Investment Into Thailand?

[stuartfoulkes]

Investment into Thailand?

During the past 20 years, property has been at the heart of most serious investors and several millions have been made on the back of purchasing a property today and selling on at an inflated price tomorrow. In particular, the Dubai market seen property bought and sold within the matter of a few weeks and all with serious profits made.

It has been reported that in Thailand and particularly for condominiums in Bangkok, the average selling price has increased from circa THB40,000 per square meter to THB130,000 since the turn of millennium representing a 32.5% return per annum! Only recently has the price increase begun to slow with local political turmoil receiving many of accusation although, whilst most markets have taken a dive, the Thailand market continues to hold. This is partly due to do with the fact more and more affluent Thai investors are beginning to enter the property market and maintain the demand for property. With such a strong Thai Baht or alternatively, week foreign currencies, a continued demand for property in Thailand helps maintain property values.

Another factor to consider when determining Thailand property values is that most overseas investors historically paid cash simply because finance options have not been available. The likelihood is that should a foreign investor wish to release equity on the property, funding is not easily available and therefore the only way to remove the investment is by sale. Most investors usually have other easier liquefiable assets and therefore the Thai property is not sold at below market value (BMV) and maintained as the investment which it set out upon, for long term.

Current political climate maintains a risk associated with purchase of Thailand property although, how long can this hold a barrier to the demand of a foreign investors dream property in Thailand? It is often perceived for many overseas investors that Thailand is a dream destination with some of the most beautiful places to visit on our planet. Assuming a continued exotic existence with paradise all around its shores, Thailand will continue to captivate the investment market for many years to come.

It is now that the 6 methods of property purchase in Thailand need to be reviewed since assuming a buyer will be interested, a careful consideration to the options will provide a good sound investment.

The 6 methods are:

1. Cash

2. Owner / Developer Finance

3. Local Thai Bank Finance

4. Re-Mortgage Overseas Property

5. Hedge Fund Finance

6. Asset Finance

Without going into detail around specifics of each type, let’s consider Thailand property as a pure investment which simply needs to understand typical costs associated. An investment requires a return in order to be considered a good investment and the investment should consider both lending costs vs. cash potential (i.e. how much income can the cash generate without being used outright for the property purchase)

The aim is to ensure the earning potential of Cash is greater than the Costing of loan. i.e. 500,000 Cash earns 10% and 500,000 loan costs 5%.

On the outset, if we consider various forms of finance, typical interest rates on the borrowing are thus (average across currencies and not currency specific):

1. 3% - Asset Finance

2. 4-5% - Re-Mortgage Overseas Property

3. 5-10% - Owner Developer Finance

4. 7% - Local Thai Bank Finance

5. 9% - Hedge Fund Finance

This would indicate Asset Finance as the most efficient, where money is released from an existing Cash deposit or Investment portfolio (admin costs / fee’s not taken into consideration). Now let’s consider what earning potential Cash Deposits hold, the options are:

1. 3% Income - Offshore Cash Deposit (Instant Access)

2. 4% Income - Offshore Cash Deposit (Fixed Term)

3. 7% Income – Typical Overseas Investment Portfolio (Bond)

4. 7% Income - Thailand Property Rental Income

This would indicate that both the Investment Portfolio and Thailand Property are similarly best at maximising Cash income over time.

An additional point now worth noting is whilst both offer a typical 7% income; the currency of income for Thailand property will most likely be in THB whereas the investment portfolio will be in currency of choice. I.e. If USD investment, a 7% return may be considered better since the purchasing power of USD is greater than THB.

Dual use of Assets will take consideration because let’s assume the Investment portfolio is earning 7% Income in USD and a loan is taken to purchase property at 3%. The property is also in your portfolio and therefore income of 7% THB will be achieved (less 3% costing of loan) on top of the 7% USD Income.

Typically, the above scenario is where most investment property portfolios would sit since ultimately, a serious investor understands how to maximise the potential of cash whilst understanding risks associated.

Whilst the above covers an Asset Finance method initially appearing to be efficient, 200% of the initial investment is usually required. I.e. to purchase a THB10,000,000 Condominium, a THB20,000,000 or currency equivalent investment value is required. For the large part of investors in Thailand, this is not feasible and therefore the other options need to be accounted for.

As with most things in life, the greater value of wealth held, the cheaper a loan will be and therefore a buyer who has 50% of the purchase price and requires a further 50% to purchase, a Hedge fund loan could be the final option available to purchase a property of dreams in Thailand. The idea of a pure investment is now not so apparent and the fact would be, property would now be seen as a home which would receive growth in Value over time and not for the immediate investment.

As with all methods of property purchase and finance, sound financial planning is a must in order to mitigate risks associated and maximise enjoyment of the investment. Thailand is “the” land of smiles and whilst present turmoil can cloud the smile, it should not be long until circumstances regain some momentum?

[Zstarx]

I'm sorry, you lost me when you wrote "Only recently has the price increase begun to slow with local political turmoil receiving many of accusation although, whilst most markets have taken a dive, the Thailand market continues to hold."

[givenall]

Too much to read, but my advice to anyone who wants to invest in Thailand, is to think twice and then do your homework. I would think there are glut of codo in Bangkok and sounding areas. Most of the condo are in very high price range designed for foreign investments. May be same as Dubai

[123ace]

That is funniest read I have all day on TV. The info presented as some sort of factual researched based commentary are all flawed. Starting with the assertion that values went from THB 40k to 130k psm. They did not. Some condo values were at 40k approx 10 years ago, however they have not risen to 130k psm. This is broadly incorrect.

New buildings have achieved higher values, older builings have been quite static and prices have fallen in the older buildings. Sales volume in the mid & high end is very low, and prices may yet drop based on lack of demand and falling yileds due to over supply and sharply reduced demand from tenants.

[rgs2001uk]

You can dress it up any way you want, but at the end of the day is nothing more than currency specualtion.

Another pertinent little detail missing, interest rates and exchange rates can and do fluctuate.