Source: Property Report Asia

Investors have snapped up the limited number of new luxury condos available in Chiang Mai over the past 18 months, but finding tenants is proving more difficult. A combination of over-confidence in the rental market, construction-site proximity and bad location are all reasons given for the lack of demand among tenants. Yet new projects appear to enjoy buoyant sales, reports Andrew Bond.

The emergence of a small but certain luxury condo market is one of the key characteristics of property in this Northern town which has been overhauling its image somewhat in recent years. The arrival of several five-star hotels and the gentrification of areas such as Nimminhemin road and the Night Bazaar area are signs of confidence in a more cosmopolitan city atmosphere. The city has also noted a marked influx in foreigners becoming residents here, and traditionally this sector has supported the existing condo market. Now, buildings such as Twin Peaks, Kharn Kanok and Punna are offering foreign buyers and residents far more choice.

Gone are the days of settling for 40m2 studio units in traditional condo developments. A sense of flair, spaciousness and modern living are hallmarks of a new generation of condo buildings for the burgeoning expatriate crowd settling in Chiang Mai. In addition, more and more wealthy outsiders, from Bangkok, Singapore and as far away as Hong Kong, are buying themselves weekend pads in the city, bringing with them luxury expectations.

For proof of demand you need only step into the sales office of any of these new projects. Twin Peaks sold out last year shortly after the official opening and is reporting brisk interest in their new half-finished Peak Gardens. Siritara, a building on the outside of the city limits with pretensions in the luxury league, has only a few units left. Meanwhile, Baan Kharn Kanok III near the National Museum sold out its entire 49% foreign-owned quota before the foundations were even completed.

But perhaps the most exciting new project is the Punna Residence, which will add a new level of sophistication to the trendy Nimminhemin area. Priced at a little over Bt35,000 a square meter, these uber-chic apartments offer excellent value for money and initial sales have been encouraging. Each of the sales agents interviewed reported block buying and there were even two cases of people buying without setting foot in the building. There’s obviously no concern about demand, the big question however is; who is going to rent all these relatively expensive luxury condos in a city that is known for being cheap?

In Chiang Mai, condos have always had to compete with suburban house which offers a far better lifestyle for the same price. Where Bt20,000 a month will get you a modest, two-bedroom, 90m2 unit in a smart building, it will definitely get you a comfortable four bedroom house and garden in one of the many new housing projects a little further out. And traffic is still manageable, mitigating the need to be centrally located. But there is a sizeable portion of renters who don’t live in Chiang Mai year-round and prefer the practicality of a condo. Then there are owner-occupants who can afford a part-time second home in this very affordable city. Another group is the increasing number of foreigner retiree couples who cannot own houses so they opt to buy and live in condos.

However, many investors who have cashed in on this emerging market are now struggling to rent these condos out and recover some equity. For others, who have yet to take full ownership, it remains to be seen if this spike in new units is sustainable. First signs of trouble came in the form of a complaint email to Property Report concerning legal issues with Twin Peaks. Since the departure of their congenial Marketing Director Manus Nararatwanchai last October, owners have been complaining that their concerns and problems have been largely ignored by the management or dealt with slowly. This has hampered efforts to find tenants.

One Briton who owns several units even successfully used their inaction as an excuse to delay instalment payments. As he pointed out, this suited him since he had written off chances of finding satisfactory tenants while the enormous Shangri-La hotel is being constructed right next door. Indeed, what was once a selling point on their brochures has turned into a serious problem for Siam Zokie, the Japanese-Thai developer who cannot fathom why foreigners won’t tolerate the incessant noise. The hotel is also higher than they thought, ruining views from some of the apartments.

An American buyer recently won a court case against them in this regard when the defendants failed to show up at proceedings. Another legal challenge is currently pending against the company from an agent who claims they have repeatedly ignored his demands for commissions owed. Other complaints which suggest why tenants cannot be found include leaks, long delays in attending to decorating problems or requests (outside contractors are not permitted), and failure of management representatives to honour critical meetings. Earlier this year the Saha Group took on a large share of Siam Zokei, amid rumours of financial difficulties.

But these problems aside, Twin Peaks and Peak Gardens do boast an unbeatable central location down a quiet soi, and will benefit by appealing to the significant, often flush, Japanese contingent in town. The units are comfortable, if a little confined, but at Bt60,000 a square meter they are some of the most expensive in the city. Simply put, the rental price required to achieve respectable returns are simply way above the Chiang Mai average.

Another building that seems suspiciously empty is Siritara Condo. With units selling for as little as Bt700,000 and no swimming pool yet, it’s a stretch of imagination to call it a luxury development, but the modest price tag (Bt22,000 per sqm) has helped it sell out most of the 100-odd units. Its key selling point is the fantastic views in both directions, which are unlikely to be spoilt by any further development in the area. This is because the building is located on the first ring road, a 20-minute drive from the centre, and explains in part why only 12 apartments are permanently occupied.

“Who wants to live in a concrete block out in the rice fields,” one prospective buyer quipped. Some are up for resale while others are weekend places for Bangkok owners. A local agent revealed one of his clients owned several and was struggling to rent them out. “We initially experienced good sales of various luxury condos,” the Australian agent related to us, “but frankly I don’t think Chiang Mai has enough people who can afford these rents, who wants to pay 20k rent a month when you can get a house for that price,” he explained.

On the other hand, Baan Karn Kanok III is much better located, just off the superhighway and within proximity of the Nimminhemin area. Yet it’s in a quiet and leafy neighbourhood close to the mountains. There are only four floors, and the progressively designed apartments include duplex units. These sold out remarkably quickly, and very few are up for re-sale. In fact, the success of the project has prompted this established Chiang Mai developer to proceed with Karn Kanok V, a similar building closer to the Seven Hundred Year Stadium complex. Buyers are due to take full ownership this month, although it is unlikely to be fully completed for a few more months. A number of condos are still available for Thai ownership, and priced at Bt25,000 per square meter they are very good value. Nonetheless, it will probably be a good litmus test of just how successfully the luxury market can sustain itself in Chiang Mai.

Then there is Punna Residence which is going up on the busy corner of the popular Nimminhemin road and soi 6. The sheer professionalism and thoroughness of the developers, notwithstanding their relative youth and lack of experience, is enough to convince prospective investors that this building might be the new trendsetter for Chiang Mai. With the cheapest units already sold out 12 months ahead of the planned completion, this handsome building still offers an interesting range of choices at roughly Bt35,000 per square meter. Despite the noisy student bars in the area, this mountain-view condo is likely to be a very desirable address in Chiang Mai, located as it is in one of the most happening areas of the city.

In addition, these buildings also have competition from Convention Condo, located round the corner from Karn Kanok on the Canal road, but yet to break ground. Floor plans suggest rather cramped units and some low-end tenants, and the developers seem to have a vague track record. But this project certainly is worth visiting. As with many buildings in Chiang Mai, you need to consider the environs and likeliness of a lofty building or noisy karaoke bar appearing as a neighbour – this is a chronic problem in Thailand.

For investors, the conundrum remains. Do you cash in on an affordable and relatively uncrowded emerging market, but risk waiting to see if the equity is really there? The fact remains that Chiang Mai attracts those who can’t afford to retire anywhere else, and their disposable incomes are modest. On the other hand, you might be assured to know that several buyers have already done quite well purchasing units pre-build, with only deposits tied up, then successfully reselling for a decent profit after completion. Local knowledge does help, as well as patience in the city’s outlook.

Chiang Mai’s condo conundrum

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