The impact of political protests on condominium market in the capital

Economy January 17, 2014 00:00

By Aliwassa Pathnadabutr

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I wrote this article on January 13, the day set for the so-called "Bangkok shutdown" called by the People's Democratic Reform Committee.

As the demonstrations go on, we cannot deny that the shutdown will have an impact on each property sector at different levels. The most obvious blow fell on the hotel industry, which has begun to see cancellations in bookings.
While Thai and foreign investors have slowed purchases in the Bangkok condominium sector, there continues to be demand from the end-user market, but at a slower pace. Foreign investors account for less than 20 per cent of purchasers in the Bangkok downtown condominium market.
As the situation is very unpredictable, many investors are uncertain and have adopted a “wait and see” approach. Thailand has experienced a number of internal and external crises over the last two decades, and CBRE would like to draw your attention to the historical average prices of completed high-end condominiums in Bangkok’s downtown areas against each major crisis the country has undergone.
The sharpest downturn, where property prices dropped significantly, was right after 1997, when Thailand’s economy was severely affected and the property bubble burst. In the downtown area, prices in the high-end market dropped on average less than 20 per cent but within two years rebounded and, after the full recovery of the market in 2002, even increased to levels higher than before the crisis. 
Since the new cycle started, the average price of completed high-end downtown condominiums has grown steadily and we have not seen a decline in average value despite the global financial crisis in 2008-2009, internal political unrest in 2010, and flooding in 2011. This proves the strength of the market fundamentals and the balance of supply and demand.
Today, I believe investors are more cautious and are concerned about the market situation, as there were questions about possible oversupply of condominiums in certain market segments and locations prior to the protests. It is ironic that the crises of the last few years have naturally decelerated the rate of new supply of condominiums without the government needing to impose strict measures to control the market from overheating.
Long-term investors can consider buying good-quality projects in good prime downtown Bangkok locations in the current market, or buying good-quality projects in the less-affected markets in major resort and tourist locations such as Pattaya and Phuket.
This year will be a year of consolidation for developers. No major growth is expected in the condominium market but hopefully, in the coming years, with potential growth arising from the commencement of the Asean Economic Community, continued domestic demand, and an improving political climate, the condominium market could regain positive growth – especially in downtown Bangkok, where the supply of land is limited.