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While the luxury condo market is expected to stay healthy in 2015, the midtown and suburban segment faces peak supply completion, a wobbly economy, high personal debt and weaker spending power.
Actor Louis Koo appeared in seven movies last year and was ranked the highest-paid celebrity in Hong Kong in 2014, with a reported income of HK$300 million ($52.2 million). The 44-year-old movie star topped a different chart — of the record-smashing kind — in Bangkok last year when he paid close to THB470,000 psm ($1,819 psf) for a 503 sq m (5,414 sq ft) penthouse at upscale condominium 185 Rajadamri. The price translates into THB236.4 million (HK$54.2 million or $9.4 million) for the penthouse with 270-degree views of Lumpini Park, Bangkok’s version of Central Park. It was the highest in terms of price psm achieved in Bangkok so far.
There is an even bigger penthouse that is still available. Measuring 782.75 sq m (about 8,426 sq ft), it has five en suite bedrooms, two kitchens, a big column-free living and dining area, a 12m infinity lap pool, sauna room and indoor- outdoor entertainment area. The developer declined to disclose its price tag, saying “it’s upon request”.
Typical units at 185 Rajadamri range from 1,164 sq ft, two-bedroom apartments to four-bedroom duplexes of 3,751 sq ft. Prices start from THB40.4 million for a 1,361 sq ft two-bedroom unit to THB118.4 million for a four-bedroom duplex, according to its price list. Completed in 1Q2014, only 24 of the 265 units in the freehold luxury condo remain unsold.
When the project was launched in 2010, prices averaged THB220,000 psm; today, resale prices are THB310,000, says CBRE Global Research in a May 27 report.
Super luxury prices
Developed by listed Thai property group, Raimon Land, 185 Rajadamri was one of five properties that saw prices cross THB300,000 psm last year. The other four condos were The Sukhothai Residences, located next to the Sukhothai Hotel by HKR International (the developer of Singapore’s Beaufort on Nassim and the former owner of Beaufort Hotel in Sentosa); Major Development’s Marque Sukhumvit 39; The Ritz Carlton Residences, which will be part of a mixed-use scheme in the 77-storey skyscraper MahaNakhon; and Magnolias Waterfront Residences at IconSiam by developer Magnolia Quality Development Corp.
These prices were not achieved for penthouses but larger condo units of all types, including a one-bedroom unit of more than 50 sq m (538 sq ft), points out James Pitchon, executive director and head of CBRE Research and Consulting, Thailand.
Two other luxury condos were launched this year at an average price of THB300,000 psm. One was Pace Development Corp’s Nimit Langsuan, a 187-unit, 53-storey freehold condo tower located on Langsuan Road in Central Lumpini. Launched in 1Q2015, it has two- to four-bedroom apartments measuring 78 to 617 sq m, with prices ranging from THB25 million to THB250 million. The project is 95% sold, says CBRE, marketing agent for the project.
The other was Country Group Development PCL’s Four Seasons Bangkok at Chao Phraya River. The project was showcased at a weekend exhibition in Hong Kong on May 16 and 17, and garnered THB700 million in sales. “It was the highest recorded by CBRE at a single road show for a Thailand luxury property development in Hong Kong,” according to the company’s press statement on May 21. The number of units sold was not disclosed, although the average price achieved was said to be THB300,000 psm. The project sits on a waterfront site leased from the Thai monarchy’s Crown Property Bureau on a 25-year lease, with two 25-year lease extensions thereafter.
This year, Thai developers are expected to continue focusing on the upper-tier and luxury segment, especially in the downtown area of Bangkok, says CBRE’s Pitchon. The starting prices of newly launched condo projects in the most prime downtown locations in 2015 are expected to be THB200,000 to THB300,000 psm.
“While some of the newly launched downtown condominium projects in the first five months of the year have set a new price benchmark, this does not guarantee that every new downtown project will be able to achieve such high prices,” cautions Pitchon. “That success was limited to projects that matched buyers’ expectations in terms of location, quality, design and specifications to justify the high asking prices.”
Influx of Chinese buyers?
