Why are Bangkok’s condominiums shrinking?August 26, 2015 / By
From Singapore to San Francisco, “micro” dwelling units are becoming an increasingly popular choice for developers and consumers. While there is no precise definition of what a “micro” dwelling unit is, it is generally accepted to mean residential units ranging in size between 21 and 35 square metres. The underlying demand drivers for such miniscule units differ among cities. They include changing lifestyle preferences, limited supply of developable land, rapidly rising housing prices, and rigid planning regulations restricting development.
In Bangkok, the minimum legal size for a condominium (strata title) unit is 21 square metres. While the average condominium unit size in the city has been steadily declining, only recently have developers begun to approach the legal minimum. To the outside observer, this phenomenon may seem strange. Bangkok is flat and sprawling like Los Angeles, with no major topographic barriers and has some of the most flexible planning regulations in the world. So why are micro units springing up like wildfire?
First, lifestyle preferences amongst the Bangkok metropolitan region’s 15+ million people have rapidly changed in recent years. More young adults, including singles and couples, seek to live independently, creating demand for smaller living spaces.
Second, Bangkok has been a net benefactor of rural to urban migration for decades. Urbanisation dynamics across the country in recent years have put pressure on the residential market. Nearly half of the Bangkok metropolitan’s 4.5 million new residents in 2000-2010 migrated from other parts of Thailand.
Third, urban residents continue to exhibit a growing desire for transit-adjacent developments, which offer increasing levels of convenience brought about by the expansion of the city’s mass rapid transit network – BTS skytrain, MRT underground and Airport Rail Link.
Fourth, as land acquisition costs rise rapidly, especially those nearer to transit stations, reducing unit sizes allows developers to retain key target market price points of THB 1 million – THB 2.99 million.
As one might expect, the highest priced micro units are located in very desirable parts of central Bangkok. Demand for micro units has been strong across all of Bangkok’s submarkets, with micro unit prices rising by 3.1% p.a. (5 year CAGR) relative to the 1.0% p.a. for the market as a whole.
We believe that average unit sizes should continue declining, particularly in mass market segments as land prices continue to rise. At the top end, recently launched projects with micro units at higher prices may suffer from a lack of end-user demand upon completion. The reasoning is that the minimum unit prices in these projects are in the THB 8-9 million range, a price point that affords a buyer significantly more space in similar locations in slightly older projects, which we expect attract more end-users, leaving high-priced micro units to the speculator market.
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