« Industry’s Quick Overview | Home | No witch-hunt, says Lands Department »
Everyone wants a bargain
By admin | June 5, 2009
Source - Bangkok Post
May 29, 2009
By Nina Suebsukcharoen
In today’s buyers’ and tenants’ market, companies push for lower rents and condo buyers snap up dwindling supply.
The fallout from the global economic crisis and local political strife is being felt in both the office and residential real estate markets. Struggling companies are pushing for reduced rents,while the supply of residential units fell by as much as 30% in the first quarter,says Apisit Limlomwongse, managing director of Nexus Property Consultants.
The first quarter was marked by a rise in renegotiations to reduce office rents by 10-15% as companies struggled to preserve their bottom lines during the downturn.
One win-win deal for both parties is to reduce rents over the next 12 months,gradually increasing them to their previous levels in the second and third years of the usual three-year contract term,said Mr Apisit.
“There is a definite reduction in demand and landlords should realise they have to cope with this.”
So far, companies have not tried to cut costs by moving to cheaper buildings as they did during the 1997 Asian financial crisis, he said. Back then there was a gap of almost 50% between rents in Grade A and Grade B buildings, from 500-900 baht per square metre to around 400-500.
Today’s rents do not differ substantially for buildings in the same zone regardless of grade. Only those companies shifting completely out of the central business district (CBD) are able to make meaningful savings.
But if the situation deteriorates further by the year’s end a number of firms will be forced to downsize.
Mr Apisit also cautions that the full extent of the impact of the global economic slump on the Thai and Asian economies has yet to be seen, as the region initially seemed to bear the brunt better than the West.
“Many companies we talk to say Europe and America might be looking bad, but Asia’s office rental market is still strong. There is still growth here,but it is uncertain whether earnings here can offset losses there.”
Although office rents are sliding, he said the sector’s fundamentals remain sound, because there is minimal new supply in the pipeline while comfortable occupancy rates of about 90% have been achieved over the past few years.
Research by Nexus shows the supply of new residential condominium units fell by as much as 30% in the first quarter.This decreased from about 30,000 units in 2007 to about 20,000 units in 2008.This year’s new supply is expected to be around 14,000 units.”This figure is quite good because it will help demand catch up somewhat. More than this would be detrimental because buyer sentiment is not that good.”
While there is hope for a turnaround in 2010, the market still has to navigate troubled waters this year to overcome the first quarter’s drop in condo sales.
Current buyers are mainly end-users who are only buying units in projects they are certain will be completed within the next 12 months. Investors have almost disappeared from the scene.
One-bedroom units of 40-50 square metres costing around 70,000 to 80,000 baht per square metre, or a total of 3-4 million baht, are the most popular. Another group of buyers that is emerging are people who are buying to occupy in the short term with aim of renting out their properties in the medium to long term. They are mostly buying units in buildings that are completed, or are close to completion, said Mr Apisit.
The resale market is less affected than the primary one because most people in this segment are buying to occupy and generally plan to move in within three months to one year. There are a lot of products available for resale and it is now easier for owners to sell property via the internet, he said.
Some foreign investors have panicked and are trying to cash out, but there is another group of professional investors who are picking up the units being sold cheaply.
“It’s similar to the stock market -when it dips there is one group selling and another buying,” he said.
Buyers can work out if a condominium’s price is cheap by assessing its gross rental yield - a percentage of the annual rent divided by the cost of the property. The current market average is 6%. If the buyer can get 8% then it can be considered to be a good deal, said Mr Apisit.
Some developers are unlikely to complete their projects given the current shaky market conditions, he said.
However, construction quality should be less of a concern because of the lower cost of raw materials such as steel. It is also much easier to negotiate with contractors due to the limited demand in the market.
Condominium developers have, in recent years, mostly built projects along the skytrain and subway lines. Singledetached-house (SDH) estates prioritise being near developed communities with good facilities, such as hospitals and shopping malls.
Mr Apisit said estates with houses priced from 4-6 million baht that are within 15-20 kilometres of the city centre are selling the best. Demand for houses has revived as oil prices have eased, as commuting costs are a major factor in home buyers’ decisions.
Comments are closed.