SINGAPORE – Bangkok and other Southeast Asian cities will soon have a different real estate landscape as mega real estate developments are continually built.
The real estate market of both Indonesia and Thailand are benefiting from free-flowing cash from foreign investors. These Asian countries have historic projects that would change the face of the property market.
In Jakarta, a 278 trillion rupiah ($19.7 billion) worth project is currently underway, and it is the biggest real estate project ever to take place in Indonesia. Similarly, Bangkok is expecting to complete a 120-million baht ($3.95 billion) project by 2026. This private development is the biggest and most expensive in the history of Thailand.
As these mammoth projects begin to take form, the fear of an oversupply looms over, particularly in the residential and office space. Add to it the uncertainty of whether there would be a continuous flow of foreign investment, which started this building spree. This situation that Thailand and Indonesia now are causing fears over the real estate market of its Southeast Asian neighbours.
TCC Group is positive about its One Bangkok Development. Upon completion, the project in the heart of central Bangkok will have at least 60,000 people who will work in what they call “small city.”
One Bangkok features 167,000 square metre land area – almost twice as that of Roppongi Hills development in Tokyo. It will have five office buildings and five upscale hotels, which will include Bangkok’s first Ritz-Carlton. It will also feature three condominium towers and other residential facilities.
The Lippo Group of Indonesia is also moving towards the same plan for its Meikarta project. The township project in Jakarta will include office spaces, housing, schools, and hospital facilities. The group is aiming to complete the first phase by 2021.
These enormous waves of developments in the region happened mainly because of foreign investors flushing their cash into these countries because of loose monetary policies.
Mari Kumagai, Colliers International Japan head researcher, said “As this cash glut flows outward, projects around the world — primarily in Southeast Asia — are growing larger in scale,” However, as the Southeast Asia market begin to overheat, fears of a bubble are ever-present and this is worrying.
Surveys of foreign real estate companies show that about 67% of respondents in Indonesia believe that the real estate market is headed for a downturn. Other results of the survey showed that much of the market is directed downward – 54% in Singapore, 51% in Malaysia, 44% in Thailand. It was only in the Philippines that most respondents believed that improvements outpace a downturn.
The fear of a bubble may stem from the high percentage of vacancy rates in some cities. In Kuala Lumpur, for one, the vacancy rate increased by 1% on the year to 23.5% in the 1Q. In Putrajaya, the vacancy rate is the highest ever at 57.6%, and Jakarta’s rate remains at 25%.
A Singha Estate executive expressed that their company is now taking a cautious stand on the developments. Just recently, Singha Estate postponed sales of its condominium building in Bangkok. Its initial target this month was moved to February. While demand for condos thrived last year, it seemed to have immediately fizzled out. Based on the April-June data, only 15.7% of condos were sold, the lowest in years.
A Knight Frank analyst claimed that property developers now have their backs on the wall, and they must think of their ongoing projects and carefully update their strategies.
The funding that initially fueled this Southeast Asian real estate boom is now growing uncertain due to several factors, and one of them is the Thai baht growing stronger against the Chinese yuan. China’s economy faces a slow down following the US-China trade war. This trade war is affecting the market. Most of the foreign funding comes from China and is now running dry.