With a strong domestic economy, low interest rates, abundant liquidity in the capital market and a robust condominium sector, a question increasingly being asked in Bangkok, “Are we experiencing a real estate bubble?” To begin answering this question, we must first take note of the way certain sectors are described and the type(s) of data that are commonly used in carrying out such an analysis. The “bubble” discussion invariably focuses on Bangkok’s condominium market, where new supply has been continually introduced and/or completed. However, even when talking about this particular real estate type, the data employed can be unclear and sometimes irrelevant.

One key concern is rapidly rising prices, often quoted as increasing by 5-10% per annum over the last few years. These discussions tend to commoditise condominium units as if they are all the same product, in identical locations and abundantly liquid. The reality is that residential units are all unique and it is very difficult to make an “apples to apples” comparison of units within the same building, let alone in different projects across the same city and even less between cities of different countries.

Data from Jones Lang LaSalle, which tracks a basket of condominium units, shows that there has been very little change in the capital value of residential properties in central Bangkok over the past five years. Among the reasons for this, the secondary (resale) market is not as liquid as the market for new condominium projects; local buyer preference is skewed towards the latter. Older buildings also tend to be less well-maintained and so new capital is often required to renovate common areas. Thirdly, the resale of a unit will often require some new capital investment for general improvement, fit-out and decoration, as styles change or simply just due to regular wear and tear. These fit-out costs can represent a significant proportion of the value of the individual condominium units.

So where do the dramatic price increases come from? Based on also tracking the selling prices of new projects being launched, the biggest reason for the perceived price hike comes from the change in the quality of housing offered and the rising cost of construction. Private housing has evolved and some units now come fully furnished as compared with bare-shell in the past. Additionally, the development of new mass transit infrastructure has improved the overall attractiveness of various sub-markets, which allows for higher pricing. Finally, the price increase that individuals refer to may represent the difference between the price at the time of booking off-plan and the price years later when the building completes.

While many interrelated factors must come together to drive real estate bubbles, inflated prices are often cited as a key driver. For Bangkok, the evidence so far does not show real price inflation of condominium units in general, but is an indicator that the industry, policymakers and other stakeholders will continue to need to watch.

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