Real Estate Competition Strategies for the Second Half of the Year
Overview of the Real Estate Market in the First Half of 2020
The real estate market in the first half of 2020 has slowed down due to the impact of COVID-19, leading some developers to start "reversing gears." The number of new project launches has reached its lowest in a decade. The challenge for those who dare to launch new projects in the second half of 2020 is to compete with the existing "ready-to-move-in condos" in the market.
Phatchai Taweewong, Deputy Director of Research and Communication at Colliers International Thailand, revealed that in the second quarter of 2020, there were only 5 new condominium projects launched in Bangkok, totaling 1,206 units. This represents the lowest number of new launches in the past 10 years, with an investment value of only 2.6 billion baht.
In comparison to the previous quarter, which had 4,674 units, this marks a decrease of 79.5%. Overall, only 7,086 units were launched in the first half of 2020, compared to 11,499 units in the same period of 2019, reflecting a significant drop of 61.9%. The total value decreased by 13.62 billion baht compared to the first half of 2020. Due to this slowdown, Colliers predicts that the total number of new project launches for the entire year of 2020 will not exceed 25,000 units, which is lower than many had previously anticipated and the lowest in a decade.
“Initially, it was predicted that the total number of project launches for the year would decline by 30%. However, the economic slowdown and ongoing global COVID-19 issues have led to expectations that the Thai real estate market will remain sluggish throughout the year, with a potential recovery not expected until early 2021. This has resulted in a forecasted decline of 40% in new launches for the year, as many developers are focusing on reducing prices to clear their inventory. Some have reduced prices by more than 30-40% and are offering promotions to attract interest, such as free living expenses for up to 12-36 months or covering all costs on the transfer date. This has allowed several projects to achieve 100% sales in the second quarter, but it has also led to a decrease in new project launches and slower sales in existing projects,” he stated.
However, as the COVID situation in Thailand begins to improve and the government eases business lockdowns, many developers are preparing to launch new projects in the second half of the year. Despite still facing "purchasing power limitations," they must be cautious in setting prices for new projects, ensuring they do not exceed what buyers can afford. Most new projects in the same location are focusing on selling below market prices to attract interest and stimulate purchasing power. “Price and location” are the key selling points for condos in the COVID era.
It is evident that in the second quarter of 2020, 52% of the condos launched, or approximately 625 units, were priced between 50,001 - 100,000 baht per square meter (sqm). This was followed by 27% priced between 100,001 - 150,000 baht per sqm, totaling 323 units, and 21% priced above 50,000 baht per sqm, totaling 260 units.
Phatchai also provided insights into the strategies of major real estate developers listed on the Stock Exchange of Thailand. Some still plan to develop condominiums with an average selling price below 50,000 baht per sqm in Bangkok and its suburbs to attract real demand buyers, as well as investors looking to rent out properties. For instance, areas like Bangkae near the blue line subway are seeing prices comparable to those from 5-6 years ago (2015-2016). Alternatively, some are moving into the ultra-luxury segment with prices exceeding 200,000 baht per sqm. Although sales rates are low, this market segment remains unaffected and continues to sell steadily, with some developers targeting the high-end market.
“Real estate developers are starting to return to pricing below 100,000 baht, as this is the largest market segment. Companies like Sena and L.P.N. are reverting to lower prices in new projects, including Supalai. However, this customer base faces a high loan rejection rate of up to 30%, which remains a challenge to address. If not focusing on price, developers must consider location, such as Asset Wise, which is launching in the Ramkhamhaeng area due to limited supply and significant progress on the subway,” he added.
The foreign buyer market continues to be a new target group for developers in the Stock Exchange, especially for projects along Sukhumvit and Ratchadapisek roads in the Central Business District (CBD). Many projects have garnered interest, but COVID-19 has reduced foreign purchasing power. Developers must wait for a turning point when these countries manage COVID-19 effectively, which could lead to a renewed surge in demand for Thai real estate in early 2021.
“We must wait for the right moment when COVID-19 in other countries begins to ease, allowing travel. Thailand's effective COVID management will be a positive turning point that increases demand for Thai real estate once again,” he concluded.
