Condo developers try discount pricing

Condo developers try discount pricing

Recovery strategies focus on bolstering cash flow through sales promotions or shrinking land banks, says JLL

a group of people sitting at a table in front of a building

© The Bangkok Post

Bangkok’s condo market has felt the growing impact of the pandemic on Thailand’s economy and outlook. All market segments are witnessing a slowdown in sales and more intense competition.

In response to an increasingly challenging market environment, developers are compelled to reimagine their approach to managing cash flows, says property consultancy JLL.

“Many property developers in Bangkok, particularly in the condominium sector, are using various strategies to bolster sales and mitigate risk as they face an unprecedented period of slow sales because of a supply glut and softening demand,” said Michael Glancy, head of transaction business at JLL.

Promotional packages are commonplace. These include incentives such as police discounts, free furniture, no ownership transfer fee, down payment-free periods for up to 24 months, and zero interest on down payments.

Discount pricing is becoming a more popular approach, especially in completed developments where developers want to clear their backlog to accelerate receivables. In a basket of completed prime condo developments where JLL recently surveyed prices, discounts offered on units in the backlog averaged 20%.

However, JLL’s observations reveal developers did not offer the same promotions on every unit in the same project, and packages offered by the same developer varied from project to project.

Some developers are open to bulk-sale deals in which buyers could enjoy a relatively attractive discounted price. For example, JLL is marketing a bulk lot of tenanted condo units in a prime development in Bangkok’s central business district at a discount of 30%.

“Amid the current economic climate, discount pricing is common,” said Mr Glancy.

“While it encourages real buyers to make a faster purchase decision, discounts also attract investors looking to enjoy a potential capital gain in the long term, particularly when taking replacement costs into account.”

Aside from eliminating unsold units in existing projects, developers are trying to free up capital by selling plots in their land bank.

JLL has been appointed by some listed property firms to dispose of several land plots in different locations across Bangkok, with a combined area of more than 50 rai.

“The challenging conditions in Bangkok’s condominium market have discouraged new project launches,” said Mr Glancy. “For this reason, disposing of some land assets is a sound strategy in the current situation.

“We have seen major developers adjust their business plan by cancelling some of their future projects and they are now putting the plots of those projects on the market.

“A lot of the trends we are witnessing in Bangkok’s condominium sector are expected to continue into 2021. Uncertainties about the economy amid Covid-19 will hinder market sentiment.

“We expect a drop in the number of new project launches in the next 12 months as developers continue to focus more on clearing their unsold inventory than planning new projects.”

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