High-end resale condos continue to attract buyers

More supply from new condominium projects marks a good opportunity for homebuyers and investors to buy high-end units in old buildings at attractive prices, but they need to focus attention on well-managed buildings, aside from price and location, a real estate consulting firm said yesterday.

“A number of older luxury condominium buildings are well managed and have always been kept in like-new condition. Units in these buildings can sustain their asset value despite the high levels of supply entering the market over the past few years, and have a higher potential to enjoy capital appreciation once the market picks up,” said Daonum Lilavivat, head of residential agency at Jones Lang LaSalle.

“The attitude of the condominium juristic person committee plays a vital role in determining how the building is managed. A committee with a forward-thinking outlook will not be reluctant to invest in property management, including the regular maintenance and improvement of common areas, communal facilities and all systems within the building,” she said.

Jones Lang LaSalle has seen continued interest in resale luxury condos particularly in well-managed buildings.

Findings from its recent market study indicate that newly completed or under-construction luxury condos in Bangkok’s central business district (CBD) are now offered for sale at Bt110,000 to Bt200,000 per square metre, while units in luxury buildings aged 10 years and older in the same area are available for sale at Bt55,000 to Bt90,000 per square metre.

“Discussions with our customers who purchased condominiums in older buildings show that aside from lower prices, most of the older buildings in the luxury segment offer relatively larger common space and full recreational facilities.

“In addition, some buyers prefer the more ‘cozy’ environment offered by older condominium buildings rather than the ‘hotel-like’ atmosphere in new buildings,” she said.

Buying resale luxury condos in the CBD for owner occupation now is a sound decision, as new supply pressures rents. Many owners find it difficult to let units as most tenants prefer newer buildings, and they are keen to divest their holdings.

Jones Lang LaSalle will soon launch a market study that provides an analysis of gross and net yields in the high-end Bangkok condo market.

Dan Tantisunthorn, head of research at the firm, said the average resale price and current borrowing rates have adjusted to a level resulting in a gross yield that would attract end-user buyers.

At these same price levels and assuming no vacancy, investors can earn a net yield above long-term “risk-free” rates, despite the yield on some of these, such as the recent government bond issue, rising.

Buyers can expect capital appreciation in the long term, as there are fewer sites available for new developments, while development costs of future projects are likely to rise.

But investors looking to buy resale units to let at this time must be extremely cautious.

“Aside from the downward pressure on rents because of strong competition and tenants’ preference for newer buildings, an investor may also have to make a big cash outlay to renovate a unit prior to putting it up for rent.”

By The Nation
Published on September 17, 2009