Bangkok Condo Prices Surging

[Livinginexile]

Todays business section of the Bangkok post.

Deals for early birds

New condos to hit market this year have an edge in terms of price as construction material costs surge.

By Nina Suebsukcharoen

Rising inflation and soaring oil prices that push up construction costs have triggered increased activity in the new supply of condominiums reaching the Bangkok market this year, says James Pitchon, executive director of CB Richard Ellis.

As soaring building material prices pushed construction costs up by 20-30% in the first half of this year, end-users and investors are now shopping around for good units among buildings that have been completed or are to be completed this year because they were built from a lower cost base. This is also what gives this new batch of buildings a clear edge over new projects being sold off-plan.

One example Mr Pitchon gave is Athe'ne'e Residence on Wireless Road, where resale units have been sold for as high 150,000 baht a square metre but this is probably cheaper than the price a new project in the same area could be sold today.

"This year I expect we will see increased activity in The Met which will be due for completion in the first quarter of next year. People driving past that side of Sathorn will see very fast construction progress."

Read on...

Deals for early birds

New condos to hit market this year have an edge in terms of price as construction material costs surge.

By Nina Suebsukcharoen

Rising inflation and soaring oil prices that push up construction costs have triggered increased activity in the new supply of condominiums reaching the Bangkok market this year, says James Pitchon, executive director of CB Richard Ellis.

As soaring building material prices pushed construction costs up by 20-30% in the first half of this year, end-users and investors are now shopping around for good units among buildings that have been completed or are to be completed this year because they were built from a lower cost base. This is also what gives this new batch of buildings a clear edge over new projects being sold off-plan.

One example Mr Pitchon gave is Athe'ne'e Residence on Wireless Road, where resale units have been sold for as high 150,000 baht a square metre but this is probably cheaper than the price a new project in the same area could be sold today.

"This year I expect we will see increased activity in The Met which will be due for completion in the first quarter of next year. People driving past that side of Sathorn will see very fast construction progress.

Read on...

http://www.bangkokpost.com/190708_Business...2008_biz011.php

[Samuian]

As far as Richard Ellis is concerned - I am not very concerned!

it's just another sales pitch!

[ray08]

The Met on Sathorn , i drive past everyday ,Now that is one ugly looking building , and the traffic to get in and out when finished would be a nightmare ,

Also never heard a Real Estate agent tell me ," Now is not a good time to Buy "

[samran]

The Met on Sathorn , i drive past everyday ,Now that is one ugly looking building , and the traffic to get in and out when finished would be a nightmare ,

Also never heard a Real Estate agent tell me ," Now is not a good time to Buy "

all true.

However a mate of mine in the industry (who doesn't want to sell me anything cause I'm a poor b@stard) tells me that A-grade new builds are now circa 180K per square metre in terms of cost only (all in). Add margins on top of that and you get 200K+++

Another random moment I had evesdropping on some small time contractors confirms this. They were all bitching about material prices and how they'd all be out of business by next year.

Leads me to think that there will be a new appriciation for second hand condo's shortly. I could be wrong on this last point though.....

[sabaijai]

The Met on Sathorn , i drive past everyday ,Now that is one ugly looking building , and the traffic to get in and out when finished would be a nightmare ,

Also never heard a Real Estate agent tell me ," Now is not a good time to Buy "

all true.

However a mate of mine in the industry (who doesn't want to sell me anything cause I'm a poor b@stard) tells me that A-grade new builds are now circa 180K per square metre in terms of cost only (all in). Add margins on top of that and you get 200K+++

Another random moment I had evesdropping on some small time contractors confirms this. They were all bitching about material prices and how they'd all be out of business by next year.

Leads me to think that there will be a new appriciation for second hand condo's shortly. I could be wrong on this last point though.....

I suspect Samran's right, price surge in older condos. The cost to replicate an older A-grade condo is probably close to double the original purchase price 6-8 years ago in some cases.

