Land prices in Central Bangkok have increased by 1,000% since 1988 when CBRE established an office in Bangkok 30 years ago.
Land prices rose dramatically during the Asian Tiger boom years from 1988-1996 before the market came to a grinding halt in the 1997 financial crisis.
Land price growth resumed in the early 2000s and there has been a rapid escalation of prices over the past two years for prime central business district (CBD) sites.
Two landmark transactions in the late 1980s were the acquisition of an 8-rai (3.17-acre) site on Sathorn by the original developer of Empire Tower for around THB 125,000 per square wah and the acquisition of a 21-1-08 rai (8.5-acre) site on Wireless Road, which was then the Standard Chartered Bank manager’s house, by the M Thai Group for around THB 250,000 per square wah which is now the All Seasons Place development.
The latest sale in Sathorn was the 8-rai site of the Australian Embassy for THB 1.45 million per square wah in 2017. In Lumpini, SC Asset paid THB 3.1 million per square wah for an 880-square-wah site on Soi Lang Suan. The largest land sale in terms of value was the sale of the 23-rai British Embassy site in 2018 to the Central Group / Hongkong Land joint venture.
The increase in land prices has not been uniform and there has been a huge change in the development patterns in Bangkok.
Historically, the commercial city centre was on Charoenkrung Road and the Government Centre was on Ratanakosin Island. In the 1950s and 1960s, the commercial centre moved to Silom and Surawongse Roads.
Bangkok grew in the 1970s and 1980s, but did not have a clearly defined city centre and development spread as new roads were built, but this has now changed.
The two big changes have been the opening and extension of the mass transit system with the first BTS Line in 1999 and the MRT Dark Blue Line in 2004.
The mass transit lines have changed the way that Bangkok residents work, live and play. By the mid 2020s, Bangkok should have about 460 kilometres of mass transit lines, compared to the 402-kilometre London Underground system.
The popularity of Bangkok’s mass transit routes with over 1.2 million users a day has increased land values next to stations, but not every line or station is equally attractive. Land values have been partially determined by the popularity of a line and a station.
“The other big determinant of land prices has been urban planning and building regulations, particularly those governing how much space can be built, obviously if less space can be built on a site then the land is worth less,” commented Ms. Kulwadee Sawangsri, Executive Director, Capital Markets – Investment & Land, CBRE Thailand.
Planning and building regulations have become increasingly stricter and more sophisticated and are now a key factor in determining land price.
In the 1980s and 1990s, Bangkok spread further and further outwards, but in the 2000s, Bangkok has become more inward looking with the adoption of high-rise condominium living and the growth of modern office space. The city centre is now becoming more clearly defined and the next round of development will be built on many of the remaining under-utilised sites such as the 105-rai Suan Lum site of the One Bangkok development on the corner of Rama 4 and Wireless Roads.
Land prices are starting to form a much greater proportion of total development costs as they have risen at faster rates than construction costs. The total development costs, mainly due to the increase in land prices, have risen, driving condominiums prices higher and raising the revenue needed to make rental projects feasible.
CBRE expects that Central Bangkok will continue to be the most preferred location for the best hotels, offices, retail centres, residences and other types of buildings such as hospitals. Bangkok will have a clearly defined city centre with extended development along the mass transit line routes concentrated in clusters around the stations.
The rate of increase of land prices will depend on the level of development activity and the returns that can be generated from development.
This will vary depending on what can be built and how much customers can afford to pay either to buy or rent in the completed developments.
As the number of freehold potential development sites in Central Bangkok declines, CBRE expects that land prices will continue to rise.
In some cases, land prices will be higher than the value of the existing building on the plot and we will see more older buildings being demolished and the sites being redeveloped.
We have already started to see this happening with the demolition of Kian Gwan Tower I on Wireless Road and Vanissa Building on Chidlom Road. There are also plans to demolish the Dusit Thani Hotel and redevelop the site. So far, it has only been single ownership buildings that have been demolished.
At the moment, the condominium law requires that 100% of co-owners agree to revoke the condominium enabling it to be sold and redeveloped. This has not happened to date although there are now some condominiums where the total value of all the units is less than the vacant possession value of the land on which the condominium has been built. The sale of all the units and the redevelopment of the site has taken place in other countries, particularly in Singapore where the number of co-owners needing to agree to a block sale is lower. CBRE thinks it will be very difficult to get 100% of condominium owners in Bangkok to agree to sell all the units to a developer.
“Assuming that planning regulations do not change and the amount of space that can be built on sites remains the same, then Bangkok’s CBD land prices are likely to continue to rise,” concluded Ms. Aliwassa Pathnadabutr, Managing Director of CBRE Thailand, who has worked for the company for 30 years since its establishment in Bangkok.
The increases will not be constant and will be in stages in line with the economy and property development cycle.