Developers should be wary of low-cost condo segment

Supply glut in Greater Bangkok

Developers should exercise caution when launching new condos and townhouses priced less than 2 million baht in Greater Bangkok as a substantial inventory of unsold units might result in increased competition, potentially leading to discounted prices.

Vichai Viratkapan, acting director-general of the Real Estate Information Center (REIC), said the condo and townhouse market for units priced less than 2 million baht slowed in the third quarter as new supply mushroomed.

“Investing in this segment should be approached with caution as the number of units sold was lower than the number of new units launched,” he said.

“Another worrying segment is condos priced between 2 and 3 million baht as the remaining units rose by 20%.”

Though there were transactions in these two segments for people who plan to live in them, the majority were rental buyers, as many of those buying for a residence faced difficulty borrowing based on lower purchasing power, said Mr Vichai.

“Many projects had a good sales rate in the first phase as the units were snatched quickly by investors. But the unattractive units were left unsold, such as those near garbage rooms or with a poor view,” he said.

When construction is completed, this inventory will lead to holding costs for developers, including common area expenses and property taxes if they are held for three years or longer, said Mr Vichai.

Moreover, units might be returned by customers unable to secure mortgages, while new buyers typically prefer selecting units in new projects rather than older ones, he said.

“To avoid incurring holding costs, developers often provide discounts for these units,” he said. “For other developers looking at this segment, monitoring the remaining supply is more important than focusing on absorption rates.”

REIC revealed the top five locations where developers should take a cautious approach because of the large number of unsold condo units in the third quarter of 2023.

First was Huai Khwang-Chatuchak-Din Daeng with 10,144 units worth 42.7 billion baht, followed by Phra Khanong-Bang Na-Suan Luang-Prawet (8,349 units worth 24.3 billion) and Thon Buri-Klong San-Bangkok Noi-Bangkok Yai-Bang Phlat (7,633 units worth 23.3 billion).

Fourth was Muang Nonthaburi-Pak Kret with 7,182 units worth 18.1 billion baht, followed by Lat Phrao-Wang Thonglang-Bang Kapi (4,978 units worth 15.7 billion).

According to REIC, the number of residential units offered for sale in Greater Bangkok rose by 3.5% year-on-year to 213,282 units worth 1.11 trillion baht in the third quarter.

The number of new supply dropped by 12.2% to 20,281 units worth 143 billion baht, while units sold fell by 14.1% and unsold units rose by 2.6%.