Uncertainty is looming in the Bangkok residential property market, according to CBRE, the international property consultancy. Although developers have recently increased launches of condominiums, sales to Thai buyers have slowed in some locations and are likely to slow further with the coming imposition of tighter mortgage lending.
Some developers are trying to find locations where there is real demand from Thai end-users and to develop projects that buyers can afford, CBRE says. Others have increased their reliance on sales to foreigners, even though there is uncertainty as to who will be the final occupant.
The downtown expatriate rental market is stable, but CBRE believes that the local rental market in midtown and suburban areas is quite flat, so buy-to-rent investors may not achieve the yields they were expecting.
The Bank of Thailand recently imposed tighter regulations on mortgage lending by reducing loan-to-value (LTV) ratios for certain categories of purchasers in an effort to curb mortgage and property market risks and improve housing loan quality.
Effective from April 1 next year, these new measures will favour first-home buyers with genuine demand, as opposed to buy-to-rent investors with multiple outstanding mortgages who are searching for yield.
Although the new rules will not force developers to collect minimum down payments at contract signing, they will be encouraged to collect higher down payments to reduce the risk of loan defaults upon transfer. This will reduce the demand from speculative buyers, as they will be required to pay up to 20-30% down instead of 10-15% now. These measures will certainly cool and stabilise the overall market.
With domestic demand expected to shrink as a result of the mortgage restrictions, CBRE foresees a domino effect: developers will further shift their reliance towards foreign buyers, who purchase primarily with their own funds, as all the money must come in from abroad in foreign currency to comply with foreign condo ownership regulations.
CHINESE BUYING IN BULK
Many developers have already increased foreign sales, particularly to Chinese buyers, both in the form of individual purchases and bulk purchases by Chinese property agencies. Several projects have reached their foreign ownership limits (49% of the saleable area), something that used to be a rare occurrence.
"This further raises our concerns about whether high reliance on foreign sales is positive," said Aliwassa Pathnadabutr, managing director of CBRE Thailand.
"It is still uncertain whether these foreign buyers will transfer title if they are speculators, and there is no clarity on who will live in these units once construction finishes. Most of the foreign buyers are investors, and we doubt that they will live in the units that they bought."
According to a survey by CBRE Research, roughly 7,200 units were launched in the downtown area in the third quarter of 2018, compared with just 1,300 in the first half of the year. Total units launched downtown in the first three quarters are up 8% from the same period last year.
The average asking price of units in freehold condominium projects under construction (high-end and above) in downtown Bangkok edged up 1.7% year-on-year to 277,000 baht per square metre. CBRE does not believe these prices will drop, except possibly in a very limited number of completed projects with a lot of unsold inventory.
According to developers, sales of under-construction condominium units in the downtown area have dropped to 67% of the total available from 77% in the same period last year. The outlook is for sales to be relatively slow with buyers being more selective, especially for projects that are asking for more than 300,000 baht per sq m.
CBRE Research reports that a total of 18,200 condominium units were launched in midtown/suburban areas in the third quarter, the highest since the third quarter of 2013. The total for midtown, however, was down 4% from the same period last year.
Developers are now focusing on locations along future mass-transit lines such as the extensions of the BTS Green Line and MRT Blue Line, as well as the under-construction MRT Orange, Yellow and Pink lines.
The average asking price of off-plan condo units in midtown/suburban Bangkok increased 5.6% to 99,700 baht per sq m. The sales performance of more than 200 projects under construction was 71%, compared with 59% in the same period last year.
TRANSFERS UNCERTAIN
CBRE attributes the improvement in sales performance in midtown/suburban areas to block sales to Chinese property agencies, though it's uncertain whether these sales will actually translate into transfers at completion.
With rising supply and uncertainty about demand from domestic end users, the outlook for the condominium market has become more uncertain.
In the downtown market, developers may have to revise their price expectations or focus on central locations with slightly cheaper land such as Sukhumvit Soi 63 (Ekamai) rather than Sukhumvit Soi 55 (Thong Lor).
The midtown/suburban market will have to be increasingly reliant on Thai end-user demand for projects where buyers can get a mortgage, with fewer speculators and buy-to-rent investors.
In the downtown expat rental market, the number of expatriates with work permits increased by 2.7% in the third quarter and there was no change in monthly residential rental budgets. The market situation overall remains unchanged with limited new apartment (single ownership) supply, but increased condominium supply.
CBRE estimates that 30-40% of the new condominium supply will be offered for rent by the individual owners when the buildings are completed.