The Thai property market is starting to see some interest from Hong Kong and mainland Chinese buyers, especially with the rise in tourist arrivals. “Foreign property buying usually follows tourism,” says Pitchon. “Singapore has been penalising foreign buyers in their property market. In Hong Kong, foreign buyers are subject to stamp duty, and even in Australia, foreigners will face higher taxes. In Thailand, we do not have any penalties for foreigners, but we have coups, which are automatic property cooling systems.”
Even developer Raimon Land has reported growth in sales to mainland Chinese buyers. According to its May 15 release, the developer intends to unveil a series of marketing campaigns targeted at both international and Thai buyers. They will include roadshows and tieups with leading banks.
Raimon Land intends to launch two projects in the high-end segment this year. One is Mews Yen Akat, with nine bespoke homes — four pairs of semi-detached houses and a detached house. It will be Raimon Land’s first development in its Limited Edition range. The project is located in the prime Sathorn CBD area.
The second project to be launched this year is the freehold 200-unit condo, The Lofts Asoke. Located in the prime Asoke area, it has easy access to the BTS, MRT and the Airport Link. “It’s a prime inner-city property, and will offer attractive loft-style living such as higher ceilings, a sense of space and innovative layouts,” says Johnson Tan, director and CEO of Raimon Land. “The Asoke neighbourhood is one of the most sought after for Thais working in the city, as well as international buyers looking for an investment property or weekend retreat.”
Over the past five years, land prices in the prime areas have more than doubled. As a percentage of total development cost, land cost has not only increased but has also exceeded construction cost. In some cases, especially in central Bangkok, land prices have increased to 60%, from 25%, of total development costs, according to a May 27 report by CBRE.
Midtown/suburban supply blues
The luxury residential market is expected to stay relatively healthy this year, but the midtown/ suburban condo segment is likely to see signs of stress. This year, 78,000 units in the midtown/suburban market are expected to be completed. “With the completion of units at its peak, a weak economy and high household debt, spending power in this segment is reduced,” says Pitchon. “We therefore see developers focusing on clearing unsold inventory.”
Downtown condominium projects tend to have a higher down payment of up to 30% of the purchase price. But the payment scheme for most midtown/suburban condos is usually just 10%, with the balance due only upon completion of the project.
The risks are whether speculative buyers of these units who have paid 10% of the price will default if they cannot resell before completion, and how many end-users will be able to get a mortgage, adds Pitchon. “The cancellation from both speculators who cannot resell units and buyers who cannot get a loan means developers could be left with unsold inventory, for which they may have to offer discounts to sell.”
CBRE defines midtown/suburban condos as those located outside Bangkok’s downtown area, for example, in Ratchadapisek/Rama IX/ Ladprao, Late Sukhumvit and Thonburi. The price range for midtown/suburban condos ranges from THB70,000 to THB170,000 psm.
Bangkok’s shoebox apartments
According to Pitchon, the one-bedroom condo market phenomenon in the midtown/suburban area took off in the early 2000s with a dramatic change in social attitudes. “Younger people left home before marriage and wanted to buy somewhere to live,” he says. “That trend has been growing.”
As prices of condos got more expensive because of the increasing land price, developers have carved up the units into smaller sizes of up to 25 sq m (269 sq ft) for a one-bedroom unit to keep the absolute price affordable. In fact, more than 70% of condos under construction in the downtown area are one-bedroom units or smaller, according to CBRE.
While there is demand for small units, the acceptable average unit size is 30 to 35 sq m, adds Pitchon. That is about 323 to 377 sq ft, which is still smaller than Singapore’s minimum size of 40 sq m (431 sq ft) for a shoebox unit.
In this segment, especially for units of up to 30 sq m, buyers tend to be a mix of end-users, speculators and buy-to-let investors. For example, Elio Del-Ray is a condo with more than 1,000 one- and two-bedroom units measuring 24 to 44 sq m, with prices ranging from THB1.6 million to THB3.6 million. Developed by Ananda Development and completed at the end of last year, it is located at Sukhumvit Soi 64 and 66/1, with the nearest BTS station at Udonsuk, about 600m away.
Some units were as small as 21 sq m (226 sq ft), but they were the most popular and fully sold, according to a marketing agent.
“You may turn up your nose and say it’s no bigger than a broom cupboard, but such one-bedroom units are affordable to Thais with a rental budget of THB10,000 a month or lower,” says Pitchon. “And many of these tenants have become homebuyers.”
