High Bangkok land prices fazing developers

Some turning to leasehold land while others are deriving funds from overseas sources

The Chao Phraya River in Bangkok, Thailand. love love/Shutterstock

Rising land prices in Bangkok have caused property developers to reevaluate the feasibility of their projects, according to a new report by CBRE Thailand.

While demand holds steady for prime freehold sites, developers are growing “more selective” and reluctant to accept higher asking prices bandied by vendors, reported Kulwadee Sawangsri, the consultancy’s head of capital markets for investment and land.

“Some developers are shifting their focus towards leasehold lands, but they are only going to agree to 30-year or 50-year leases in a handful of locations where they think they can make a sufficient return during the lease term,” she said.

In response to rising land prices, property developers are increasingly diversifying their portfolios away from built-to-sell residential projects. Some firms are gravitating to built-to-hold, income-producing assets such as serviced apartments, offices and hotels, CBRE Thailand noted.

Land prices in central Bangkok have risen by 1,000 percent since 1988, the consultancy reported in July.

“There is always high demand for land in prime areas of CBD Bangkok. Whenever there is a prime piece of CBD land plots available, property developers and investors are often interested in acquiring it as that land has high potential for both residential and commercial developments,” Kulwadee said.

In addition to cost-prohibitive land prices, developers face tightening lending policies from Thai banks, compelling them to source their funds from joint ventures with overseas companies.

More than 15 major joint ventures have been established between Thai and foreign companies since the beginning of 2018. At least 75 percent of the joint ventures included Japanese developers.