Thailand: Condo developers diversify into recurring income

• May 15, 2019

The recent restrictive measures from the Bank of Thailand have continued to cast a shadow over Bangkok’s condominium market since the beginning of this year. Condominium sales have dropped, putting pressure on developer’s financial targets. 
Some developers have sought to diversify their risk in pure residential development projects for sale by seeking to develop alternative sources of revenue from recurring income properties. 
Growing concerns about excessive residential mortgage lending by commercial banks prompted the central bank to reduce loan-to-value ratios for second and subsequent home mortgages starting from April 1 this year. 
CBRE believes the new measures have significantly reduced the number of speculative buyers and rental investors in residential condominium units. 
A slowdown in the condominium market has encouraged major residential developers to consider diversifying their portfolio into other property sectors such as offices, hotels and serviced apartments. 
Most of these companies are listed on the Stock Exchange of Thailand and their financial performance is regularly accessed. With stable recurring income, they are better able to offset the volatility in revenues from the residential-for-sale market, as well as sustain revenue and profit growth. 
“We have seen an increase in both the number of landowners willing to lease land for a long term and the number of developers who are looking to develop leasehold land projects,” said Kulwadee Sawangsri, executive director and head of capital markets at CBRE Thailand. 
“Over the last four years, CBRE has completed nine long lease land transactions worth more than 10 billion baht. With the forthcoming changes in the new Land and Building Tax, whereby landowners will have to pay a significant tax on vacant land, we expect more high-quality land will become available for long-term rent.” 
Ananda Development and Origin Property have both shown strong interest in the hospitality sector after Thailand welcomed a record 38.27 million tourist arrivals in 2018, an increase of 7.5% year-on-year. 
Both companies have announced plans to develop several hotels and serviced apartment buildings in Bangkok and the Eastern Economic Corridor. 
Ananda Development has partnered with Ascott Limited to develop five serviced apartments valued at 12 billion baht, four of which will be located in Bangkok and one in Pattaya. 
The company has also purchased 42.5 million shares equivalent to 5% in Dusit Thani, a leading Thai hospitality company. 
Origin Property set up a new subsidiary, One Origin, to invest up to 20 billion baht into recurring-income properties in the next five years. Previously, the company has signed a management contract agreement with InterContinental Hotels Group to manage three hotels in Bangkok and Sri Racha, expected to be operational within 2021. 
Even mass market developer LPN formed a joint venture with Nye Estate to develop an office tower on a leasehold site on Rama IV Road, worth 3.79 billion baht. 
The company has been struggling to get a foothold over the past few years since purchasing power in the mass market has weakened and buyers are much more vulnerable to mortgage rejection by banks. 
Nye Estate is also developing Silom Square, another office building on a 50-year leasehold plot located on the corner of Silom and Convent roads. 
The company previously developed purely residential projects before entering the office market in 2016. 
Raimon Land is another company jumping into the recurring-income business after signing a 30-year lease for a prime six-rai plot located on Phloen Chit Road opposite Central Embassy. 
The company recently started piling on the site to be developed into a 52-storey office building with net leasable space of 65,000 square metres with an investment of 11.5 billion baht. 
Raimon Land also has future plans to develop a 250-room hotel on Sukhumvit Road. 
CBRE believes developers need to plan their diversification strategies wisely. 
They must have a strong team with sound knowledge of operations and understanding of market dynamics in the property sector in which they are venturing. 

Source: https://www.bangkokpost.com/business/news/1678052/condo-developers-diversify-into-recurring-income