During the run up to the 1997 crisis, new projects were being launched with alarming frequency. From 1994 to 1997, a total of 565,758 new units were introduced into the market with a total value of approximately 835 billion baht. Many of these projects were being built by newcomers to the development scene. Individuals with a small bit of land or some remotely related experience and large companies wanting to cash in on Thailand's economic success were lured into the market by visions of huge profits.

When the crisis hit in 1997, many of these inexperienced developers and even a few experienced ones, large and small, were forced out of the market. An independent survey conducted by this author found that some of the reasons for their failure included lack of knowledge of the real estate market, poor planning, and insufficient market research. The result was a dramatic decline in the number of new project launches. In 1998, there were just 2,407 new units introduced into the market with a total value of 3.2 billion baht. This was 34,130 units and 831.8 billion baht less than 1997.

At first, the post-1997 economy was slow in recovering. In 2000, the first tentative indications of a general economic recovery were seen. But it was not until more recently that the economy has shown signs of sustained growth. This is the case for real estate as well. Data shows an increase in the number and value of units launched since 2000. By 2003, the number of new units launched and the total value was already greater than in 1997. Figure 1 shows the value and number of units launched in each year from 1994 to 2004. The figures for year 2004 are estimates made by doubling data available for the first half of the year.

With the market sky-rocketing back to pre-crisis levels, and with the experience of 1997 still fresh in people's minds, people need to stop and ask whether the recent increases in new launches represent a real recovery, made possible by sound economic principles, or a case of ‘irrational exuberance' on the part of developers and speculators. To answer this question, this author looked at some differences between developments built prior to and after the crisis.

Post Crisis TrendsTwo key differences were found between the types of projects launched prior to and after the crisis: location and target market. Prior to the crisis, new projects consisted primarily of low-priced condominiums located in the fringe areas of the BMR, even as far as Ayutthaya and Cha Cheong Sao. After the crisis, projects have been mostly high-priced housing units located more centrally. Clusters of new launches have been observed in the Ram Indra/Ekkamai and Sukhumvit corridors and in the Sathorn-Yannawa and Rangsit Klong 1-7 areas. There have been very few launches north of Rangsit or outside the outer ring road in the east and west. Location details for new launches are discussed later.

The Market Adjusts: New Projects, January to June 2004Looking at new launches from this year, one can see the housing market picture more clearly.

Average Price and TypeIn the first half of 2004, developers launched 235 new projects comprising 30,478 total units with an average unit price of 3.38 million baht. Reflecting a longer-term trend, the average unit price of new housing launched this year has been increasing since January. In June, the average unit price was a 5.0 million baht. Compare this to the average unit price in 2003 of 3.3 million baht, 2.7 million baht in 2002, and 1.9 million baht in 2001. The average unit price in 1996, one year prior to the crisis was 1.7 million baht.

The steady increase in average unit price is due to a shift in the type of product being offered since the 1997 crisis. Prior to the crisis, developers mostly built low-priced condominiums in the fringe areas of the BMR. This resulted in a glut of low-priced units in the market. Today many of these units remain vacant. Therefore developers have shifted up-market and are now focusing on high-end products in the central parts of the city like Silom-Yannanwa and Sukhumvit-Rama IV. These products also tend to offer a range of amenities and target primarily upper-middle class and wealthy Thais, which helps explain the increase in average unit cost.

Price TrendsAverage prices for new units of all housing types has been mostly steady in the first half of 2004. Average prices for detached houses increased by 0.4%, semi-detached houses by 1.38%, townhouses by 1%, and condominiums by 0.72%. Overall, average unit prices have increased 0.67%.

Some projects did experience a relatively large average price per unit increase. These include: semi-detached houses in Rama V-Bang Krouy (14.18%), detached houses in Bang Khan-Klong Loung (13.64%), and townhouses in Pathum Thani-Sam Koeg Saena (13.1%).

Projects experiencing the largest declines in average price per unit were: townhouses at Sukhapiban 2, 3, and 5 (-12.13% and -14.2%, respectively), and townhouses at Rangsit Klong 7 (-11.32%).

Conclusions and Prospects for the FutureThe number of units launched in the BMR has been steadily increasing since 2000. In 2003, 55,539 new units were launched. This was already more than the number that was launched in 1997, the year of the financial crisis. If one doubles the number of half-year launches, new launches in 2004 will be approximately 60,000 units. The same increase holds true when looking at total value. Estimates show that the total value of new launches in 2004 could be as high as 206 billion baht. This would be more than the total value of launches in 1996, a year before the financial crisis. The average price of a housing unit has also been increasing, from a post-crisis low of one-million baht per unit to 3.3 million baht per unit in 2003 to over 5.0 million baht per unit in June, 2004.

These numbers are buoyed further by investor confidence in the economy. Opinion surveys conducted by AREA show that developers and other real estate professionals feel that the market is recovering and that boom conditions may return as soon as 2007. From the account of the increasing number and value of units and the relatively good sales rates of new projects, this confidence may have some merit.

However, other data presented in this study including a large number of units still available, declining average unit prices for low and mid-priced condominiums in the long-term, moderate increases in long-term price levels in townhouses and detached houses, and the number of under-performing projects may be taken as indicators for caution. The large number of luxury condominium units being produced currently is also worth monitoring, as it may result in an oversupply of similar types of units.

If these signs are taken into consideration by investors and results in better informed decisions, a collapse on the scale of 1997 can be avoided. Blindly following the lead of other developers may lead a situation like that which existed just prior to 1997, when developers introduced too many similar units onto the market. Thorough analysis of supply and demand, buyer preferences, and macro-economic trends is the best way for investors to ensure the real estate market adjusts to prevailing conditions, as it has done before, and thus produces a stable, long-term recovery.