Condo 30 year lease v purchase price

[LinkToThePast]

I am looking at a condo which I have the option to purchase or take a 30 year lease. As I am in my mid 40s and have no children to pass the property to, a 30 year lease would work for me. 

 

What would be a reasonable 30 year lease price compared to full purchase price, ie as a percentage. Does 60% seem reasonable?

 

 

[Peterw42]

Are you saying 60% of the purchase price over 30 years ?  

If the seller will give you those terms, it sounds great. I cant see that the owner would do those terms as they are getting no where near the market rent.

 

On a 1,000,000 baht condo thats rents for 5,000 a month (low), the owner is getting 60,000 a year or 1,800,000 over 30 years. Thats not a percentage of the price, its a multiple of the price. (180%)

 

60% of purchase price over 30 years would be 1,600 a month for the owner. way below market rent.

 

 

[scubascuba3]

I've not heard of a 30 year lease on a condo. A new condo?

[ukrules]

I've seen places 'for sale' or lease. If you go with the lease option they charge the same price, but get it back in 30 years.

 

There quite probably be no discount, this was for a house, not a condo.

 

The 30 year lease thing is a scam, sell to a Thai and it's gone forever, get lucky and sell a lease to a foreigner - charge the same price and get it back in 30 years time.

 

[KittenKong]

Are you saying 60% of the purchase price over 30 years ?

If the seller will give you those terms, it sounds great. I cant see that the owner would do those terms as they are getting no where near the market rent.
On a 1,000,000 baht condo thats rents for 5,000 a month (low), the owner is getting 60,000 a year or 1,800,000 over 30 years. Thats not a percentage of the price, its a multiple of the price. (180%)
60% of purchase price over 30 years would be 1,600 a month for the owner. way below market rent.

You may be forgetting that a bird in the hand is worth two in the bush. A lease is money up-front which the owner can invest or use as he wishes, whereas rent may or may not appear regularly over 30 years. In fact quite a lot could happen to a building over 30 years. And the owner may be desperate for cash, who knows? Plenty of Thais are.

As for the amount, it depends on the condo unit. Yes, cheap ones may offer a higher rental return but there are plenty of more expensive condos on sale that rent out for less than 4% of the sale asking price.

And of course for all we know the condo unit in question could be very undesirable for either sale or rent, with only the OP being interested in it.

One thing's for sure: having bought the lease the OP would probably find it impossible to sell on if he decided for whatever reason that he wanted to move. And I can think of a hundred possible reasons.

[KittenKong]

I've not heard of a 30 year lease on a condo.

Quite common in Phuket, as far as I know. Somewhat less common in Bangkok. Almost unheard of in Pattaya.

To me a 30 year Thai lease seems very undesirable as you have all the disadvantages of ownership (being unable to move quickly if you need/want to) yet none of the possible advantages (capital appreciation if you are very lucky). A 99 year (or longer) lease in another country might be a different matter.

[BarnicaleBob]

Besides sounding like a scam, it is a very unsafe investment to have a 30 year lease on an apartment/condo in a  community owned building.  As a lessee, you would have no vote on the condo association meetings and no control over how the condo is run. 

If you purchase the condo, you have a more secure investment that can be resold in the future.  As far as having nobody to leave the condo to when you die, this is Thailand and all that can change.

[inThailand]

As a lessee, you would have no vote on the condo association meetings and no control over how the condo is run. 

 

Yes, if you do not make this a term of your lease. You specify two clauses in the lease so you have voting rights. One; during the term of the lease you have voting rights and Two; the owner signs a power of attorney naming you to act on condo JP issues. Point two is more readily accepted by the JP Manager. 

[Delight]

Having read the posts todate ,I think that the 60% suggestion by the OP is quite reasonable

 

For the OP's point of view he is paying 40 % less than list

 

From the owners point of view it is money in the bank and he gets his condo back after the 30 years.

The processs can be repeated -probably now by his family.

 

Both win!

 

[3421abc]

Listen don't do the 30 yr mistake.

 

In case you change your mind down the road or need money or for whatever reason you will have an almost impossible chance of finding someone to buy your leasehold.

You are basically paying upfront for a 30yr rent. 

In bkk there are several condos around ratchadamri empty for sale w a 7 yr leasehold left. Nobody wants to buy them.

I calculated and the price they wants is higher than renting for 7 yrs. Go figure.

 

[The Theory]

I don’t Lease 30y. 

I lease annually and have the option to move. 

I don’t need a prison sell. No matter how much I could save.

[stephenterry]

11 minutes ago, The Theory said:

I don’t Lease 30y. 

I lease annually and have the option to move. 

I don’t need a prison sell. No matter how much I could save.

It's a prison cell, not sell. But I agree with you. The OP, being in his 40's would surely benefit from having freedom of movement, and have the flexibility to choose where he lives for the next 30 years. Without being morbid, people can leave this mortal coil anytime, so what's the point of taking out a long-term lease. 

