Published on May 30, 2005

When Raimon Land’s chief executive Nigel J Cornick last year warned that the company’s residential firm was avoiding investing in the speculative bubble forming along Sukhumvit Road, he had a bad feeling many projects there wouldn’t get built.

A year after his prediction, the chickens have come home to roost.

Over the weekend, one Sukhumvit project was offering a 50-per-cent discount on its units. Many other projects are stalled and marketing movements have slowed at a number of sites.

In his real estate report last week on the local condominium market, Cornick expressed some optimism that less speculative projects with locations that did not face an over-supply were better poised to find buyers.

“We are beginning to see a slowdown in new projects launched as developers are concerned about the effects of rising development and construction costs,” he said. “The developers are focussing, instead, on making sales at existing projects.”

Last year, 42 projects were launched offering 7,428 units. Nearly 3,000 of these units, or 42 per cent of the supply, were located in Sukhumvit.

In the first quarter of this year, however, only five new projects were launched. These projects offered just 950 units.

The drop is most pronounced in the Sukhumvit zone, where less than 250 new units were launched in the past quarter.

“Construction has slowed at many projects,” said Raimon Land’s report, “creating doubts as to whether such projects will be completed.”

At the same time, Raimon saw a shift in locations of new projects, to new areas that are being connected to mass transit lines.

Some developers in Sukhumvit are doing better than others, only because of superior locations and competitive prices.

But those that had marked up to extremely lofty levels and are located in chronically traffic-snarled areas are finding it harder to offload units.

Cornick said the inflationary trends for real estate has also been tough on builders.

“Higher cost has forced prices up by Bt72,000 a square metre on average for Grade-A units,” he said.

Meanwhile there is also a surge in new supply coming in the Ratchadaphisek area this quarter. Almost 3,000 units will be offered in this zone later this year. These apartments will have plenty of smaller studio units selling for under Bt1 million. They are being launched soon and their developers are targeting the lower middle-income segment.

“For the Ratchadaphisek area, developers cannot charge more than Bt40,000 a square

metre because the population there are mostly fixed income and they cannot support high-priced homes,” said one builder in the area.

“One project last year tried to sell units at Bt50,000,” he said, “but soon discovered no one was booking them.”

At the same time Raimon Land remains optimistic that quality homes at reasonable prices will find purchasers.

After sounding the alarm on Sukhumvit last year, the company developed sites outside of Bangkok, such as Pattaya and Phuket. Both areas have found lucrative niche markets.

But the company is now poised to return to tap the Bangkok front later this year. After riding out a rough patch and as “get-rich-quick operators” fall by the wayside, the real

estate market should favour more balanced and sound players.

“There’s still a healthy demand for homes, but less so in the luxury end,” said a mid-income housing developer. “But competition should intensify as there are now many players.”

Itthi C Tan

The Nation

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