Selling a luxury home in Chiang Mai has long been a challenge—and prospects are not looking any better as more and more luxury home owners decide to try and sell. Not for any particular reason, but people come and go, change their plans, want to spend more time in their home country and so on…
For a start, for the purpose of this commentary, let’s define a luxury home as a property in CM with a Baht 20 million or more asking price.
Before we look at some of the key issues in the market, let’s remind ourselves of just what open market value is and how the value of any property is derived. A definition internationally recognised by both the RICS and IVSC is as follows:
The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
Briefly, let’s also summarise the three methods most commonly used to assess the market value of a property:
1) actual sales (ie not asking prices) of other similar properties in a similar area and at a similar time
2) calculation of the rental value of the property and capitalisation of the net annual rental by a factor determined after analysis of actual market evidence supporting such factor
3) replacement cost to acquire the land and build the same or a similar property—this is the least preferred method and only really to be used in the absence of comparables available under 1) and 2) above. In some cases when markets are in a down cycle, value may be lower than replacement cost; in addition, of course, we should also really be factoring in depreciation of the property.
So, what are the key issues facing sales of Chiang Mai luxury homes?
Well, here are just some (but not all of them):
1) demand is thin with the vast majority of buyers being in the Baht 3-7M range
2) most foreign buyers are either retired or nearing retirement and don’t wish to put most or all of their savings into real estate priced at more than US$400-500k in Thailand (uncertainties about ownership issues of landed property and the short duration of residence visas also affecting their decision)
3) for those people who simply have to have a luxury home, many opt to build their own instead of buying someone else’s dream property with its characteristics crafted solely for that individual
4) funding or mortgages are not available to foreigners so any purchase is cash only
5) Thai buyers, typically from out of province, have not been active in the high end market for a couple of years—and, again if they have the money, will probably self-build their own dream home
6) vendors are pricing their properties well above market levels; it’s not uncommon for a vendor who has built a home for himself or herself to add a premium of up to 50% of the cost for their time and effort when they try to sell (and usually in a very short space of time)
7) related to the above point, we have the phenomenon of me as buyer and me as vendor wherein buyers wish to buy as cheaply as possible and use all sorts of arguments to get prices down, whilst vendors wish to hang on to their dream price—even if it takes 2-3 years to even get the scent of a possible buyer
8) currently a stand-off of sorts has developed in the luxury home market whereby some agents simply list asking prices according the vendors wishes, without regard to market value and demand in the market.
The result? There are lots of properties for sale at asking prices over Baht 30-40M—yet with no buyers. However, no-one wishes to be the first to adjust the pricing of their dream home to a reasonable level!
So, all things considered, just how does one solve this conundrum?
From our side we are actively working on our marketing but the fundamental pricing need to be right to give a real estate agent the chance to sell.
Do you have an opinion or suggestion? Or what do you think about prices in the luxury residential market in CM?
Perfect Homes is a leading Chiang Mai real estate agency with extensive experience in the city, regionally, nationally and internationally.