Many of our discussions concerning the Bangkok property market with clients and stakeholders involve keeping the circumstances surrounding the 1997 Asian Financial Crisis in the limelight, particularly when it comes to insight on the condominium market. This market has been red hot until recently and has led some to make comparisons to the rapid price increases and supply build-up experienced in the early to mid-1990s (see our earlier blog). Much of the boom in the early 1990s was fueled by easy credit, both from an institutional / project development standpoint and from the occupier’s perspective. This easy money fueled not only the property boom, but also the rate of inflation, which increased by an average of 5-6% per annum between 1990 and 1997 whereas more recently, the average annual increase has been in the 3% range at the same time lenders have tightened restrictions for both consumers and developers.

Controlling for inflation allows us to look at the “real” cost of real estate over time (see our blog for some of our previous thoughts on inflation).

The inflation-adjusted index shown in Figure 1 provides interesting insights that would not be captured by nominal time-series analyses. For example, while monthly gross rents in the office market are at all time-highs in nominal terms, in real terms, market-wide average rents are well below 1997 levels and still below the most recent peak in 2006. Similarly, while Prime Grade rents in Bangkok’s Central Business Areas (CBA) have increased dramatically over the last two years in nominal terms, they are still below 1997 levels and well below the most recent peak in 2006 when adjusting for inflation while real monthly gross rents in the retail sector have remained almost constant since 2008 and are holding steady well below 1997 levels.

Figure 1: Inflation-adjusted Rental Values and Selling Prices in the Bangkok Real Estate Market, 1997 – 2013

Source: JLL, Oxford Economics

On the other hand, inflation-adjusted prices of condominiums, both market-wide and in the CBA, have risen sharply since the market began to rebound in 2002 and are well above 1997 levels. While real condo prices in the CBA continue to rise, largely owing to the high and growing costs of increasingly scarce raw freehold land, market-wide real prices have flattened out and are largely unchanged since 2009 as the vast majority of the new supply in recent years has been offered at the lower-end of the price spectrum and primarily in suburban and exurban locations.

The insights we’ve gained through this exercise are deserving of further consideration and we’ll make sure to blog about it once we’ve taken a deep dive.

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