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Thailand likely to see surge in demand for condos following flooding

Urban development regulations need to be finalised soon to avoid damage to the city’s real estate sector as planning has not been carried out properly in the city when compared with other global cities such as London, Singapore and Sydney, they point out.

The main impact is likely to be an increased demand for condominiums and for property in areas not affected by the flooding.

Although Bangkok was established as Thailand’s capital in 1782 its evolution into a modern metropolis has been relatively recent, dating back to around 1960. Covering approximately 1,570 square kilometres today, Bangkok has grown dramatically from a small city with a population under two million to a metropolis of more than 10 million.

There is a lack of balance between the city’s growth against development of mass transport and environmental quality, according to Aliwassa Pathnadabutr, managing director of CBRE Thailand.
One of the most contentious issues in the Bangkok property market recently has been city planning regulations. The latest regulations expired in May and have been extended for an additional year, while the new draft regulations are at the public hearing stage and not yet definite.

‘The new draft raises many questions and uncertainty in the property sector, and will certainly have many short and long term implications for the market, both positive and negative,’ said Pathnadabutr.

‘From my study of the draft regulations, the aim is to maintain the high density areas in the city centre and in areas identified as commercial zones, but to lower the density in smaller roads and in both commercial and residential zones,’ she explained.

‘The new regulations involve changes in several areas including minor changes in zoning and the reduction of the floor area ratio (FAR) in selected areas, mostly residential, but with allowances for higher FARs near mass transit stations to maximise the use of these systems. There are also minor changes regarding environmental issues, such as allowing a higher FAR for developments with more public space, car parking space, or those with more energy-saving features,’ she added

The key changes that underpin the draft regulation involve land usage and restrictions on built area based on road widths, with the overall aim of achieving lower density along smaller roads and in residential zones. Road width requirements have changed significantly for large high rise buildings exceeding 10,000 square metres, from the current requirement of 10 meters in width to between 16 and 30 meters, depending on the zone. Building heights will also be more restricted where the road access is smaller.

‘In the immediate term, the draft regulations have raised concerns for developers and landlords holding land banks in areas affected by the rules. They face uncertainty about what can or cannot be built in the future, which is resulting in a panic rush by developers to plan, design and obtain construction permits before the new regulations come into effect,’ said Pathnadabutr.

‘As a result, we may see a surge in new supply that is rushed to market, where the projects are designed based on current demand ad maximising land use, rather than planning based on future market needs. This could result in undesirable products that will face slow sales and subpar achieved prices.

‘Stricter regulations also mean a potential loss inland value. Land prices are most likely to decline in specific areas where less can be built based on new road width requirements. This will negatively affect landlords and developers who have acquired sites based on current regulations. The uncertainty could also result in a slowdown in land transactions in areas affected by the draft regulations,’ she explained.

‘While land prices for areas affected by the regulations are likely to fall, land located on roads that are more than 16 meters wide and main roads in the city centre and suburban areas near mass-transit stations is likely to increase in price. This means future prices of buildings along these areas are likely to be pushed up in line with increased land prices. Existing large scale high rise buildings are also likely to increase in value, but this will vary depending on the building design, condition and upkeep,’ she said, adding that in the long term, a decline in prices in some areas could make property more affordable, benefiting middle level income earners.

Another positive impact that will come as a result of stricter regulations is a controlled supply of new condominiums and offices in central Bangkok. ‘Although this may sound negative to the market, restrictions on future supply should reduce the risk of overbuilding and a bubble,’ said Pathnadabutr.

‘Urban planning is a controversial issue and we need a city planning strategy that best promotes a high overall standard of living and environmental quality,’ she added.

The condominium market has been curtailed but experts foresee a strong comeback once the floods have receded and the government’s policies are properly in place.

‘We are seeing an increase in the number of high rise permits being lodged as developers prepare for increased demand,’ said Tony Picon, associate director of Research at Colliers International Thailand.
He believes that he market could experience a significant comeback in terms of new condominium launches in the first quarter of next year as a result of backlog and a wait and see attitude.

‘Buyers are waiting to see the full picture emerge before steeping in and developers are taking note and delaying launches,’ he added.