In the wake of political unrest that began in November 2013, street protests and the blockade and effective shutdown of key government organisations have combined to put a severe damper on investment and international tourism. As both consumer and business sentiment continue to decline from recent peaks in 2Q13, domestic and foreign analysts have revised downward their economic outlook for 2014.

With growth in all of Bangkok’s real estate sectors being positively correlated with national GDP dynamics, the increasingly negative economic outlook presents us with storm clouds rapidly approaching from the horizon. Of the three key sectors that we track, Condo market dynamics are the most closely tied to the overall economy as illustrated in Figure 1.

Figure 1: New Condo Launches and GDP Dynamics in Bangkok, 1Q07 – 4Q13

Source : JLL Research and the National Economic and Social Development Board (NESDB)

With more than 120,000 units expected to complete in the next three years, representing nearly half of the current supply, many developers announced intentions late in 2013 to shift their focus towards provincial markets and lower-risk alternatives in Bangkok such as detached housing in order to avoid potential oversupply.

Coupled with the aforementioned political uncertainty, we believe that the changing developer focus provides a potential silver lining in the form of:

• Increased bargaining power for condo buyers
• Developers’ ability to acquire new land at more affordable prices, and
• Decreased concern over the existence of a condo bubble, leading to increased medium-term confidence on the part of consumers and developers

The large amount of supply in the pipeline is providing buyers with additional bargaining power through an increasing variety of choices while developers are beginning to offer discounted prices bundled with promotion packages and attractive term-payment offerings.

With many developers adopting a ‘wait and see’ approach, we expect that the number of new projects launched in 2014 will be considerably lower than 2013’s record of more than 67,000 units while at the same time, land purchase decisions for new projects will be delayed. As a result, we believe that (annual) land price increases will be subdued throughout the year, not approaching the 20-100% annual increases seen in recent years. This overall slow-down creates an opportunity for those who are less risk-averse and/or those with a large amount of cash on hand to acquire land at a reasonable price.

In addition, the uncertain political and economic climate should temporarily remove many speculators from the market, leaving the market with more real demand from owner-occupiers and investors seeking to rent units to the expat market. We believe that fears persisting throughout 2013 of a condo bubble, which we wrote about back in June will lessen throughout 2014 as market-wide average land prices cool and average condo prices stagnate. The only notable exception is for areas in Central Bangkok (such as Sathorn, Ploenchit, Rama I, Ratchadamri, and Wireless Road), which are all considered very prime locations where freehold land is in extremely short supply.

In light of the silver lining described above, we believe that Bangkok’s condo market will remain resilient, if not robust in 2014, though it should almost certainly fall short of the many records set in 2013.

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