August 28, 2014 12:00 am JST

Social change, railways drive Bangkok condo boom

Ron Corben, Contributing writer

New condos are sprouting up along recently built railway lines offering easy access to central Bangkok. © Ron Corben

BANGKOK -- Like most aspects of Thai life, Bangkok's sprawling property market took a serious hit over six months of political turmoil leading up to the May 22 coup that installed a military junta in place of the elected government. Just three months later, though, property -- like most other business sectors in Thailand -- is booming again, driven by the twin engines of transport improvements and rapid alterations in family living arrangements.

     "There has been a huge social change here," said James Pitchon, executive director of CB Richard Ellis (Thailand). "Parents will (now) allow their sons and daughters to move away from home before they get married. We have a lot of people running away from mum who want to work downtown, and want the convenience of the mass transit connection to live closer to their place of work. So there is end-use demand; it's a move from the extended to the nuclear family."

      Andrew Gulbrandson, research manager for Jones Lang LaSalle (Thailand), confirmed the change, adding that the demographics of the Thai capital have presented developers with a major market opportunity as younger people leave family compounds to set up homes on their own in large numbers.

Smaller households

Census figures show that the average household size in Thailand fell from 3.7 people in 2000 to 2.7 in 2010 -- a period in which Bangkok's population increased by 2 million.

     "The combination of those two things meant that there was natural demand for 600,000 new dwelling units (in Bangkok) regardless of any sort of economic change," said Gulbrandson.

     Over more or less the same period, the construction of new electric rail services around the capital has opened up fresh areas for middle-class development, fueling a condominium boom along rail routes allowing easy access to downtown locations, according to Colliers International (Thailand).

     In a popular move, Thailand's ruling junta, the National Council for Peace and Order, said in July it would go ahead with four new electric rail routes totaling 88.8km in Bangkok over the next three years. It also approved two high-speed train routes and six dual-track routes elsewhere in Thailand.

     The new links in the capital will reinforce the existing Bangkok SkyTrain, which was opened in 1999 and runs for 37km along two lines, with 34 stations in the city and suburbs and more across the Chao Phraya River in Thonburi. Extensions exceeding 50km are due for completion by 2029.

     The city has also benefited from a new 20km underground rail line, the Mass Rapid Transit system, which has 18 stations and extends into the northern suburbs. Together, the systems carry over 850,000 passengers each day, reducing commuting times and saving the capital from traffic gridlock.

     As the rail lines proliferate, demand for condos appears to be accelerating, fed by rising middle-class incomes, a taste for new lifestyles, and demand from young professionals wanting easy access to their places of work, along with adult children leaving home for the first time.

     Colliers forecasts that more than 50,000 condo units will be put up for sale in 2014. More than 7,000 units were launched in June, compared with a total of 5,000 in April and May, when Thailand's political uncertainties reached a crisis point before and after the May 22 coup.

Willing to pay

Land Department registrations in the first half of 2014 stood at 16,750 new condo units, compared with the total existing supply for greater Bangkok of around 414,550 units. Average prices for condominiums located less than 200 meters from mass transit stations are the highest, at more than $3,000 per square meter.

     But buyers are also paying an average of just over $1,000 per square meter for small studio apartments of about 30 sq. meters located a kilometer or more from stations. Prime condos sell for about $6,400 to $8,000 per square meter in Sukhumvit Road, toward the city center, and in the embassy and financial areas of Sathorn and Silom roads.

     Thailand's Housing Finance Association said it expected growth in the home-loan market to average 10% a year over the next three years. It predicted that total new mortgages for 2014 would rise to more than $18 billion -- about $3 billion higher than earlier forecasts.

     However, there are signs that the market may not be as robust as it appears. Political and economic uncertainties ahead of the military takeover cooled demand and led commercial banks to apply stricter standards to housing loans. More than a quarter of mortgage applications were rejected by banks in the second half of 2013, according to Colliers, compared with less than 20% in most recent years.

     Economic growth forecasts are also being revised downward, with gross domestic product now expected to increase by 2% in 2014, compared with 6.5% in 2012, according to an annual survey by the United Nations Economic and Social Commission for Asia and the Pacific.

     Pitchon said the condominium market was facing a "stress test" this year following widespread sales of units to speculative buyers who risked only an initial 10% payment, with the remaining 90% of funds not due until the projects are completed. "This makes buying condominiums an ideal speculative investment with a very low upfront cost," Pitchon said.

     Initial buyers who resell condos after completion face a range of taxes, from transfer fees to municipal and withholding taxes based on the final sales price. But selling the property before completion is tax-free. About 70,000 units are due for completion this year and next, and developers could be left holding a lot of stock if large numbers fail to sell quickly to long-term owner-occupiers with secure mortgages.

     Legislative changes may also affect the market. Amid a package of reforms, the junta is considering going ahead with long-delayed property and inheritance taxes aimed at assets owned by wealthy families, some of which have held land in urban areas for decades.

     Narongchai Akrasanee, an economic adviser to the junta and a former commerce minister, said the government was committed to major tax reforms, particularly for "people who have a lot of wealth." Some analysts believe the inheritance tax will encourage property sales, ultimately reducing land and property prices.

Dangerous ground?

Others question whether Bangkok's property boom is environmentally sustainable. Situated in Thailand's central plains, Bangkok is at frequent risk of flooding, last seen in a dramatic inundation of surrounding areas in 2011.

     Among contributing problems, natural floodwater courses have been disrupted by roads, infrastructure, industrial zones, housing and other construction. Bangkok's shallow flood plain is also considered vulnerable to rising sea levels.

     Danai Thaitukoo, a lecturer in urban ecology at Chulalongkorn University, said city planners had failed to learn from past problems with construction on urban land.

     "People don't see the city as a system that supports human life," Danai said, arguing that urban areas were seen simply as economic machines where people worked, made money and went home. Productive orchid and vegetable farms close to the city had already been swallowed beneath a tide of concrete, he said.

     "I am not sure what is going to happen in the future," he said. "I am not sure we have the capacity to support this kind of development."