Why are Bangkok’s leasehold condos scarce?
Bangkok's leasehold condominiums have predominantly been within the prime segment; JLL explores if there is future growth potential for mass-market leasehold condos.
Unlike other mature markets where the leasehold property tenure is widely recognised across all residential market segments, Thailand, particularly Bangkok, falls behind. Less than one-tenth of the total supply in condominiums was classified as leasehold as of 1Q22. In Bangkok, leasehold condominium is a type of property that covers the property for sale while providing a long-term tenancy. Only 5,000 leasehold condominium units were registered despite massive growth in supply during the last decade, with a total of 738,000 units recorded in Bangkok at the end of 2021. In many developed countries, leasehold residences tend to be an asset class that promotes housing affordability and relieve middle-income households’ stress. However, most leasehold residences cater to the prime segment in the Central Bangkok area. Meanwhile, we have seen few leasehold multifamily assets available in the market.
Figure 1: Leasehold condominium agglomerated in the centre of Bangkok
Source: JLL Thailand Research
In the condominium development boom of the past 10 years, ample freehold land had been available for developers. However, with that supply shrinking, developers are seriously exploring leasehold options. Affordable unit pricing is a constraint for developers, especially with escalating development expenses. Leasehold condos could emerge in popularity as they usually cost 20-30% less than equivalent freehold units.
The maximum leasehold term of 30-years, though comparatively short looking at international markets, continues to limit the appeal to some buyers, who remain sceptical of agreements for future lease extensions and prefer freehold for peace of mind. However, there has been proven demand from those seeking temporary housing at a transitional period in life, as seen by the success of Charmchuri Residences and Triple Y Residences. Many parents purchased new condominiums for their children to study in Bangkok, ready after four years to provide recurrent revenue, outperforming freehold units. The trend demonstrated that leasehold demand is real when well-targeted.
Figure 2: Bangkok’s leasehold condominium selling price sore to top of the market, 2010-2021
Source: JLL Thailand Research
Moreover, personal mortgages on leasehold condominiums are more difficult than on freehold condominiums, narrowing the pool of potential buyers. Indeed, this is not a condition for a mortgage rather a result of an agglomeration of existing stock in the prime segment.
Whilst there have been few mass-market leasehold condominiums in recent years, those launched painted a positive impression on how future supply could perform. Factors like reducing land supply and increasing construction costs depict a ripe opportunity for leasehold condominiums, though only when targeted towards the correct buyer groups. Buy-to-let investors will find little concern in the leasehold model if there is real demand from tenants, and the elderly may be comfortable with leasehold if not concerned about passing to heirs. Leasehold condos could also gain popularity amongst the mass market if the price proposition is great enough for them to consider it over a freehold property and if there are a wider range of mortgage finance products available.