While the units at Elio Del-Ray may be compact, the communal facilities are generous — from the spacious residents’ lounge and library, to fitness area, resort-style swimming pools and multi-purpose hall. Amenities include a café and convenience store. Many of the people lounging at the pool appear to be expatriates.
Right audience is essential
Raimon Land has a midtown project called The Lofts Ekkamai in the Ekkamai/Thonglor district. The 263-unit development features studios, as well as one-and two-bedroom apartments, including duplex lofts. The project, which is scheduled for completion in 2016, is already 85% sold, with the average selling price at THB165,000 psm.
“Our success with Lofts Ekkamai stems from understanding our buyers, who place a substantial value on the communal facilities that we provide — from bike racks and gym to swimming pool,” says Tan. “Building a sense of community and the right mix of owners is paramount. That’s one reason we continue to maintain 35% repeat purchasers with every new property we launch.”
Raimon Land has another project in the midtown/ suburban area of Thonburi. The River, at THB15 billion in project value, is the biggest in the developer’s portfolio. One of the twin towers contains 500 apartments and, at 70 storeys, it is among the tallest skyscrapers in Bangkok. The other tower is 50 storeys, with 300 apartments and a block of 92 serviced apartments on eight floors, which are operated under Klapsons, which was officially launched in April.
Since its completion more than a year ago, sales at The River have picked up strongly.
The project boasts river views at most units, including most of the seven swimming pools. Only 39 of a total of 800 units in the development remain unsold. Prices at The River now average THB150,000 psm, with a 133 sq m two-bedroom- plus-study unit priced at THB20 million.
Looking for tie-ups
Raimon Land has completed 11 condo projects in as many years. Besides focusing on residential property development, Raimon Land is also looking to increase its recurring income from investment properties. Its portfolio currently includes Vue (retail), Klapsons (hospitality) and Space 48, an office complex on Rajadapisek Road. Tan is also considering potential tie-ups in hospitality, and remains open to forming joint ventures with foreign partners that “share the firm’s vision in creating innovative properties in superior locations”, he says.
There has been a trend of Thai developers forming joint ventures to finance projects, such as BTS Corp and Sansiri, AP and Mitsubishi Estate, as well as Ananda and Mitsui Fudosan.
According to CBRE, Bangkok condo market sentiment in 2015 will largely depend on the pace of economic recovery, developers’ ability to transfer completed units and the pre-sale of newly launched midtown/suburban projects where buyers are most affected by the rising household debt.
Meanwhile, in the residential sector, Raimon Land will continue to look at potential sites for high-end condos and landed housing projects. Tan says, “Our sales success in Bangkok, Pattaya and Phuket reflects Raimon Land’s ability to execute and complete well-thought-out designs with superior quality.”
Rare breed
Before Tan came on board two years ago, the company had poor financial standing and net gearing stood at 4.64 times. He completely overhauled and restructured the company, and cleaned up the balance sheet.
On May 15, Raimon Land reported 1QFY2015 revenue of THB1.63 billion, with earnings of THB313 million, marking its 12th consecutive quarter of profit. This followed a record year in 2014, which saw its net earnings for the full year hit THB1.3 billion. The company’s net gearing in 1QFY2015 was reduced to 0.7 times, from 0.9 times at end-4QFY2014.
By increasing the deposit policy for projects to 25% to 40% of the unit’s purchase price, Raimon Land has a transfer failure rate of less than 1% for its projects, which is well below the industry average of 5% to 6% in 1Q2015.
A rare breed in Bangkok, Tan is a Singaporean CEO heading a Thai-listed property company, a role he has occupied since May 2013.
A veteran investment banker and specialist in mergers and acquisitions, Tan brokered the sale of Thomson Medical Centre to billionaire investor Peter Lim for $400 million in 2010.
Tan sewed together the acquisition of Raimon Land by Lionel Lee, the company’s biggest shareholder, with a 25% stake via his personal investment company JS Asset Management.
Having effected a turnaround of Raimon Land in a space of two years, and being a non-Thai, Tan himself has created a stir in the property market — the way Koo has done by snapping up the penthouse in Bangkok.
This article appeared in the City & Country of Issue 679 (June 1) of The Edge Singapore.
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