Thai and Cambodian press warn of escalating tensions following Miss Grand scandal

[farang000999]

For an extreme example, let's say a home cost 1000 baht a month to rent but 10,000,000 baht to purchase and own. Obviously it makes no sense to purchase the property since the purchase price is so high. In comparison, you look at the earnings of a company to determine the value of the company. The function of real estate is occupation. That is why someone will pay money for it.

So Thai real estate rental returns are abysmal yet people will still tell you how "hot" the Thai real estate market is. They will tell you how prices are definitely going up.

So rental returns are very low yet investors expect prices to rise? Why? If rental returns are already low that means that the property is already over priced.

Sounds like another game of musical chairs where someone ends up without a seat when the music finally stops.

[cloudhopper]

Jim Grant addresses that and other topics in this interesting interview- http://www.bloomberg.com/video/79932160/

[champken]

I bought my condo with the sole purpose of living in it, however before doing so i calculated the cost of renting something similar and found that amount to be approximately 9% of my proposed outlay. a figure that made buying worthwhile,

In my opinion, you should be looking for at least a 7-8% yield on your property investment

[trogers]

Landlords love to have more people thinking renting is more worthwhile than buying...

[khaan]

Landlords love to have more people thinking renting is more worthwhile than buying...

oh come on

it works both ways.

There would be many cities where real estate prices have already plummeted

when renters would be thinking that was the best decision I made not to be saddled with

real estate.

In Bangkok right now with prospects of it being submerged within 50 years

along with repercussions from the global banking system worldwide

you would have to be crazy to buy right now until people see what's going to happen.

Edited November 17, 2011 by khaan

[ludditeman]

Value of land is based on the perceived yield Vs cash.

If you are American, your cash earns you almost nothing, so a return of 3% in Thailand on a rental looks good.

If you are an Australian, your cash earns you 6%, so a return of 3% in Thailand on a rental looks bad.

If you are a Thai, the best bank return is about 3.5% (traditionally less), so property ownership looks good.

The smart investor moves their money around the world and invests where it earns most whatever the currency.

But most small investors are too scared to move away from their homeland currency, and forget condos in Thailand are valued in Baht.

Edited November 17, 2011 by ludditeman

[givenall]

I bought my condo with the sole purpose of living in it, however before doing so i calculated the cost of renting something similar and found that amount to be approximately 9% of my proposed outlay. a figure that made buying worthwhile,

In my opinion, you should be looking for at least a 7-8% yield on your property investment

I do not agree with this assessment.

It is ok to buy forpurpose of living, but from my experience there is misleading push to sell allthese new condos for investment and obviously very easy to buy but when come atime to sell it becomes impossible unless you are willing to take big loss. Inthe western countries the value of real state goes up more than inflation, atleast it used to over here condos depreciate just like a car. Thai people donot like to buy used condos and of course you are also in the mercy of thecondo management and the entire owner to pay their fees. Thai generally don’tlike to pay common fees so the condo management cannot spend money for upkeeping

My advice is to buy a condo to live and live a long timeotherwise rent

[champken]

I bought my condo with the sole purpose of living in it, however before doing so i calculated the cost of renting something similar and found that amount to be approximately 9% of my proposed outlay. a figure that made buying worthwhile,

In my opinion, you should be looking for at least a 7-8% yield on your property investment

I do not agree with this assessment.

It is ok to buy for purpose of living, but from my experience there is misleading push to sell allthese new condos for investment and obviously very easy to buy but when come atime to sell it becomes impossible unless you are willing to take big loss. Inthe western countries the value of real state goes up more than inflation, atleast it used to over here condos depreciate just like a car. Thai people don't like to buy used condos and of course you are also in the mercy of thecondo management and the entire owner to pay their fees. Thai generally don't like to pay common fees so the condo management cannot spend money for upkeeping

My advice is to buy a condo to live and live a long time otherwise rent

I think the OP was trying to make the point about purchase or perceived values against potential yields from rental returns on those properties.

You do make some valid points and that's why it is necessary to do your research on any proposed condo purchase.

I bought in an already established complex, with a history of good management and maintenance in a beach front location, so in my case, buying was definitely preferable to renting

[djayz]

Value of land is based on the perceived yield Vs cash.

If you are American, your cash earns you almost nothing, so a return of 3% in Thailand on a rental looks good.

If you are an Australian, your cash earns you 6%, so a return of 3% in Thailand on a rental looks bad.

If you are a Thai, the best bank return is about 3.5% (traditionally less), so property ownership looks good.

The smart investor moves their money around the world and invests where it earns most whatever the currency.

But most small investors are too scared to move away from their homeland currency, and forget condos in Thailand are valued in Baht.

Any tips on sites I could research where my money would earn the most now?

[farang000999]

Landlords love to have more people thinking renting is more worthwhile than buying...

Even in the USA where home prices recently fell 70% in some cities.

[PattayaPhom]

A condo bought at 1.3 milion and achieves 12,000 a month rent, after maitenace and a bit for marketing thats a 10% yield...thats pretty good sitting back and getting 10% for doing nothing...of course the doom mongers will not think the same but anyone in the property business knows what is really going on..

[ludditeman]

A condo bought at 1.3 milion and achieves 12,000 a month rent, after maitenace and a bit for marketing thats a 10% yield...thats pretty good sitting back and getting 10% for doing nothing...of course the doom mongers will not think the same but anyone in the property business knows what is really going on..

I'm living in a 1.2 million house and paying 5,000bht a month, that's not so good.

Surprised anyone gets a return of 12k a month, in a few years the rental value will likely be much less

[trogers]

Landlords love to have more people thinking renting is more worthwhile than buying...

Even in the USA where home prices recently fell 70% in some cities.

And most of such homes are 60-100km away from the cities...sub suburbia...