[thaihome]

The Met on Sathorn , i drive past everyday ,Now that is one ugly looking building , and the traffic to get in and out when finished would be a nightmare ,

Also never heard a Real Estate agent tell me ," Now is not a good time to Buy "

Since they are still pouring the concrete shell and the exterior finish has not even started, pretty hard to tell what the building will look like.

Some how I doubt that it is going to make a lot of difference to the traffic on Sathorn. After all, what is a at most a hundred or so vehicles a day going to make to a road that is already way over crowed during rush hour?

TH

[quiksilva]

Its mostly due to construction prices, take steel prices as an example, which have increased by almost 60% so far this year.

[tangoll]

I wish CBRE or someone from a property development company can show us a complete profile of the major cost components from a condo costing say baht 150,000 per square meter and compare it to say 5 or 10 years ago. The major components being developer's profit, marketing/selling cost, developer fixed cost, land cost, variable cost of labour, material like steel, concrete, etc., equipment/fixtures cost like elevators, swimming pool, etc, and condo finishing costs.

Otherwise, all these comments are just aimless talk without substantive credibility behind it.

If steel prices have increased 60% this year, as quiksilva stated, the next question is: what part of total cost is the steel component in the overall condo cost? 10%, 0.01%? Who really knows?

[glyph]

Why would you care? If the evidence was presented, you - and others - would simply say, "I don't believe it." The Thai real estate market is what it is, and your involvement - or lack of it - won't affect it in the least.

[steveromagnino]

grade A development (level of say Domus, Ficus Lane, The Met, Athenee, Park etc)

Working from one hypothetical project

2005

Cost of land per sqm 5,000b

Cost of building per sqm 25,000b

Cost of marketing at 4% of project value 1,200b per sqm

Total = 31k / efficiency 55% = 56k X 2 (as the developer needs to double their money if the project takes say 3 years, in order to acheive about 30% gross margin return p.a., and the selleable area is say 55%) = 112k per sqm which is what the Park was running at when it was launched (and probably was about in line with these numbers)

Early 2008

Cost of land per sqm 10,000b (as prime locations become more scarce)

Cost of building per sqm 35,000b (costs have all increased; basements far more common and encouraged via new regulations, marginally higher costs of compliance, increased spec required to be grade A e.g. double glazing, ceiling height, higher quality appliances, etc)

Cost of marketing at 4% of project value (marketing has become more important and standard higher, now requiring road shows, better show units etc etc) per sqm 1,600b

Total = 46.6k / efficiency 55% = 84.7k X 2 = 169.4k per sqm

Not the extra 50k approx per sqm is based on the developer acheiving exactly the same margins; furthermore note what happens if the developer experiences a slight increase in their costs beyond this; let's see what happens when the developer gets hit with the costs as they stand now mid 2008

Cost of land per sqm 10,000b

Cost of building 40,000b

Cost of marketing 4%

Total = 52k / 55% = 94.5 X 2 = 189k per sqm

And this is what is driving the Raimon Land development to have to wind up at 300k starting because their fit out and cost of building might be 40k, but their land portion is significantly higher than 10k per sqm probably.

There are no grade A developments in prime areas that area now launching at less than these sorts of numbers (169-189k per sqm) that are freeholds. Prime areas = Rajadamri, Sala Daeng, Sathorn roadage, Riverside, a few other isolated areas.

With a higher cost of financing, the developer also starts getting squeezed at the WACC end which reduces the gap between margin and actual return.

