Bangkok condominium market heavily oversupplied, but unlikely to come crashing down soon
Developers admit supply has risen sharply; see a drop in operating margins
By Kanana Katharangsiporn
Drive past the Sukhumvit-Asoke intersection in Bangkok and you may have noticed a new hoarding has come up in the past few days advertising a special discount for buyers of a high-end condominium project on Sathon Road that until recently was being touted as having been 100 per cent sold out.
This is not a stand-alone case. If you dig deeper you will find that the demand for property in Thailand, especially in the capital Bangkok, has slowed down over the past couple of years, although most developers will not admit to it.
“The situation in the property market is not as rosy as you may think but it is not that bad either,” said Adisorn Thananan-narapool, CEO of Land & Houses, which has a market capitalisation of 132 billion baht (US$4.2 billion).
Although he admitted that the supply of condominiums in the city had risen sharply, which could impact the take-up rates, Adisorn said that at the moment fears of a property market crash was still not on the horizon.
Chanond Ruangkritya, president and CEO of SET-listed Ananda Development, whose portfolio focuses mainly on the condominium market catering to the middle to the upper end, said that he does not see a situation of a demand/supply mismatch but expects developers to put more emphasis on the location and buyers’ profile when launching future projects.
Adisorn said that one of the biggest indicators that the situation was still under control is that the developers’ margins had not gone down significantly over the past few quarters.
The current gross margin for most developers listed on the Stock Exchange of Thailand stands at about 33 per cent, against the 35 per cent they were enjoying about five years ago. Operating margins meanwhile have dropped to 17 per cent from 20 per cent during the same period.
The bulk of this decline has come from the increase in sales and administrative expenses, which were up at about 16 per cent from 12 per cent, and there were no signs of any reversal of the trend, said Nathavut Shivaruchiwong, analyst at Deutsche Tisco Investment Advisory.
Although margins have declined over the past few years, developers continue to enjoy an uptrend in certain segments, especially in the high-end condominium market.
Thailand’s condominium market has seen supply rising over the past few years, from 102,000 units with a combined value of 413 billion baht in 2015 to 114,000 units worth 441 billion baht in 2017.
During 2018 it is expected that as many as 120,000 units worth just over 500 billion baht will be launched and about half of them will be in Bangkok that will mainly cater to the middle to upper segment of the market.
“There are some signs that the middle to lower segments of the condominium market has not picked up yet,” said Adisorn.