City of angels goes from rags to
riches By David Fullbrook
BANGKOK - A bubble fit for bursting in the
luxury-condominium market and rising construction costs
are casting a shadow over Bangkok's hot property sector.
Despite the frowns and jitters, however, a 1997-style
meltdown is unlikely, not least because of structural
changes and demographics. Sales will pick up pace when
confidence returns to the stock market and major
projects, possibly accompanied by better zoning and more
mass transit, redefine the city over the next few years.
After strong sales in 2003 that helped drive
condo and land prices above pre-1997-crash peaks, 2004
was bound to be more difficult, with a rash of
speculative high-end condo projects and a sharp by
stocks. Sentiment is down, but not out.
"I don't
see another big push this year," says Jim Chang, senior
executive vice president of City Realty, one of
Bangkok's biggest developers. "Good projects will still
sell, but at a slower pace. I think the correction is
bringing a more realistic mood."
It's costs, not
demand, that are hurting. World prices, plus large
infrastructure projects - such as Suvarnabhumi
International Airport, Bangkok's new airport terminal -
supply bottlenecks and a little hoarding pushes prices
up. "The costs of developing [and] land prices have
increased by 40-50% over the last two years," says
Arthur Napolitano, managing director of Kudu Thailand,
which builds contemporary urban housing with an Oriental
twist.
Chang says, "Right now if you are still
planning, people may not want to build for you,
especially if it's a fixed-price materials contract - it
loses its sexiness."
But overall the
fundamentals are firm, as the strong economy encourages
people to go shopping, busy exporters expand their
offices and historically low interest rates and bigger
mortgages fuel house-buying. Long-term pre-arranged
mortgages requiring smaller deposits have fundamentally
changed the market, eliminating much of the risk,
bringing it closer to that seen in such developed cities
as Hong Kong and London.
After three stagnant
years, Bangkok's property market started to rouse back
in 2000. Momentum picked up as banks shifted bad loans,
developers came off life-support and the economy gobbled
a few Viagras.
"We feel that we are three and a
half to four years into a property recovery that began
with housing, then downtown condos, followed by retail
and offices. In some sectors, developers have responded
quickly, such as housing and condos, but less so in
retail and especially offices," says surveyor James
Pitchon, CB Richard Ellis Thailand's executive director.
New zoning laws due in July should improve the
development process, perhaps even heralding a more
orderly, more livable, less ugly Bangkok. However, some
developers are pushing hard to dilute or delay
implementation as the regulations could adversely affect
their land and project values.
"If the
government's proposed zoning amendments are not
implemented in a timely fashion, it would have a
negative impact on investor's sentiment, both foreign
and local," says Liakat Dhanji, chief executive officer
of Golden Land, a developer of condos and offices that
will start work on some of Bangkok's prime sites over
the next two years.
Speculators, already
squeezed by tougher financing regulations since 1997,
are not beaming over the prospect of zoning. "It's
positive in that newcomers will be less courageous and
speculators less interested, so you end up with mainly
real demand and real supply," says Charn Srivikorn,
chairman of GS Property, whose properties include
Gaysorn Plaza, a luxury mall, and Domus, an attempt to
redefine the condo market.
As demographics and
economic growth pressure the city, zoning becomes more
crucial than ever. "A lot of people don't understand the
underlying consumer fundamentals. One is 80% of
businesses are SMEs [small or medium enterprises]. Less
than 1% of Thais have ever invested in the stock market.
Thailand has one of the highest savings rates in the
world. And I would say most of that was in banks," says
Dhanji.
Those underlying fundamentals will stoke
demand sooner rather than later. Stocks, a sentiment
barometer, will return to vogue given negligible returns
on savings, unless interest rates rise sharply, which
looks unlikely right now in Thailand. "Thai buying slows
down when the stock market slows down. We see it coming
back at the end of the year," says David Nardone,
president of Hemaraj Land, which is moving from
industrial estates to high-style condos, starting with
The Park, arguably Bangkok's most luxurious condominium.
Mass-transit lines running 240 kilometers are
another primer. Bangkok's first subway opens in July. By
2010 three more lines should be running. Next year the
first Skytrain extension opens, taking mass transit
across the Chao Phraya River. More extensions will open
in 2006.
Meanwhile, the State Railway is working
on signaling for frequent commuter services after laying
extra tracks along 60km of intercity routes through
Bangkok from Hualamphong Station. "People want to live
next to expressways and mass-transit systems. They will
determine development corridors in the future," says
Pitchon.
Next year will see much new gloss, with
makeovers for the Pathumwan and Ratchaprasong shopping
districts along with Siam Paragon, a mammoth mall
targeting Asia's luxury shoppers. A huge site, covering
120 rai (19.2 hectares), out to tender on the old
Cadet School, near Lumpini Park, has major implications.
"If it's done correctly, that could be the next city
center," says Dhanji.
However, significant
office developments matching benchmark-setting All
Seasons Place are unlikely without rents rising another
50-60%. "The problem here is the rents are some of the
lowest in the world," says Nardone.
It may be
another few years before rents reach much higher levels,
even though offices are filling up. Work has resumed on
a few office towers abandoned during the crisis, but no
new projects have started since then.
Slow
policy implementation or a failure of imagination may
continue to leave Bangkok's potential unrealized,
however. "It really depends on the government's
strategy. If the fashion city and the
shopping-destination policies are good, the retail will
boom, the office will come back, the residential will
grow, the stock market will rise. It's a one-click
policy," says Supaluck Umpujh, senior executive vice
president of The Mall Group, co-developer of Paragon and
owner of Emporium, Bangkok's premier mall.
Bangkok is still an emerging city. Beyond
Rattanakosin Island, the heart of old Bangkok, much of
the city was orchards and paddy fields until the early
1970s. "If you look at mature markets like London,
Bangkok has a lot of potential - it's only just
developing," says Napolitano.
Most of its ugly,
utilitarian shophouses are little more than temporary
buildings put up quickly by small-time landowners
looking to make a quick baht a few decades ago. They
come down faster than it takes to boil tom yam,
as some sites now being redeveloped along Sukhumvit and
Rama I, prime roads in central Bangkok, show. This
welcome trend can only gather pace. Bangkok is a
Cinderella city. It may just now be on the verge of
tossing out its wardrobe of rags for a collection of
elegantly cut, sequined ball gowns.
(Copyright
2004 Asia Times Online, Ltd. All rights reserved. Please
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