Condo sector gaining at expense of others
A slide in the single house and townhouse segments of the property market has led to demand surging in the condominium sector, says Adipong Puttarawigorm, head of strategy of SCB Securities.
He has identified three key factors spurring the condo market: condos suit the lifestyles of Bangkok residents, they are seen as good substitutes for houses, and they’re affordable.
Even though interest rates have stabilized and are expected to decline this year, banks are not offering the attractive mortgage deals the offered two or three years ago, Mr Adipong pointed out. This has dramatically changed many consumers’ perception of what they can afford.
Three years ago, he said, homebuyers were able to obtain mortgages for as little as 3% in the first year, 3.5% the second and 4% in the third, followed by the minimum lending rate (MLR). “These terms don’t exist anymore-it starts with MLR and this too has risen by 1%.”
This means that those who could previously buy a five-million-baht detached house can now afford to purchase a three-million-baht condominium. Also those who were previously in the market for a three-million-baht house are now looking at condos costing 1-2 million.
This change in behavior has led to new players entering the condo market, while incumbents such as L.P.N. are moving forward aggressively. Among new Set listed players are Preuksa Real Estate (PS) and Areeya Property (AREEYA), which previously focused on detached housing.
Landowners along the skytrain and underground routes are also benefiting from the condo market surge, either selling their plots to developers or undertaking projects themselves. “They build and sell units costing 1-2 million baht each-the Lat Phrao area is full of them.”
Mr Adipong pointed out that the property sector benefits from this sort of competition, and is also helping contractors, many of which see dim prospects for government construction work.
The main listed contractors buildinf condos are K-Tech Construction (KTECH) and Syntec Construction (SYNTEC). Another non-listed player, Ritta Company, is expected to enter the market soon.
Mr Adipong noted that some listed developers tend to employ non-listed contractors to build cheaper tow-rise condominiums and only hire listed companies to build the more expensive projects with units costing three million baht upwards.
Despite the promising outlook of the condo market, nervousness felt by some Thais has led to prices ping at certain projects, especially those slightly away from prime areas. However, Mr Adipong pointed out that this would not have a major impact overall because it only slightly dents developers’ profit margins, which are usually as high as 30%.