[Delight]

As  usual those answering this post are giving answers to a question that  you did not pose.

The Q was  about the price.

 

Lets say you(the OP) establish that the regular rent for 12 months is say 15,000 baht per month

Take 60%  that i.e 9000 Baht per month

£30 years at that figure is 3.24M Baht.

You earn the 40 % discount since there will be no ‘dry’ periods for the owner.

If the market  price for the condo is approx.  5.4 M Baht and you lease for a total of 3.24 M for 30 years  then it seems to me that  all is ok.

Paying 5.4 M Baht for the lease would be crazy!

The OP will have to pay the maintenance charges.

Personally I would never rent –in the regular way.

Based on my observations the furniture is too austere and I could never call it ‘home’ plus the landlord can kick me out.

All these issues are negated on a 30 year deal.

That said you have to be sure that you do not have the wander bug.

.

After the 30 year period  you will probably then  be just a  tenant in the regular way.

The key to this is that you can finance the rent after the 30 Years

[stephenterry]

Delight, the price is immaterial if it's not a sensible option in the first place. There are other considerations that the OP should take into account before committing or not to a financial lock-in of thirty years. in other words, the question opens up other questions that are relevant.

[Delight]

16 minutes ago, stephenterry said:

Delight, the price is immaterial if it's not a sensible option in the first place. There are other considerations that the OP should take into account before committing or not to a financial lock-in of thirty years. in other words, the question opens up other questions that are relevant.

 I agree -however it is reasonable to assume that the OP is bright enough to figure  out these  'other  factors 'for himself

 

He did not ask about the 'other factors'

He only asked about the price

Most replies were about the 'other factors'

Unsoliticed replies are very popular on this blog

[stephenterry]

9 minutes ago, Delight said:

 I agree -however it is reasonable to assume that the OP is bright enough to figure  out these  'other  factors 'for himself

 

He did not ask about the 'other factors'

He only asked about the price

Most replies were about the 'other factors'

Unsoliticed replies are very popular on this blog

If it was me at 40+ years of age and without any children, and I was bright enough to figure out other factors, I would still like some 'assurance' that I had considered everything that might or might not affect my 30 year commitment. And while 'unsolicited replies' are a frequent occurrence, a few have merit of being case studies (experience) for consideration. That's one benefit of seeking advice on here - albeit, I know where you're coming from. 

 

  

[HampiK]

45 minutes ago, Delight said:

The Q was  about the price.

 

Lets say you(the OP) establish that the regular rent for 12 months is say 15,000 baht per month

Take 60%  that i.e 9000 Baht per month

£30 years at that figure is 3.24M Baht.

You earn the 40 % discount since there will be no ‘dry’ periods for the owner.

 

If the market  price for the condo is approx.  5.4 M Baht and you lease for a total of 3.24 M for 30 years  then it seems to me that  all is ok.

 

Paying 5.4 M Baht for the lease would be crazy!

I would not agree with your calculations for the following reason.

if the regular monthly rental is 15'000... this would mean the price for this condo would be in the range of 3-3.5 million baht.

The standart for rent is price of the condo divieded by 200 or the rental price multiply with 200 (sometimes can go up high like 240) but I never ever heared of a multiplier of 360 as in your example.

 

If this condo would be mine I would think many times if I want give a lease for 30 years with 40% discount compared to the buying price...

[Delight]

4 minutes ago, HampiK said:

I would not agree with your calculations for the following reason.

if the regular monthly rental is 15'000... this would mean the price for this condo would be in the range of 3-3.5 million baht.

The standart for rent is price of the condo divieded by 200 or the rental price multiply with 200 (sometimes can go up high like 240) but I never ever heared of a multiplier of 360 as in your example.

 

If this condo would be mine I would think many times if I want give a lease for 30 years with 40% discount compared to the buying price...

 

 Based on typical rental periods -6 to 12 months -then I agree with your numbers

 

However this is for 30 years.

A different formula will apply

 

[HampiK]

9 minutes ago, Delight said:

 

 Based on typical rental periods -6 to 12 months -then I agree with your numbers

 

However this is for 30 years.

A different formula will apply

 

Yes but you added the 40% with your formula which is already much lower than the normal formula...

If you only choose the 40% discount from the normal formula or his already cheaper formula… 

 

But not both

 

But anyway this is only my thinking if I would rent it out....

[theguyfromanotherforum]

As someone else has mentioned why would you paying 30 year rent upfront?

 

I have actually seen adverts in some parts of Bangkok where you get a "discount" on rent up to 50% if you pay 10 years in advance. I think it was also posted on Thai Visa.

 

To be fair, the "condos" were dumps, but in prime areas.

[Delight]

17 minutes ago, HampiK said:

Yes but you added the 40% with your formula which is already much lower than the normal formula...

