Condominiums In Thailand Bringing Returns

[george]

Condominiums bringing returns

Residential property, particularly in central districts, could be worth considering

Buying condominiums for investment purposes appears to be a smart idea for those who have deep pockets in view of the low returns from putting money in both the stock market and the bond market, particularly in view of a spate of uncertainties.

According to research by Jones Lang LaSalle, condominium prices have increased this year up to 27 per cent over the same period last year. The increased prices will fully offset the higher burden to be incurred by those who bought condominiums from an interest rate increase in the coming months.

New condominiums are also attractive for those who wish to buy as buyers can reap another windfall from rental returns.

Despite plenty of supply in the condominium market, demand for condominiums in the Central Business District areas such as Silom, Sathorn, Sukhumvit and Ratchada remains strong on the back of the country’s robust economic growth.

A number of local employees who work in the CBD prefer renting condominiums in the prime areas to buying them as they already have their own houses. This presents an opportunity for those who have money in hand as it offers better returns than savings in bank accounts.

CB Richard Ellis Research reported demand for condominiums in CBD areas including Sukumvit, Sathorn and Silom had increased since 2003. The vacancy rate dropped from 20 per cent to 16.5 per cent during 2003, and the trend is expected to continue.

Further research conducted by Raimon Land Plc echoed Jones Lang LaSalle’s findings that condominium prices had increased this year.

For example, grade-A condominium projects on Sukhumvit, Silom and Sathorn are now selling for between Bt70,000 and Bt100,000 per square metre. Grade-B projects in the same location are now available at between Bt55,000 and Bt60,000 per square metre, and grade-C projects are under Bt50,000 per square metre. These prices have increased around 20 per cent over the past three years.

The leasing price of a grade-A condominium in the same location is Bt550-Bt600 per square metre a month, up about 20 per cent in the last three years.

A number of property firms such as Sansiri Plc, Hemraj Land & Development Plc, MetroStar Property Co Ltd, Land & House Plc and Raimon Land Plc have also introduced their grade-A condominiums to the market.

Many condominium projects will complete construction by the end of this year, while some have recently finished construction. Thus investors could buy and then offer them for rent immediately.

If you buy a grade-A condominium on Sukhumvit Road with total space of 100 square metres, you will get rents of about Bt55,000 to Bt60,000 a month with leasing prices between Bt550 and Bt600 per square metre.

Thus, if your condominium cost Bt7 million cash, you will be able to generate rental income to break even on your investment in nine and a half years.

However if you bought a condominium worth Bt7 million by paying a down payment in cash of about Bt500,000 and then a mortgage loan of Bt6.5 million with a maturity of 15 years, your monthly instalments would be Bt53,200, still lower than the average monthly rental income.

Think your rental fee is too high? Try reducing rents from Bt550 per square metre to Bt400, then it would be easier for you to offer your property to customers, although you would have to pay an additional monthly instalment to the bank if you offer lower rents. Eventually your monthly instalment burden will reduce before the condominium is finally transferred to you.

Jones Lang LaSalle once anticipated that investment in a condominium project could generate around 6 per cent return, still much higher than the current savings rate of 0.75 per cent. The income is also more certain than a stock investment.

However, SmartLife would like to warn readers that the suggested condominium investments above are not suitable for those without sufficiently large savings to fully cover the investment risk.

--The Nation 2004-06-21

[Khun ?]

I think many bonds pay more than .75% without having upkeep and chasing occupiers around just to break even in 10 years providing all these new condos

being built do not drive down the prices. No mention of tax obligations in this news.

6% minus all the time and worry does not make it worth it for a foreigner. Then whats to say laws will not change making it forbidden for foreigners to rent

out condos 5 years from now, or have limits to how many. The first time the locals

have the demand for them to do such it will be restricted from individual foreigners

to partake in such and forced sales of more than 1 unit will be the next step.

As an individual your chances are more against you comming out ahead in such

scheme of business. Real estate in Thailand is not that liquid and certainly not for a foreigner.

