Bangkok, February 12, 2019 – CBRE, a leading global real estate consulting firm, has revealed that the real estate market in Bangkok is expected to undergo significant changes in 2019, including a slowdown in various sectors of real estate and a large supply of new properties entering the market.

Competition for land with freehold ownership in prime locations in the city center remains intense. However, new regulations, including a new city plan for Bangkok set to be implemented in 2020, will compel real estate developers to reassess their strategies.

The Thai real estate market will face multiple changes, including stricter housing loan controls, upcoming elections this year, new land and building taxes, and the new city plan for Bangkok.

The new city plan for Bangkok and the new land and building tax, expected to be implemented in 2020, are still in the planning stages and not yet finalized. Significant changes are anticipated in areas that are transit hubs for the new subway lines.

The elections scheduled for March 24, 2019, will also impact the economy and infrastructure development in Thailand.

Challenges in the Export and Tourism Markets

The export and tourism sectors, which are crucial for driving the Thai economy, will face several challenges this year, including the ongoing trade war between the United States and China, which remains uncertain in its impact on Thailand's export industry. Additionally, attracting Chinese tourists back to Thailand after the Phuket boat tragedy remains a significant challenge for the tourism sector. The number of Chinese tourists during the Chinese New Year will be a key indicator of their attitudes towards Thailand.

CBRE believes that the tourism market in Bangkok will recover quickly, despite the impact of reduced Chinese tourist numbers, similar to past political unrest events that led to a stronger recovery.

Higher Down Payments Slow Down the Residential Market

Demand from speculators and investors purchasing properties for rental will decline due to rising condominium prices driven by land costs, higher interest rates, and increased down payment requirements set by the Bank of Thailand. This makes it more challenging to generate profits from rental and resale of condominiums under construction. The market will shift focus back to owner-occupiers and selling remaining units in completed projects.

With domestic demand decreasing, developers are turning their focus to foreign buyers who use their own funds to purchase condominiums. However, relying heavily on foreign buyers raises uncertainties about whether these buyers will transfer ownership upon project completion and who will occupy those units. Additionally, foreign buyers are sensitive to economic conditions in their home countries.

Increased Competition in the High-End Condominium Market

Last year, several developers launched new condominium projects in central Bangkok with selling prices exceeding 300,000 baht per square meter, and it seems that prices around 250,000 baht per square meter have become the norm. However, the market will see both successful and unsuccessful projects depending on product positioning and appropriate pricing. The abundance of options at this price point will likely slow overall sales across many projects, leading to price reductions on remaining units in completed projects to clear inventory.

New projects are not only competing on price but also on unique selling points to attract buyers. Smart home systems, rental management, and mixed-use developments are examples of current market differentiators. In such a highly competitive market, CBRE believes that success will not solely depend on the best design or floor plan but on projects that meet lifestyle needs at reasonable prices.

CBRE believes that 2019 will be a golden opportunity for buyers looking to live in and invest for the long term, as stricter housing loan controls will reduce the number of property buyers, while developers will compete to clear remaining inventory before these measures take effect. Buyers may be able to purchase projects nearing completion at prices equivalent to those at the time of the project's launch.

Changing Demand for Office Space

In line with global trends, the office space market in Bangkok is evolving towards agile workplaces and co-working spaces, which are becoming increasingly important for leasing large office spaces. New office spaces coming online in the future will pressure older buildings to upgrade and enhance their competitiveness in the changing market.

In the next four years, Bangkok will see changes in the office building market as 2 million square meters currently under construction and in planning will enter the market. CBRE anticipates that office space usage in Bangkok will reach 200,000 square meters per year.

Adaptation in the Retail Market

As the global retail market shifts towards e-commerce and online shopping, the retail market in Bangkok is gradually moving in the same direction. Retailers with physical stores are seeking strategies to offer experiences that online shopping cannot provide, such as creating new experiences in shopping malls or transforming stores into retailtainment venues that combine entertainment with service to create differentiation.

CBRE forecasts a positive outlook for the retail market, driven by a recovering economy. Rental rates will remain high, but the influx of new retail spaces in the future will pose challenges for underperforming shopping centers in retaining and attracting tenants, as they will face competition from e-commerce and new supply. However, rental rates are expected to remain stable.

EEC: Incentives in the Industrial Market

The Eastern Economic Corridor (EEC) development project will become clearer this year as the bidding for development projects around mass transit stations along the high-speed rail line heading towards the EEC concludes. CBRE believes that this project will attract more interest from foreign manufacturers and investors to invest in the EEC area. Additionally, the government is offering special financial incentives and tax exemptions in the free trade zone within industrial estates for foreign manufacturing companies.

It is still too early to determine whether Thailand will benefit from the trade war between the United States and China. However, CBRE has observed that some Chinese manufacturers are interested in relocating their production bases to Thailand in the EEC area.

Investment Slowdown

The Bank of Thailand raised its policy interest rate for the first time in seven years from 1.50% to 1.75% on December 19, 2018.

Higher interest rates will increase the development costs for real estate developers and will also lead domestic property buyers to delay their purchases.

Decreased domestic demand, rising land prices, and a large influx of new supply will make real estate developers more cautious in launching new projects and acquiring land in 2019.

Freehold land in prime locations in Bangkok will remain highly sought after, especially along the subway lines. The limited availability of prime land in the central business district (CBD) will drive land prices higher, with current peak prices reaching 3.1 million baht per square wah for land on Lang Suan Road.

With rapidly rising freehold land prices and the beginning of a slowdown in the condominium market, developers are increasingly considering long-term leasehold land, adjusting their investment plans, and diversifying risks into other markets such as office buildings, hotels, and serviced apartments, which do not necessarily need to be developed on freehold land.

Thank you for the information from www.cbre.co.th