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PENTHOUSES IN CENTRAL BANGKOK, A GROWING GAP BETWEEN DEMAND AND SUPPLY07-Jun-2019


While penthouses represent a niche segment of Bangkok’s condominium market, the demand for these exceptional properties is booming. Are the developers meeting this growing appetite? What are the best penthouses to invest in?

The growth of supply in this segment is confined by the definition of a penthouse itself which generally must be situated on the top floor of the building and offers larger usable space than regular condominium units in the same development.

By extension, we include in our analysis of “penthouses” all condominium units of 4 bedrooms or more, offering at least 250 - 300 square meters (sqm) of indoor living space.

 

Penthouses in central Bangkok,a growing imbalance between demand and supply
 

Despite an accelerated growth of penthouse units between 2013 and 2018 in Bangkok (+7% per year in average representing an addition of a 80 units a year), at the end of 2018 the total stock of penthouses and 4 bedroom units (or more) was estimated by JLL at 1,590 units, a mere 0.3% of the total stock of condos.

  • A extensive range of prices – and standards 

As of Q1 2019, the selling price of penthouses ranged from 30 mln THB (1 mln USD) for units to renovate in the oldest condominiums (built before 2000) to 600 mln THB (20 mln USD) for the largest and most exceptional units, which can be found only in a few the super-luxury condominiums, the most noticeable being Ritz-Carlton (now sold out from the developer), Sukhothai Residence (one unit of 1300 sqm with a large private pool is on the market for 585 mln THB), 98 Wireless (sold out), 185 Rajadamri (sold out), or in new residences by the Chaoprayah river where a few very large penthouses are still looking for a first buyer (Oriental Residence, Magnolias Waterfront, Banyan Tree, The River, Four Seasons). 

For purchasers interested in penthouses and large premium 4-bedroom units in the heart of Sukhumvit, the offer is very scarce. We can mention Marque Sukhumvit (units of 315 and 377 sqm) - the most expensive project to date in Sukhumvit yet very successful, Belgravia Residence (295 sqm), Royce Private Residence (252 and 365 sqm), Fullerton (288 sqm), Aguston (317 sqm), The Lakes (374 sqm) and Ficus Lane (366 sqm). Sathorn offers a few penthouse options, mostly at the Met (420 sqm), while Central Lumpini (Ploenchit-Childom-Rajadamri) barely has anything to offer to high-budget investors apart from a few units at Park Chidlom (we exclude from our analysis the many lease-hold developments in Tonson, Langsuan and Rajadamri).

Penthouses in central Bangkok,a growing imbalance between demand and supply
  • For large units, favour condominiums built before 2014 

It is worth emphasizing that apart from a few super-luxury developments such as Marque Sukhumvit, Ritz Carlton, 98 Wireless, Sukhothai and the new projects located Riverside, most premium penthouses currently available for sale are situated in projects completed between 2004 and 2013.

In the recent wave of development of luxury condominiums in Bangkok, the clearest pattern is arguably the significant shrink in the average unit size, including penthouses. It has thus become common for developers to call “penthouse” a 3-bedroom unit of less than 200 sqm. We have even seen flourishing the concept of “mini-penthouse”, usually duplex or triplex units on high floors offering 100-150 sqm of usable space, asking usually 300k THB / sqm or more. These products have not met a strong demand, one because they are very expensive for what they have to offer, two because their layout is to say the least quite inconvenient - a triplex of 150 sqm offers barely 120 sqm of usable space after deducting the space occupied by staircases.

Although we see this recent trend as a damageable misunderstanding of the luxury market by many property developers (space is luxury!), the good news is that there is a significant potential upside for owners of the largest and most exceptional units in the most popular areas – Sukhumvit in particular - as the demand for such rare products is still growing.

Penthouses in central Bangkok,a growing imbalance between demand and supply
  • A strengthening demand for large units on the rental market

Bangkok isn’t only a popular investment destination (retirement, first or second home) among western and Asian buyers, it is also a major expat hub, one of the largest in Asia Pacific. In Q3 2018, there were 88,125 work permits for skilled expatriates (with a degree) (+2.7% Y-o-Y), according to the Department of Employment, a record high. But the real numbers are in the region of 500,000 foreigners living in Bangkok.

Most expats choose to rent rather than own properties because they usually work in Bangkok for a few years – although we see a clear trend of expats willing to purchase property here as they decide to settle here for a long period of time (Bangkok is one of the world’s best places to be an expatriate according the HSBC.

Most of the large multinational have a branch or at least a representative office here, with their top executives usually receiving generous housing allowances – most between 150,000 and 400,000 THB / month. Add to that the large numbers of diplomatic staff between the embassies and the United Nations (the UN has launched a vast restructuring plan based on the regional recentralization of its teams and Bangkok has been chosen to become the Headquarters for the whole Asia-Pacific region), and there is little doubt that the demand of large premium units for rent is set to keep on increasing in the coming years.

In an environment of stable supply, this means an upward pressure on rental prices. We have recently seen 4-bedroom penthouses in condos of the 2nd generation (completed between 2004 and 2013) renting above 200,000 THB / month, while a year or two ago they would be below this important psychological threshold.

For penthouses and other very large units of the second generation, rental yields can reach 4-5% per year, and capital gains can be considerable all the more if the owner is willing to do a high-end renovation. Yields are much lower for penthouses of the 3rd generation (since 2014), and tenants are still reluctant to increase significantly their budget for penthouses of the 1st generation (before 2000), even if fully renovated. For tenants with significant budgets, the overall look of the building, lobby and facilities still matters – for the time being at least.

Penthouses in central Bangkok,a growing imbalance between demand and supply
  • Wealthy buyers want the exceptional!

Although the rental demand is an important driver of resale prices of penthouses and 4-bedroom units in Bangkok, it is also true that the majority of buyers are end users, whether they are rich Thai individuals who sell their house in the periphery to live downtown, young westernized and urbanized millionaires, or foreigners with considerable means – foreign individual can only purchase condominium units.

On this competitive market with limited supply, large units with a special feature (top floor, large balcony or terrace, great view, lofty layout, etc.) and/or which have been renovated see their value go up dramatically. For example, at Royce Private Residence a penthouse unit renovated, furnished and decorated at exceptionally high standards was sold in 2018 for over 400,000 THB / sqm, which is twice the market average for this building. The buyer wanted a turn-key product and saw the value in this property given the current market average prices in the super-luxury segment.

Penthouses in central Bangkok,a growing imbalance between demand and supply

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