Putting in perspective the low prices of real estate in Bangkok
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ONE interesting topic in the news recently was the report from CBRE that certain condominium units in Bangkok were selling for more than Bt300,000 per square metre. Indeed, our own Ashton Asoke building has seen some units change hands in the secondary ma
It is important first to put this in perspective. These are only a few of the best buildings in the best locations, but even if we take these as an indicator of the broader market, what does it tell us?
Well, again, we need to look at the context. These prices didn’t just arrive out of nowhere. They rose from a lower price to get here. So has the rise been too fast and unsustainable?
According to the CBRE report, the rise from the benchmark of Bt100,000 per square metre to a new benchmark of Bt200,000 happened between 2002 and 2007 – a compound annual growth rate of 14.9 per cent. And the rise from Bt200,000 to Bt300,000 happened between 2007 to 2014 – a CAGR of only 6 per cent.
A nominal annual rise in prices of 6 per cent (implying a real increase after inflation of around 3 per cent) is a figure that I actually find a little puzzling.
We are talking about the peak prices of the best buildings in the best locations. Normally prices at prime locations tend to rise faster than in non-prime areas and are more resilient to downturns.
In addition, Bangkok has invested hundred of billions of baht in building new infrastructure in the form of the mass transit. This investment will raise the value of real estate around that infrastructure, simply because greater access increases the value of any location. That is why land next to a road is worth more than land in the middle of a farm.
Coincidentally, 2007 is the year that Ananda launched its first Ideo mass-transit condos. Since then the transit system has expanded significantly and will grow even more rapidly over the next few years, while Bangkok residents have begun to adapt their lifestyles around mass-transit convenience.
Given the investment in infrastructure, it is somewhat surprising that the growth rate of the peak price for the best buildings in the best locations has only been 6 per cent a year over the last seven years. Perhaps something else has been preventing a bigger rise.
Perhaps the rise is slow because Bangkok property is fundamentally unaffordable and that’s holding prices down? We all know that the Bangkok property rental market is a beautiful example of a liquid and competitive free market, with thousands of units of every type available for rent. So rental prices probably approximate what the market is willing and able to afford for the type of building and location suitable for each sector’s income. So looking at rental yields will be able to tell us whether property prices have risen above affordability, and thus have limited upside.
According to the Global Property Guide, Thailand’s gross rental yields are among the highest in Asia. Only the Philippines, Indonesia and Cambodia have higher yields. To put this in basic terms, this means Thailand’s property prices are among the lowest in Asia relative to what it costs to rent a property.
So the answer to the question of whether Bangkok property prices are too high turns out to be another question: Why are they so low?
The answer is clearly the political issues and flooding, of course, and there exists the possibility of a rebound once worry about these factors no longer affects the market.
