Inflation and the cost of owning Bangkok real estate
November 16, 2012 / By Dan Tantisunthorn![](https://jllap.wpenginepowered.com/wp-content/uploads/2012/11/Inflation-And-The-Cost-Of-Owning-Bangkok-Real-Estate-e1423539924798.jpg)
For many years, the common area management (CAM) fees in the condominium building in which I live have continued to rise. Although many developers will underestimate the costs required to properly manage a building prior to completion, the CAM fees in my own building have risen by 2.8% on a compounded basis over the past 14 years since its completion in 1997. Compare this to the consumer inflation rate of only 2.4%. With the domestic economy continuing to be robust, the pipeline of new real estate supply continuing to be high and wages, as well as other expenses, continuing to face upward pressure, I would not be surprised to face another request from our management committee to increase fees yet again. As Bangkok has undergone a new wave of urbanisation and the economy has continued to thrive, both commercial and residential owners and co-owners around the city are facing the inevitable burden of higher management and running costs for all real estate assets.
The main challenge for property management companies has been to keep costs down even as demand for their services has continued to expand rapidly. Bangkok’s real estate markets showed the first substantive signs of recovery in 2003 and 2004, as commercial real estate rents began rising and new residential projects were launched. Renewed private investment and economic growth saw demand for office space rising, and 41 buildings and roughly 1.2 million sqm of space were added since 2000. Most significantly, urbanisation, rising incomes, changing demographics and the adoption of mass transit helped spur development of new high density residential with 158 buildings comprising nearly 160,000 new units over the past twelve years. Meanwhile, a robust tourism and hospitality industry has boosted the need for hotel rooms, with 157 hotels offering over 15,000 rooms developed during the same time. The changing shape of the city and the way people work and live, have changed consumption patterns with a corresponding boom in retail development. Over the past decade, some 144 retail projects and over 3.9 million sqm of retail space have been added.
All this happened as service industries, such as in finance, banking, law, advertising, media and technology have continued to rapidly expand, further boosting demand for service professionals. A government-led rise in the minimum wage has only served to propel the growth momentum in service wages. Recruiting and securing experienced and qualified technicians, engineers, building managers and even security guards in Bangkok are extremely competitive. Meanwhile, utility costs stand well above levels seen in years past. Furthermore, last year’s floods have pushed insurance premiums up as much as 150%. At the same time, owners and landlords continue to press for lower property management costs. An increasingly securitised real estate market (e.g., via property funds) sees financial managers focused on the bottom line and minimising costs. Individual condo owners who rent out their units are reluctant to see higher proportions of their rental income going to CAM fees. Inevitably, investors will need to accept lower income returns and homeowners higher costs in order to maintain and preserve the value of their real estate assets.
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