If you only choose the 40% discount from the normal formula or his already cheaper formula… 

 

But not both

 

But anyway this is only my thinking if I would rent it out....

My calculations supported the OP s thoughts that he should only pay 60% the market price of the out right purchase price.

That is what I have stated

I think that the 60% is about right

[zaZa9]

The question should be -

Does anyone know if I could sell yet another condo  quickly should I become unwell/change my circumstances  within the 30 years and have to go elsewhere?

I dont mean that to sound harsh - its a reality here.

[HampiK]

58 minutes ago, zaZa9 said:

The question should be -

Does anyone know if I could sell yet another condo  quickly should I become unwell/change my circumstances  within the 30 years and have to go elsewhere?

I dont mean that to sound harsh - its a reality here.

That should not be the question, because even a bought condo is not easy to sell fast. A lease with a few years on it... I think hmmm almost impossible to sell.

[Delight]

2 hours ago, zaZa9 said:

The question should be -

Does anyone know if I could sell yet another condo  quickly should I become unwell/change my circumstances  within the 30 years and have to go elsewhere?

I dont mean that to sound harsh - its a reality here.

 The circumstances that you describe apply,just as much, to a condo purchased in the regular way

You imply that nobody should buy a condo-just in case this or just in case that.

 The OP is asking  for commercial advice in relation to leasing.

 

[MyFriend You]

Believe me, after 10-15 years, you will have someone to leave it too, even if its your housekeeper.  Buy it up front and fargetaboutit!!!

[smutcakes]

When they say 60% of the condo value, they mean a NPV of 60%, which in reality means you will be paying significantly more than 60% if you are not paying it all upfront.

 

They will discount the future cash flow to take into account the time value of money, opportunity cost of the money etc. How much you choose to pay upfront depends on the requirement of the seller, whether they want cash up front today, or they prefer larger payments over the 30 years.

 

I believe for land leases as a rule of thumb for every year of the lease you would expect 1% of freehold value, so a 30 year lease would equate to 30% of the freehold value in todays money. Having said that some of the new apartments on prime Bangkok land which are leasehold are selling at close to freehold values which personally i just cannot really fathom.

[thedemon]

On large commercial transactions where a developer leases rather than purchases land to build a hotel/condo/office block then 60% of the land value for a 30 year lease is roughly correct for the accepted discount rate. There have been several large deals along those lines done in Bangkok in the last few years. A recent example is the large plot at the corner of Sukhumvit Soi 10 (Chuvit Gardens) where the developer (Land & Houses) has leased rather than purchased the land. Both parties are Thai entities so it has nothing to do with foreign ownership restrictions.

 

 A condo is different than land though. Though the land the condo is built on is almost certain to increase in value, the structure is deteriorating from the day it is built so the value of a unit may increase but not to the same extent as land. The value can also decrease on a condo unit.

 

I can only imagine this situation arising in places like Phuket or Pattaya where the 49% foreign quota is sold out. It doesn't happen much anywhere else in Thailand. In certain circumstances I could see a 30 year lease being attractive to a buyer with a 40% discount on the purchase price. But it is more difficult to see how that could be a good deal for a seller/lessor. 

[ubonr1971]

check if the building is on government land. That could be a reason why they only offer 30 yr lease. We just had this issue recently. 

[Delight]

On 02/04/2018 at 9:35 AM, thedemon said:

. In certain circumstances I could see a 30 year lease being attractive to a buyer with a 40% discount on the purchase price. But it is more difficult to see how that could be a good deal for a seller/lessor. 

Consider a young person investor –say around 25 years

He will only need to find 40%of the purchase price

 

The tenant will provide the 60%

The tenant pays the maintenance fees

So by the time he is 55 he can move in.

Probably the 40% was fully  paid  years ago

 

Consider the older investor

 

Again he has only to find the 40 %

His motive will be to bequeath a condo to his large  family for their shared use

It could be in the family for generations.

 

The younger investor sounds more promising

[HampiK]

On ‎12‎.‎04‎.‎2018 at 11:10 PM, Delight said:

Consider a young person investor –say around 25 years

He will only need to find 40%of the purchase price

 

The tenant will provide the 60%

The tenant pays the maintenance fees

So by the time he is 55 he can move in.

Probably the 40% was fully  paid  years ago

 

Consider the older investor

 

Again he has only to find the 40 %

His motive will be to bequeath a condo to his large  family for their shared use

It could be in the family for generations.

 

The younger investor sounds more promising

but would also mean you have to pay 40% "only" for an 30 year old property, which you not know if you have to invest some money in renovating. And mostly (normally) the younger people not have the money yet to invest.

And if you have the money mean you will know that in 30 years you still would like the country and then move to Thailand for living?

Most people I know or hear from.. when they like the country to that percentage, that they are willing to invest money in it.. they already thinking for moving there now and not want wait 30 years.