The only ways to play with the equation are:

- reduce lead time to launch/finish (which is how LPN and Ideo are able to run such lower costs)

- reduce spec

- find worse/inferior locations or use cheap land

- cut corners on suppliers (e.g. K Tech, and we know how that turns out)

[tangoll]

glyph, whether I care or not or whether I believe any data presented on this subject has nothing to do with you; so why bother making comments that add nothing to the discussion. Whether my involvement affects the Thai condo market or not has no relevance to this discussion either; but I will say that my recent sales at Address@Siam and Bann Klang Krung Siam Patumwan has set price standards at those two projects -- ask any real estate agent dealing in those projects, or the management office staff there.

steveromagnino, thanks for the very informative profile you presented. I'll bet no one at CBRE or any real estate agent has such a clear picture as you have presented here. I'm going to print your profile out and make it available to the agents I come in contact with, and the developer staff as well, and try to get them to confirm whether the overall picture you present is in line with their own profile. The newspaper that printed the Pitchon of CBRE article should print a follow-up. Why don't you send a copy of this to CBRE as well?

[pkrv]

glyph, whether I care or not or whether I believe any data presented on this subject has nothing to do with you; so why bother making comments that add nothing to the discussion. Whether my involvement affects the Thai condo market or not has no relevance to this discussion either; but I will say that my recent sales at Address@Siam and Bann Klang Krung Siam Patumwan has set price standards at those two projects -- ask any real estate agent dealing in those projects, or the management office staff there.

steveromagnino, thanks for the very informative profile you presented. I'll bet no one at CBRE or any real estate agent has such a clear picture as you have presented here. I'm going to print your profile out and make it available to the agents I come in contact with, and the developer staff as well, and try to get them to confirm whether the overall picture you present is in line with their own profile. The newspaper that printed the Pitchon of CBRE article should print a follow-up. Why don't you send a copy of this to CBRE as well?

tangoll - I can say that steveromagnino has been a pretty consistant poster over the period I have been on thaivisa - his figures do IMO reflect what is happening. The secondary condominium market is now IMO something to look at.

[steveromagnino]

steveromagnino, thanks for the very informative profile you presented. I'll bet no one at CBRE or any real estate agent has such a clear picture as you have presented here.

tangoll - I can say that steveromagnino has been a pretty consistant poster over the period I have been on thaivisa - his figures do IMO reflect what is happening. The secondary condominium market is now IMO something to look at.

I am fairly sure CBRE know in even more detail about these numbers as any developer using them as a sale consultant would probably discuss the cost structure of their project; for instance the Met let's say (a random client of theirs). They would specifically consult CBRE as to whether it would be better to charge say 220k and have all Axor Grohe + Poggenpol + Gaggeneu +italian marble or 150k with Kotler + Starmark + Francke + homogeneous tile. And CBRE would discuss how to ramp up the prices from start to finish (because people always will pay more cet par when the building is near completion since the risk is lower plus the quality is more apparent than a piece of paper.

For whatever reason I suspect most property developers don't think that the market would accept that they are basically doubling their money (total project cost say 100m baht, the developer really needs to get 200m back), as i suspect the average buyer would feel that the developer should be doing the project for similar gains to what they seem themselves getting; say 10% p.a (i.e. project cost 100m baht, developer should be getting say 140m baht back over 3 years at 10% compounding). The investors get this, but the first time home buyer probably feels like 10%-15% is a fine return for a business, not understanding the massive risks and WACC (weighted average cost of capital) that the developer has to fund, and the cash negative position prior to settlement.

Most of what CBRE says is best taken somewhat with a grain of salt; actually I consider, despite being incredibly biased, that Riamon Land do a much better job of presenting the key market indicators. And nothing beats talking to the people higher up the supply chain - any architect, quantity surveyor or similar can pretty much describe the costs of things.

As for steel being up 60%, well it isn't just steel; pretty much every single material is up by on average something like 60%; the cost of piling, the cost of excavation, the cost of the building structure, the cost of lifts and services etc. It is partly because anything imported has risen massively thanks to the shipping costs; anything being built usually requires deisel directly or shipment of things to site.

Only guys like Ideo and LPN are somewhat immune because their build cycle is so short. It is all very well going to beat suppliers about the head to do the work more cheaply, and that's what K-Tech's customers now have to deal with; if the contractors are losing money they now are better to simply not do the work, which is what is happening. And for piling and structural work, if the main contractor walks away, a developer is simply not going to be able to find someone else to pick up the pieces.

