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Condominium prices to rise 8 to 10% this year

The Housing Business Association has predicted that residential and condominium prices will continue to grow this year despite the lowering oil prices and adverse political conditions.

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The Housing Business Association has predicted that residential and condominium prices will continue to grow this year despite the lowering oil prices and adverse political conditions.

Residential prices should grow by 3-5 percent while condominium prices should rise by 8-10 percent this year, according to the association.

The association said although the lowering oil prices should reduce costs of transportation of building materials, land prices and labour costs will still increase, prompting the residential and condominium prices to climb up further this year.

Land prices near BTS skytrain routes in particular should increase by 10-20 percent this year, it said.

Despite the political instability in the first half of this year, prices of the best downtown condominiums in Bangkok continue to rise. This year, five projects have achieved record prices of above 300,000 baht per square metre, triple the highest prices achieved more than 20 years ago in the 1990s, according to CBRE’s transaction records.

BOT’s preventive measures

The BOT has released new rules in response to public anxiety that Thailand faces the risk of another property bubble, particularly in the condominium sector.

for condominium units under THB 10 million (USD330,300), bank loans must be limited to 90% of a home’s value, from January 1 2011
low-rise housing loan-to-value (LTV) ratios are capped at 95%, starting January 1, 2012.
for larger loans, banks must increase risk weighting to between 75% and 100% of the loan value. At present, the risk weighting is set by the BOT for the property sector at 35%.

Risk weightings are used to calculate the minimum amount of capital required to support lending. The higher the risk, the greater capital is required by banks leading to increased overall costs in the form of higher interest rates.

Property bubble ?

In fact, a bubble is unlikely in the Thai property market as prices have risen naturally in the past three years, according to the Government Housing Bank (GHB), a state-owned lending agency. GHB’s president Khan Prachuabmoh insists that there is nothing unusual in the present situation, despite the substantial recent increases in low-end supply.

These price shifts were not achieved overnight, but have been part of a gradual progress over the years as the market developed. The initial round of increases occurred between 2002 and 2007, with property prices in Bangkok moving from 100,000 baht to 200,000 baht/m² over a five-year period. The second round from 200,000 baht to the current level of 300,000 baht and above has occurred over a seven-year period from 2007.

Real demand, not speculative demand, exists for low-rise housing below THB 3 million (USD99,100), which accounts for 70% of the market, according to Housing Business Association (HBA) president Issara Boonyong. The remaining 30% of demand comes from investors, who buy homes to generate rental income. The 23,000 registrations of new condo units in the first nine months of 2010, compares with 29,000 registrations of low-rise residences, adds Boony

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