[trogers]

A condo bought at 1.3 milion and achieves 12,000 a month rent, after maitenace and a bit for marketing thats a 10% yield...thats pretty good sitting back and getting 10% for doing nothing...of course the doom mongers will not think the same but anyone in the property business knows what is really going on..

I'm living in a 1.2 million house and paying 5,000bht a month, that's not so good.

Surprised anyone gets a return of 12k a month, in a few years the rental value will likely be much less

A case of condo vs house...

[Darrel]

A condo bought at 1.3 milion and achieves 12,000 a month rent, after maitenace and a bit for marketing thats a 10% yield...thats pretty good sitting back and getting 10% for doing nothing..

I wouldn't pay 12k a month for a 1.3MB condo.

I am paying 10K a month for a 2.5-3MB condo, high floor, 65sqm, uninterrupted sea/city/mountain view, near the bahtbus. Even the cable charge is included. I would describe that as reasonable.

A 1.3MB condo is worth about 5K or 6K rental, no more. Just because some people are stupid enough to pay absurdly high prices at some times of year doesnt make it money in the bank. You only need to look at all the unoccupied units around to realise that.

I am certain that rental asking prices will drop substantially when all these rather tacky new 1-1.5MB units at the back of Jomtien 2nd Rd and on Pratumnak come online over the next year or two.

If I'm wrong the nam yens are on me.

[JimsKnight]

Landlords love to have more people thinking renting is more worthwhile than buying...

Estate agents / con artists love to have farang thinking buying is more worthwhile than renting too...

[Naam]

Landlords love to have more people thinking renting is more worthwhile than buying...

Even in the USA where home prices recently fell 70% in some cities.

And most of such homes are 60-100km away from the cities...sub suburbia...

not necessarily. i sold my home (22 miles from downtown Orlando, 20 miles to the Atlantic) early 2005 before the big appreciation 2006/2007. it's value (according to zillow.com) is down 62% based on the price i got and down in excess of 70% based on the price when it was sold again end of 2006.

[Naam]

Landlords love to have more people thinking renting is more worthwhile than buying...

Estate agents / con artists love to have farang thinking buying is more worthwhile than renting too...

there are people who rent and there are people who buy. there are catlovers and there are doglovers.

[soomak]

It's a lot to do with personal preference and psychology.

A lot of people in my country like to feel they own an apartment, and consider renting "throwing money away".

That's nothing to do with economics or financial wisdom - simply psychology.

Not sure what the Thai preference is, but in any case for most people its not an economical question.

So the investors do effect the market, but they are not alone in it.

[Gary A]

When I officially retired in Thailand, I paid 7,000 baht a month for a nice apartment. I had planned to live there for a long time and paid my rent six months at a time. I wanted to hang a clock in the kitchen and the landlord wouldn't allow glue or a nail hole in the wall. I bought a condo and I could do anything I wanted in the inside. I don't like asking the landlord permission for any little thing I want to do. Renting may be fine for some but not for me. I did like the apartment but the electric bill was way inflated and water was expensive too. No thanks. I want my own place. I also don't like variable expenses and rent is a variable expense.

I now rent out the condo and live in my wife's house. I bought the condo at 41 baht to a dollar and it has appreciated also. When I bought the condo, my friends told me I was stupid. That the price was too high. I didn't care, I liked the place and was happy living there. I didn't buy it as an investment It is 60 square meters with a separate bedroom and it is not a shoe box, As it has turned out it was a very good investment. I don't expect my wife to throw me out but if she does I will still have a place to go and have a roof over my head. At this point it is like a security blanket.

[ludditeman]

When I officially retired in Thailand, I paid 7,000 baht a month for a nice apartment. I had planned to live there for a long time and paid my rent six months at a time. I wanted to hang a clock in the kitchen and the landlord wouldn't allow glue or a nail hole in the wall. I bought a condo and I could do anything I wanted in the inside. I don't like asking the landlord permission for any little thing I want to do. Renting may be fine for some but not for me. I did like the apartment but the electric bill was way inflated and water was expensive too. No thanks. I want my own place. I also don't like variable expenses and rent is a variable expense.

Not everyone has awkward landlords, my landlord doesn't much care what I do, only came to the house once in the last year, as long as the rent is paid every month they are happy.

But then again, those landlords targeting foreigners as tenants are usually way more problematic than those renting to Thais.

Give a Thai tenant any grief and he's gone next week whereas most foreigners will put up with huge piles of pooh.

Edited December 25, 2011 by ludditeman

[quiksilva]

There are several methods of property valuation recognised by professional bodies such as the RICS, and yes these methods are used by valuers in Thailand too. They are:

1. Capitalised net income (based on an investors perceived value of net rental income i.e. yield)
   
2. Depreciated replacement cost (how much would it cost to build the same thing today, then depreciate for age and condition)
   
3. Market comparison (where the value is derived from evidence of recent transactions of similar properties)
   
4. Residual valuation (usually used for land or development /redevelopment projects)
   

Each of these has their merits in the right circumstances, and they can also produce different values. So the application of the correct approach in the right circumstance is essential if you want to avoid skewed figures.

Note, that if one's perception of value is based purely on how much net income a property can generate, then the investor's perceived value, may very well be different to the owner occupier. However, neither is incorrect in their assessment, they are just looking at it with different perspectives.

Ultimately the only definition of value that matters is the amount for which a property should exchange 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.

Also do not confuse prices with values. What people want and what people pay are different. But if people continue to pay the prices set by sellers then they are setting market benchmarks which could then be used to estimate value of similar properties.

In some cases this could see entire markets with very low rental yields, (or conversely of little investment value) but that would not mean that values are incorrect. It just means that in the perception of an investor it would not be a 'good' market to invest in.