[lardy]

Thank the lord I bought 4 units off LPN, bless em all and they do a good job mainetnenance wise too.

[tangoll]

I met and had a long discussion in Hong Kong with CBRE's top guy (David Simister) about 2 years ago, and while he can talk with seemingly great authority and supposed knowledge about the general trends of what's happening in CBD Bangkok, he certainly didn't give me any indication that his depth of knowledge of the building/construction aspect of Bangkok condos extended to anything like the segmentation or component cost of a square meter of condo space. In fact, he told me that I knew more about the ins and outs of buying condos in Bangkok -- import/export of funds, foreign exchange transaction certificates, taxes/fees of selling -- than most of his sales reps.

The sales reps from CBRE, Jones Lang, Hampton, and independents -- not one would have a clue about anything like this.

In fact, in one seminar on buying property in Thailand, more Phuket, Koh Samui than Bangkok, one farang lawyer from a firm in Phuket, said that it would take a week to get a Foreign Exchange Transaction Certificate, because the local bank had to get the form from the central Bank of Thailand. He didn't know what to say when I told him that I get my FETC at the Bangkok Bank on Silom Road, and it takes all of 45 minutes. Just an example of the real depth of knowledge about the nitty gritty of the property market.

Send your profile to CBRE/Bangkok Post, and I would venture to guess that in a couple of weeks, that same info will re-appear gussied up in CBRE's newsletter or a follow-up Bangkok Post article.

[steveromagnino]

I met and had a long discussion in Hong Kong with CBRE's top guy (David Simister) about 2 years ago, and while he can talk with seemingly great authority and supposed knowledge about the general trends of what's happening in CBD Bangkok, he certainly didn't give me any indication that his depth of knowledge of the building/construction aspect of Bangkok condos extended to anything like the segmentation or component cost of a square meter of condo space.

The architectural team and the MD of CBRE Thailand certainly know every in and out of cost and construction for Thailand. K Alissa for instance; I know them reasonably well and I doubt they would have much to disagree with in what i wrote; for whatever reason I don't think they believe that CBRE are interested in explaining this to the public for goodness knows what reason.

The CBRE big wigs out of HK are not particularly well informed and Thailand for them is a bit of a blip anyhow.... they know FA about Thailand IMHO - typical 'expert farangs' if you want to know talk to the Thai staff in mgt here, who are a bit better.

Most people when they talk to the press always think the public don't want numbers. No idea why they think that!

As for LPN.....awesome company - definitely they are one of the more insulated from this whole cost spiral because they carry less inventory; they really know their costs; they have a short cycle time and they don't carry as much debt as some of the others. I don't own their units....but I do own some shares. have you ever seen the queues they get when they open a new project? WOW

Edited July 22, 2008 by steveromagnino

[bkkjames]

"Most people when they talk to the press always think the public don't want numbers. No idea why they think that!"

There are a couple of good reasons for this.

A) As most are publicly listed, they need to be very careful when discussing forthcoming earnings / sales projections in public.

If the real numbers get out, it doesn't paint a pretty picture. Just read what comes out of the mouths of CEOs of major property players here - always the same - the market is still growing - only major property developers will flourish - we are insulated from the current financial situation because our buyers are wealthy.

Don't take my word for it, check out their stock prices on the SET. With interest rates and construction costs on the rise, the property market is in for a rough ride IMO.

[PattayaParent]

Estate agents generally don't know anything about constuction costs unless they are developing a project and even then they will ask a team of project managers and especially quantity surveyors whi will be able to give them detailed construction costs at a feasibility stage before even committiing to a project.

Estate agents are for selling the units and don't even have to be qualified or licenced to do so. (but some, few, are)

[henrytuttle]

I bought into a condo a couple of years back. A project called the Regent Residences on Sukhumvit Road near Ambassador hotel. I don't know what's happening with it. In theory, another company took it over and it will be completed at the end of 2009 (2 years late). However, it's been about a year since this happened and as far as I know, there's been no further construction.

