CBRE: Bangkok land prices rocket

Land prices in central Bangkok have increased by 1,000% since 1988 when property consultant CBRE established an office in Bangkok.¬
Land prices rose dramatically during the Asian Tiger boom years from 1988-1996 before the market came to a grinding halt in the 1997 financial crisis. Price growth¬ resumed in the early 2000s and there has been a rapid escalation of prices over the past two years for prime central business district (CBD) sites.¬
Two landmark transactions in the late 1980s were the acquisition of an eight-rai site on Sathon by the original developer of the abandoned Empire Tower for around¬ 125,000 baht per square wah and the acquisition of a 21-rai site on Wireless Road, which was then the Standard Chartered Bank manager’s house, by the M Thai Group¬ for around 250,000 baht per sq w. The plot was developed to be All Seasons Place.¬
The latest sale on Sathon was the eight-rai Australian Embassy plot for 1.45 million baht per sq w in 2017. In Lumpini, SC Asset paid 3.1 million baht per sq w for an 880-¬ sq-w site on Lang Suan Road. The largest land sale in terms of value was the sale of the 23-rai British Embassy site in 2018 to the Central Group/Hongkong Land joint venture.¬
CBRE says the increase in land prices has not been uniform and there has been a huge change in the development patterns in Bangkok.¬
Historically, the commercial city centre was on Charoen Krung Road and the government buildings were on Rattanakosin Island. In the 1950s and 1960s, the¬ commercial centre moved to Silom and Surawong roads.¬
Bangkok grew in the 1970s and 1980s, but did not have a clearly defined city centre and development spread as new roads were built, but this has changed.¬
The two big changes have been the opening and extension of the mass transit system with the first skytrain line in 1999 and the first MRT line in 2004.¬
The mass transit lines have changed the way of life in Bangkok. By the mid-2020s, Bangkok should have about 460 kilometres of mass transit lines, outstripping the 402-¬ km London Underground system.¬
The popularity of Bangkok’s mass transit routes with over 1.2 million users a day has increased land values next to stations, but not every line or station is equally¬ attractive. Land values have been partially determined by the popularity of a line and a station.¬
“The other big determinant of land prices has been urban planning and building regulations, particularly those governing how much space can be built. Obviously if¬ less space can be built on a site then the land is worth less,” said Kulwadee Sawangsri, executive director of capital markets for investment and land at CBRE Thailand.¬
Planning and building regulations have become increasingly stricter and more sophisticated and have become a key factor in determining land price.¬
In the 1980s and 1990s, Bangkok spread further outward, but in the 2000s, Bangkok has become more inward looking with the adoption of high-rise condominium living¬ and the growth of modern office space. The city centre is becoming more clearly defined and the next round of development will be built on many of the remaining¬ under-utilised sites such as the 105-rai Suan Lum site of the One Bangkok development on the corner of Rama IV and Wireless roads.¬
Land prices are starting to form a much greater proportion of total development costs as they have risen at faster rates than construction costs. Total development costs have¬ risen, mainly due to the increase in land prices, driving condo prices higher and raising the revenue needed to make rental projects feasible.¬
CBRE expects central Bangkok will continue to be the most preferred location for the best hotels, offices, retail centres, residences and other types of buildings. Bangkok will¬ have a clearly defined city centre with extended development along the mass transit line routes concentrated in clusters around the stations.¬
The rate of increase of land prices will depend on the level of development activity and the returns that can be generated from development. This will vary depending on¬ what can be built and how much customers can afford to pay either to buy or rent in the completed developments.¬
As the number of freehold potential development sites in Central Bangkok declines, CBRE expects that land prices will continue to rise.¬
In some cases, land prices will be higher than the value of the existing building on the plot and we will see more older buildings being demolished and sites being redeveloped.¬
The demolition of Kian Gwan Tower I on Wireless Road and Vanissa Building on Chidlom Road are good examples. There are also plans to demolish the Dusit Thani¬ Hotel and redevelop the site. So far, it has only been single ownership buildings that have been demolished.¬
The condominium law requires 100% of co-owners agree to revoke the condo, enabling it to be sold and redeveloped. This has not happened to date, although there¬ are some condos where the total value of all the units is less than the vacant possession value of the land where the condo has been built.¬
The sale of all units and the redevelopment of the site has taken place in other countries, particularly in Singapore where the number of co-owners needing to agree¬ to a block sale is lower. CBRE thinks it will be very difficult to get 100% of condo owners in Bangkok to agree to sell all the units to a developer.¬
“Assuming that planning regulations do not change and the amount of space that can be built on sites remains the same, then Bangkok’s CBD land prices are likely to¬ continue to rise,” said Aliwassa Pathnadabutr, managing director of CBRE Thailand, who has worked for the company for 30 years.¬
She said the gains will be in line with the economy and property development cycle.¬

Source:¬ https://www.bangkokpost.com/business/news/1501914/cbre-bangkok-land-prices-rocket