Bangkok struggles with problematic residential supply glut

The unsold rate already hit 4.85% in Q4 2020.

New condo completions continued to outpace demand, causing the market unsold rate to increase to 4.85% in 4Q20, according to JLL. Around 1,850 units (or 95%) of the quarterly net absorption were units pre-sold between 2017 and early 2018 when demand for new off-plan units was still high; only 100 units (or 5%) were actual new sales made in the quarter.

Both buy-to-let condominiums and single-owner multi-family apartments struggled to fill their vacant units, especially with an extremely limited number of new expatriates entering the country due to COVID-19. Income uncertainty among white-collar workers and employment instability remain key obstacles hindering the recovery of the rental market in the CBA.

Oversupply issues deepen the severity of the downturn

Nearly 2,500 prime grade condominium units completed in 4Q20, driving the total stock to just over 66,000 units. Developers continued to take self-correcting measures and refrained from flooding the market with new project launches. Only one project with 187 units launched in 4Q20 after a six-month period with no new launches.

There have not been any new completions in the single-owner multi-family apartment segment in the past two years. The supply pool has remained limited with only 4,600 existing units across the market. Despite the limited supply, the vacancy rate increased to 9.4% as the pool of expatriate renters has shrunk.

Discounts in first-hand units limit capital value growth

Condominium capital values increased marginally as a result of the inflated underlying investment cost in newly completed projects. Developers also continued to offer 20-30% discounts on current unsold inventory in completed projects which further hinders any substantial price growth at this time. Capital values stood at THB 127,055 per sqm as of end-2020.

Condominium net effective rents dropped to THB 487 per sqm per month as more buy-to-let units became vacant amidst the on-going pandemic. Apartment net effective rents, on the other hand, improved slighly to THB 297 per sqm per month as many units that underwent major renovations have re-entered the market and landlords are increasing their rental rates accordingly.

Outlook: Developers remain wary of oversupply

Many developers postponed their new launches to the later half of 2021 when they expect to see some improvements in the overall market sentiment as more foreign buyers are expected to be able to enter the country. Individual investment buyers or institutional buyers who look for en-bloc sales will continue to negotiate for steep discounts on existing unsold inventory.

We expect to see more collaborations between the private and the public sectors in trying to stimulate new sales and attract foreign demand. One of the policies is set to offer a 5-year long-stay visa to foreign buyers who purchase a unit priced over THB 10 million (approximately USD 300,000).

Note: Bangkok Residential refers to Bangkok's high-end and luxury residential market.