I bought for about B11,700,000. I paid 25% down payment for it.

If it ever gets built, I'll be satisfied with it. It's a great location. I'm past the point of being concerned now. I just think of it as a bonus if I get my money back or the condo.

Anyone have any advice on what I should do further?

[quiksilva]

Estate agents generally don't know anything about constuction costs unless they are developing a project and even then they will ask a team of project managers and especially quantity surveyors whi will be able to give them detailed construction costs at a feasibility stage before even committiing to a project.

Estate agents are for selling the units and don't even have to be qualified or licenced to do so. (but some, few, are)

Actually whilst I agree that most of the sales staff rarely know the ins and outs of the actual costs of the project, the engaged estate agency firm usually does know these points and in fact are often are involved very early in the process, sometimes even before the design stage, and advise on sizing, pricing, choice of materials and just about everything (at least thats what our firm does).

Im not directly involved in that side of the business myself I cant quote the figures in detail off the top of my head, but the sales director can.

I will go along with 25-30k per sqm construction costs as Stevero mentioned. This high level breakdown is fine, but there should also be allowances for professional and legal fees, in addition to marketing.

I can see what you are doing with land, but making allowance for land over the entire sellable area in this context is inaccurate as FAR and OSR's vary according to location and building effficiencies depend on design.

But close enough for these discussions

[steveromagnino]

I bought into a condo a couple of years back. A project called the Regent Residences on Sukhumvit Road near Ambassador hotel. I don't know what's happening with it. In theory, another company took it over and it will be completed at the end of 2009 (2 years late). However, it's been about a year since this happened and as far as I know, there's been no further construction.

I bought for about B11,700,000. I paid 25% down payment for it.

If it ever gets built, I'll be satisfied with it. It's a great location. I'm past the point of being concerned now. I just think of it as a bonus if I get my money back or the condo.

Anyone have any advice on what I should do further?

Lehman bought it 2 years ago in a Grande Asset debt for equity for assets swap or something like that (cannot quite recall) along with Sails and Trendy, and have done nothing at all; supposedly they are giong to start again end of this year hopefully this was not a K-Tech project otherwise expect to wait forever.

11.7m in today's market is not much (I assume it is a 2 bed, largish size, something around 110 sqm) and by the time it gets completed, hopefully the building will not be too tainted and will get finished at an ok level of quality, with that location you should end up making a capital gain of at least 20% or so.

It was a mess as Grande Asset were a mess and Lehman have been completely slack for some reason....the sails is the scarier one as that exposed steel has been blasted with salty water for the last year and a half while construction has been completely stalled.

There is little chance of 2009 though, I'd guess 2011 more likely.

Hang in there, not much else you can do....check out whether K Tech are nivolved though; that would make it more like 2021

[bkkjames]

I bought into a condo a couple of years back. A project called the Regent Residences on Sukhumvit Road near Ambassador hotel. I don't know what's happening with it. In theory, another company took it over and it will be completed at the end of 2009 (2 years late). However, it's been about a year since this happened and as far as I know, there's been no further construction.

I bought for about B11,700,000. I paid 25% down payment for it.

If it ever gets built, I'll be satisfied with it. It's a great location. I'm past the point of being concerned now. I just think of it as a bonus if I get my money back or the condo.

Anyone have any advice on what I should do further?

Lehman bought it 2 years ago in a Grande Asset debt for equity for assets swap or something like that (cannot quite recall) along with Sails and Trendy, and have done nothing at all; supposedly they are giong to start again end of this year hopefully this was not a K-Tech project otherwise expect to wait forever.

11.7m in today's market is not much (I assume it is a 2 bed, largish size, something around 110 sqm) and by the time it gets completed, hopefully the building will not be too tainted and will get finished at an ok level of quality, with that location you should end up making a capital gain of at least 20% or so.