[BobAnderson]

The vacancy rate dropped from 20 per cent to 16.5 per cent during 2003,

There is a small problem here. I would consider 10% to be an excessive vacancy rate for residential rental property. I've owned rental properties for 25+ years back home and in a really really bad year one property might hit 20%, but still the aggregate rate rarely exceeds 5% if done right. Many other expenses need to be factored in also: repairs, maintenance, painting and fixup between tenants, condo fees, etc. And don’t forget management. How much is your time worth – or will you pay someone to manage the property for you? And if so, at what rate?

The other issue - negative cash flow - if you try to lower the rents enough to reduce the vacancy rate.

THe only time this deal would seem attractive to me would be if I needed the tax protection from depreciation - and I wonder if they even do that here!

Commercial properties are a whole 'nother deal. Usually higher rates of return, lower vacancy rates (but very costly when they do occur) and huge expenses between tenants.

Just my opinion. BUt then I am quite conservative on investment properties.

[Crash999]

Buying condominiums for investment purposes appears to be a smart idea for those who have deep pockets in view of the low returns from putting money in both the stock market and the bond market, particularly in view of a spate of uncertainties.

This is the crux of the problem in Thailand- Thais are very limited in their investment options, so real estate has always been a popular option. The end-result is high vacancy rates and volatility in the property market.

I can't see prices appreciating much higher than they are now, at least for grade-A properties with so many buildings coming online and projects in the works. So with rental returns at 5% I agree with Bob- it just doesn't pay to be buying for investment right now.

[OldAsiaHand]

Agreed. The figures Jones Lang is throwing around, particularly the alleged 27% annual price increase for condos, are absolutely crappola. These folks are justly famed for their shameless hyping of every local market they are active in, but even they should be blushing at this kind of junk. There just isn't sufficient liquidity in the Thai residential market to quantify any really useful market generalizations, let alone this kind of pollyanna ranting. Good lord.

[eric1000]

there are all sorts of factors they dont mention , the level the condo is on , views , security etc etc .. you could easilly get stuck with a condo you cant sell, as a chap i know in surawong has.

i have been looking at condos this week to buy , notably the river heaven project .

its a very nice design , comprising buildings D nearest the river with good views from the upper most floors and shophouse roofs rom the lower levels .!

Most the upper floors have been sold as they have good views but the lower levels from 9-5 dont appear to be selling , due to the ugly vista when you look out of the balcony , and no river views . and they appear to be priced the same as well.

as for the other buildings C B A furhter away from the river i would be surprised if they will be moving either , as they dont apear to offer a river view either .

so i may as well buy a condo at asoke for the same price where there is good transport facilities .

River heaven has raised the bar on quality though . thus making older condos look

drab and outdated . New devlopments will likely make older buildings look a tad out of date , making them harder to sell as well.

the stae of the art moves on as always , so make sure you are notlooking at older buildings

[Digger]

A number of local employees who work in the CBD prefer renting condominiums in the prime areas to buying them as they already have their own houses. This presents an opportunity for those who have money in hand as it offers better returns than savings in bank accounts.

If you buy a grade-A condominium on Sukhumvit Road with total space of 100 square metres, you will get rents of about Bt55,000 to Bt60,000 a month with leasing prices between Bt550 and Bt600 per square metre.

Given the fact that the average Thai wont go near a operating lease when they buy a car (i.e drive it for 2/3 years and then hand it back to the dealer), I truly cannot believe that there are many Thai's willing to pay 60,000 baht amonth to rent a grade A condo. My experience here is that unless they are paying off with the ultimate dream of ownership, these schemes do not work well in this market.

Interesting that 100sq M condo is expected to produce a rent of 60,000 baht. I last rented a apartment in BKK in prime Soi with 250 SQ M space and was paying 56,000 baht fully furnished in one of the best managed & maintained buildings. The issue when this type of calculation is used is that so much of the space is wasted and therefore has little value to the renter. One Thai friend of mine enthused about his 350SQ M condo on the river that he was planning to rent out to a farang. "Digger come and have a look and give me your opinion pls".

My god the entrance hall must have been 6m x 6m and all he could put in it was a huge round table with a flower pot in the centre. Bedrooms were massive, but only two of them and the kitchen was tiny. He expected to rent it out for 60,000 baht a month after spending 20,000,000 buying it and then fitting it out. I didn't have the heart to tell him he had lost the plot.

[exp9696]

GRADE A,afther 10years you can see the grade ( worthless )