Condo projects facing oversupply

Source: The Nation February 14, 2008

Condo projects facing oversupply

City condominium developers may delay construction of their projects launched last year, say property experts.

The developers are facing an estimated supply of up to 50,000 condominium units in greater Bangkok and a 20-per-cent increase in construction-material costs.

Customers who bought units worth Bt30,000 per square metre or less last year could lose their down payments, because the developers cannot continue with the high construction costs. Assoc Prof Manop Bongsadadt, president of Thailand's International Real Estate Federation, estimated average demand for residential projects in Bangkok and the surrounding area at 66,000-80,000 units a year, with nearly 40 per cent being condominium projects. But nearly 20,000 units have been launched this year, exclusive of nearly 30,000 existing units.

Meanwhile, a number of property developers plan to launch other city condominiums numbering 30,000-40,000 units in the second half of the year.

That means city condominium projects launched this year combined with last year will number 80,000-90,000 units. Compared with real demand in the market, Manop believes city condominiums are facing an oversupply and a possible bubble situation.

Nexus Property Consultants managing director Apisit Limlomwongse agreed with Manop, adding that nearly 30 per cent of customers buying city condominiums now were investors planning to generate rental fees or speculators hoping to generate high profits from sales.

"We cannot separate how many buy for rental or sale, but this trend has shown strong growth this year compared with last year," he said.

Research findings by the Real Estate Information Centre presented yesterday at a seminar entitled "The Property Market Outlook in 2008" showed residential projects launched in grater Bangkok the first nine months of last year accounted for 227,000 units. Of those, 150,000 units are low-rise projects like single-detached houses, townhouses or double houses, while the remaining 77,000 units are high-rise or condominium projects.

Of the 77,000 condominiums launched last year, 48,723 were recorded as sold in the first nine months and the rest are in an ongoing sales process.

Housing Business Association director Issara Boonyong said once construction costs increase as much as 20 per cent, a number of city condominiums offering prices of less than Bt30,000 per square met will no longer be able to develop their projects, because their costs will have increased from an average Bt18,000 per square metre to between Bt20,000 and Bt23,000.

If they continue to build their projects, they will generate losses rather than profits, he said.

Issara estimated city-condominium projects facing construction-cost rises numbered nearly 100.

Preuksa Real Estate director Prasert Taedullayasatit agreed with Issara, adding that this year would be a hard time for property developers of city condominiums if they did not change their concepts to meet customer demand.

"We believe the property developers that developing city condominiums by focusing on the lower to middle market may record losses rather than profits, if they do not change their condominium concept," he said.