It was a mess as Grande Asset were a mess and Lehman have been completely slack for some reason....the sails is the scarier one as that exposed steel has been blasted with salty water for the last year and a half while construction has been completely stalled.

There is little chance of 2009 though, I'd guess 2011 more likely.

Hang in there, not much else you can do....check out whether K Tech are nivolved though; that would make it more like 2021

From my office, I can still see the KTECH sign on it, but haven't seen anyone working on that building in over a year.

[steveromagnino]

From my office, I can still see the KTECH sign on it, but haven't seen anyone working on that building in over a year.

Yeah, Lehman have not put any cash into their projects for a year or so, and 'claim' they will start work again late this year, but if their main contractor is K-Tech they might be a bit stuck.

[nothingleftbutfaith]

From my office, I can still see the KTECH sign on it, but haven't seen anyone working on that building in over a year.

Yeah, Lehman have not put any cash into their projects for a year or so, and 'claim' they will start work again late this year, but if their main contractor is K-Tech they might be a bit stuck.

What happened to Ktech ?

[bkkjames]

From my office, I can still see the KTECH sign on it, but haven't seen anyone working on that building in over a year.

Yeah, Lehman have not put any cash into their projects for a year or so, and 'claim' they will start work again late this year, but if their main contractor is K-Tech they might be a bit stuck.

What happened to Ktech ?

In RE-HAB on the stock exchange, shares no longer listed. Not sure why they ran into difficulties but willing to guess it had something to do with A) none payment from developers and or they negotiated to many fixed costs agreements with developers and when the price of construction materials skyrocketed, they were caught out.

Just looked again and I see a SYNTECH sign there as well but not a soul in sight.

[pedro01]

What I don't understand is who is buying these ridiculously priced condo's here ?

Many of them are small at less than 40sq metres. Others are crazily priced.

I live in Rajadamri - I can see about 10 condo buildings from where I live. In each building there are no more than 20% of the rooms with lights on at night & it's always the same rooms with lights on.

So - it appears to me that whilst people do seem to be buying these condo's, they are not living in them. I spoke to a real estate agent about this who said "it's an investment". I fail to see how a condo is an investment if it's on 30 year leased land & it's not rented out. Sure, the owner can tell themselves they have 12 million baht worth of property investment but what happens when they try to realise that investment.

Now - let's say that the Thai economy takes a downturn and these 'investors' try to sell their properties because they need cash. What is going to happen ?

[zorro1]

pedro1

Well one thing for sure, the BKK property market has outperformed Australia, USA and UK where property has plummeted by 30% and more so pedro1 where have you seen this happen in BKK or you just flappin your gums? Many properties off the the plan have more than doubled in the last 3 years here

[cclub75]

The only ways to play with the equation are:

- reduce lead time to launch/finish (which is how LPN and Ideo are able to run such lower costs)

- reduce spec

- find worse/inferior locations or use cheap land

- cut corners on suppliers (e.g. K Tech, and we know how that turns out)

You forgot one solution : walk away, don't build, scrap new projects.

It's one thing to compute costs/margins on the developpers side. But what about... the buyers side ?

They have to solve their own equation... and this equation can in some cases have one solution : insolvency. They just can't cope.

[quiksilva]

K Tech's involvement does not have to spell certain doom as projects like Interchange 21 prove, where the owners are paying the subbies directly to get their office building finished.

The most important factor for completion is the capability and financial position of the owner.

[pedro01]

pedro1

Well one thing for sure, the BKK property market has outperformed Australia, USA and UK where property has plummeted by 30% and more so pedro1 where have you seen this happen in BKK or you just flappin your gums? Many properties off the the plan have more than doubled in the last 3 years here

errr - seen what happening Zorro ?

I am merely stating that many Bangkok condo's are not being lived in. Real estate agents seem to agree with me on this.

Rents aren't keeping up with the purchase prices, so buy to let is not an intelligent proposition here.

I just wonder how long the property market can be sustained when it's not based on people actually living in the properties.