Thai demand, pushing prices to an average of 85,000 baht psm.

Pattaya claimed 28% of total sales, with prices averaging 90,000 baht psm. Phuket condominiums accounted for 22% of value in 1H2007, with prices averaging 84,000 baht psm.
Raimon Land research shows around 2,200 resort apartments have been completed since 2003. Of these, 11 units remain unsold in Phuket while 71 units have not been taken up in Pattaya. There are no unsold new units at Huahin. Samui has not completed any condo developments so far.

Take-up rates in off-plan developments are also generally healthy (as at June 2007), notes Raimon Land. In Pattaya, 61% of units launched have been sold compared with 71% in Phuket, 86% in Huahin and 37% in Samui.

The Russians are coming
"Pattaya is stronger for us than Phuket because there is a strong industrial manufacturing base fuelling demand for rentals and real estate in Pattaya," says Cornick. "Pattaya has a very large demand from many foreign markets. Russians are now the second-largest group of visitors in Pattaya. They are increasingly spending money investing in real estate."

Cornick doesn't view Vietnam as a threat to foreign demand for Thailand's high-end residential condos and villas. "If you look at why people buy into Thailand, it's very specific. They buy for retirement or for a second home because they do business in Thailand. They are buying in Thailand because they want to be in Thailand," he says. "People buying into Vietnam are either foreigners setting up companies there or returning Vietnamese acquiring quite a lot of stock."

Cornick says Raimon Land is not looking to enter Vietnam yet: "It's too hard." It wants to focus on a market it knows best — Thailand.

By The EDGE MALASIA (By Mark Henderson) - Mark Henderson is a contributor to The Edge Singapore

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