Buy Pattaya, or bye bye Pattaya?
By Andrew Batt:
EXCLUSIVE: What does this week's news of Tulip Group's decision to pull out of Pattaya's residential market to focus on standalone hotels mean for the booming property sector in the Gulf of Thailand city?
Whilst the company is just one of many who have chosen to develop residential projects in the city over the past four years, their decision to focus on the hospitality sector must have certainly sent shockwaves through the local real estate market.
Will buyers continue to flock to the city in search of sun, sea and some seriously cheap property opportunities, or will the growing oversupply and continuing construction lead to the market collapsing, as one industry insider said, "like a pile of cards".
One high-profile developer, who declined to be quoted on the record, told DDproperty.com: "Things are getting out of control. Every single week there is a party for a new condo launch, and in my honest opinion I do not see how buyers will actually complete. Most buyers we've seen here are not end-users; they're investors - many of whom intended to flip and re-sell during construction. This isn't going to happen now as there are too many properties. In just three years' time there will be more than 50,000 new completed units in the city.
The contact, who is heavily involved in the Pattaya property market, added: "I personally fear that half of the properties being launched will never be completed, and if they are completed they will never be anything like the promises in the glossy sales brochures. I have genuine fear that very soon we will see one or more developers go bankrupt and everything will tumble like a pile of cards."
Nigel Cornick, CEO, Kingdom Property, was more circumspect.
He told DDproperty.com: "In my opinion there is still a place for quality and well-built buildings in excellent locations. There is also strong demand from the Thai middle-class as well as from overseas investors and tourists from Asia and Russia. My view would be however that there is a potential oversupply of 'Grade B' products in secondary locations, and this is not a market that I would like to be in."
Mark Bowling, Senior Sales Manager for Colliers International in Pattaya, noted the increasing competition being faced by local developers.
He told DDproperty.com: "I understand that competition from Bangkok-based developers with more financial clout, who can give preferential payment terms is causing concern for local developers. Listed developers such as Q House and Sansiri can offer very favourable terms, such as 10 percent down payment and 90 percent payment on completion, which are impossible for any local developer to compete with."
"Another factor is the rising cost of construction which has been triggered by the massive building boom. It's now virtually impossible to build a quality project for less than THB60,000 per sqm. There is also a notable shortage of labour, so any good construction company with an available workforce can increase their prices due to the high demand," he added.
"Overseas buyers remain extremely cost conscious due to the strong Thai baht, so achieving an average sqm price of more than THB60,000 could be difficult in the future. Land prices are increasing on an almost weekly basis, caused by the building boom, which in turn affects required margins for developers," Bowling concluded.
Clayton Wade was one of the first to sound the warning bells for Pattaya. The outspoken Managing Director of Premier Real Estate who has a knack for being right with his predictions has been pointing out the weaknesses in the Eastern Seaboard new construction condo market for more than a year.
He used the 'O word' (oversupply) for the first time in The PropertyGuru's Predictions for 2013 feature in December 2013. Three months on, when the actual Thai government statistics of condominium oversupply were published and at the Government Housing Banks Real Estate Information Center seminar in Bangkok in mid March, he announced that the Eastern Seaboard condo boom was over.
He told DDproperty.com: "If you think the last (2007-2008) Eastern Seaboard slowdown was messy, get ready because this one's going to get real ugly!"
Not everyone in the Pattaya market is quite as pessimistic as Wade.
Cees Cuijpers, Managing Director and Partner of Town & Country Property, understands Tulip Group's decision to remove itself from the residential market.
He told DDproperty.com: "I understand their viewpoint and they are partly right; however, properties sold in the so called B-grade ("resort") projects are sold to end-users and not investors. The 'end-user' of a B-grade property is not a permanent resident but a frequent traveller and bought his unit as an alternative hotel accommodation."
He added that higher-end luxury units of two- and three-bedders will do well on the executive rental market as there is a severe shortage at the moment.
"I agree that there are enough B-grade projects on the market and new launches will struggle to sell unless they are in a very good location," he said.
One major issue, according to Cuijpers, is a lack of commercial projects in the city. He said: "Good locations may arise out of the blue once few commercial project developers commercialise Jomtien, na-Jomtien and Bang Saray. Rumours of a second Central Mall, a Robinson and a third Tesco Lotus may transform greater Jomtien into a sought-after booming property-development area once again."
He added: "Right now there is a lack of commercial outlets which is causing delay in further growth. Improved infrastructure and further growth of commercial properties in Jomtien, and East Pattaya, will help the city to expand another decade."
What do you think of the prospects for the Pattaya residential property market going forward? Email your thoughts to andrew@allproperty.com.sg. We will publish a selection of the best. Please include your name and indicate if you do not wish your name to be published with your comments.
Andrew Batt, International Group Editor of PropertyGuru, wrote this story. To contact him about this or other stories email andrew@allproperty.com.sg
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