Report from Bangkok - Failure rate for condos nears 50%

In 1996, my father predicted the contagion effect when the economic meltdown hit Thai shores. Soon after, Malaysia was hit with the rest of the region, known as the Asian Economic Crisis. The Thais call it the Tom Yum Kung effect. Are we going to see it again?

Usually in these times, high end properties would be the hardest hit and lower cost properties tend to be unscathed. Is it the time to re-visit medium and low cost real estate investments? Below is an article from the Nation, one of the English daily published in Thailand.

Ref source: http://www.nationmultimedia.com/

Failure rate for condos nears 50%
By Itthi C Tan
The Nation
Published on June 10, 2008

The chance of failure for condominium developers in Bangkok has grown to almost 50 per cent as competition heats up amid a glut of fresh supplies, warned Aquarius chief executive Yongyuth Chaipromprasert.

After conducting a study during the past five months, the building consultant said even inner Sukhumvit, an area once deemed immune to downturns, "no longer guarantees success"."The average take-up rate for Bangkok condominiums is now 54 per cent," he said. "That is considerably lower than about 70 per cent for last year." "Of the 50,000 units that are expected to be launched this year, about 46 per cent won't be sold," he deduced from recent statistics. "One out of every two developments could fail.""The inventory left over from last year should also add to current stock, making the situation even tougher for sellers, especially newcomers," he said.With 15,000 unsold units from last year and 25,000 units from this year, the market will have an additional 40,000 units to clear in 2009.Because of the worrying trend, he expected new supplies to fall to 40,000 units next year. Yesterday TCC Land said it was halving the number of new projects from 5 to about 2.Yongyuth said most of the buyers are in the outer zones where land is cheaper. "If developers can sell units for between Bt1 million and Bt2 million, they should survive. It is the large units which will find difficulty selling with rising inflation and oil prices," he said.Supharat Development managing director Sumet Sukapanpotharam agrees. "Even with the government incentives to boost home sales by suspending the sales and purchase tax, the developers who will benefit are those who have completed projects and can transfer the units within the year." "We are building for urban workers with limited spending power. There's no point selling expensive units when purchasing power has fallen," said Ananda CEO Chanond Ruangkritya.Ananda's Ideo Mix near Sukhumvit 103 is commanding sales as the units sell from Bt1.5 million.Yongyuth said the worst hit would be developers who bought land recently at high prices and were forced to construct at escalated costs.