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Hot locations' appeal to investors may cool
Supply building up near transit routes
Friday May 30, 2008

The current high returns on investment for condominiums near existing mass-transit lines might decrease in a few years as the market cools and more supply enters the market, says Wason Khongchantr, managing director of Agency for Real Estate Affairs.

He said the boom in condominiums near mass transit routes during the past few years would subside as new routes emerged to serve Bangkok's outskirts.

''At the same prices [as condos], townhouses and single houses will have stronger demand if mass transit passes those sites. Thai people's behaviour mostly prefers low-rise units,'' he said.

Mr Wason said many developers could not start construction of new projects as they needed to wait for Environmental Impact Assessment approval. New projects also face higher construction costs, pushing unit prices higher.

According to the company's survey of condominium units completed in the past few years in five areas near mass transit lines, returns on investment were largely from capital gains, three times the rental returns on average.

''Capital gains are already high. This figure [return from capital gain] will be reduced in some locations where the speculation rate was quite high,'' he said. The areas surveyed included Onnuj, Sathon-Silom and Ratchadaphisek.

Meanwhile, returns from rents might slip as the current supply would face pressure from the many new condominiums being completed in the future.

Mr Wason said the situation might not include the even-numbered sois on the south side of Sukhumvit Road between Asok and Ekamai, though the units in the area had to compete with a lot of serviced apartments, because of strong demand from expatriates.

Apichart Paphanpuwong, president of the Real Estate Sales and Marketing Association, said an oversupply was unlikely despite thousands of new units entering the market by the end of 2008. The market would be hot for two years but sales rates might slow down.

''Owners of current rental units need to renovate or make over the units or they may lose their tenants to newly completed units or those located nearer to mass transit,'' he suggested.

Meanwhile, apartments would continue to have high potential for investors.

''People's purchasing power has been reduced and many will try to cut costs so there is some demand from those who cannot afford a condominium unit.''

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