Condos Poor Value Anyway

[thaigene2]

Someone else has done this before, so I''ll try to do a real short version of this argument. It is in your best interests to rent - not buy - in Thailand.

Here's why. A condo of around 100 m2 in BKK at present in an A grade building sells for an average of 85,000 Baht/M2 so that's around 8.5 million baht. To rent the same place would probably be 45,000 in a popular area (say 2 bdroom).

If you were to live there for 20 years, and pay 3,000 B per month in maintenance fees it would be another 720,000 over that period (but would almost certainly rise over the years - so let's say an even 1 Million) Now the cost of buying is 9.5 million. Divide by 240 months (in 20 years) and you have a monthly 'rent' of roughly 40,000 baht.

So you've saved 5,000 per month right? Wrong. You've lost out on the investment growth of your original 8.5 million Baht unless of course the building appreciates in value. You've seen what they look after 10 years never mind 20 years. Will your condo be worth more in 20 years than what you could have made in other investments? Maybe.

The above only takes into account the fact that you paid CASH.

Look what happens if you need a mortgage from one of the two banks in Singapore that are lending for condo purchase in Thailand. Say 7 % annual interest on 70 % of the purchase price (so 70% of 8.5 million is around 6 million), your 20 year mortgage would cost you 46,200 Baht per month (Using the North American mortgage calculator - if they use simple interest it's way more). That's a total of more than 11,000,000 baht - or 2.5 million in interest. Divide the downpayment you made (the 30% - 2.55 mil into 240 months) and it's another 10,625 Baht per month that it has cost you. Total: nearly 57,000 Baht per month.

Unless the property really increases in value and/or Thailand changes the law to allow an open market to foreigners, it's silly to buy. Double-check the math, I may have made a mistake. But the principal remains the same..Wait..rent..jai yen!

[English Noodles]

Yes and!!!! In 10 years time the B40,000 rent could be B80,000 and in twenty years time who knows?

So your way is not an exact science by any stretch of the imagination. If you you plan is to live here for the rest of your life and you are reasonably young it is far better to buy a place than rent.

[LOS NICK]

well you gotta be in it to win it..if you can foresee the future you deserve to make all the money in the world..but if you cant you can only put yourself in the best position possible for yourself.

In england and america guys have made fortunes with real estate values soaring where as the renter of Lessee has made zero.

Same holds true here.The renter or lessee will make zero if real estate soars.

But the renter or lessee will lose zero if the market tanks.

You gotta be in it to win in.

Sitting on the sidelines is boring anyway.

[Gumballl]

(Using the North American mortgage calculator - if they use simple interest it's way more)

What is the N.A. Calculator??? I've owned several properties here in the US (unfortunately, not all at the same time), and the mortgage companies always amortized their loans using simple interest.

[PeaceBlondie]

Every Microsoft Excel spreadsheets can compute mortgate rates, and they'll usually compound monthly. 6% per year comes out to 0.5% monthly.

For example: to borrow 10.000,000 baht at 6%, compounded monthly for 20 years, you would pay 71,643 baht per month. Formula is =pmt(rate,periods,amount). For each million borrowed, 7,164 baht per month.

If I had ten million to burn (meaning, I also had 90 million NOT to burn), and didn't intend to live in the condo, the rental income wouldn't cover my monthly payments and maint. fees in year one, or any other year. And like somebody already said, what will it look like in 10 to 20 years? Like the wreck I moved out of in Chiang Mai. No, thanks.

[Gary A]

Condo prices have gone way up. I bought a 60 square meter condo in a very nice complex in Jomtiem for 1.2 million baht about two and a half years ago. It is now worth 1.8 million. My friends told me I paid too much for it when I bought it but it was what I wanted. Since I have no intention of selling it it really doesn't matter. I thought the biggest variable in my budget would be rent so I thought if I had my own place that variable would be eliminated. Would I pay 1.8 million baht for it now? I doubt it. I rent it out for 9,000 baht a month. The question is what is going to happen to rental prices? Who knows? I know I could probably get 12,000 per month but since I have a good long term renter That is better for me. Some people simply want a little stability in their life so owning makes me feel secure. I have a safety net and somewhere to go if everything else heads south. No regrets here.

Paying 7 or 8 million baht is insane from my point of view. Maybe if you have a lot more money than I have it's not out of the question but for me it IS out of the question.

[ThaiBob]

Condo prices have gone way up. I bought a 60 square meter condo in a very nice complex in Jomtiem for 1.2 million baht about two and a half years ago. It is now worth 1.8 million. My friends told me I paid too much for it when I bought it but it was what I wanted. Since I have no intention of selling it it really doesn't matter. I thought the biggest variable in my budget would be rent so I thought if I had my own place that variable would be eliminated. Would I pay 1.8 million baht for it now? I doubt it. I rent it out for 9,000 baht a month. The question is what is going to happen to rental prices? Who knows? I know I could probably get 12,000 per month but since I have a good long term renter That is better for me. Some people simply want a little stability in their life so owning makes me feel secure. I have a safety net and somewhere to go if everything else heads south. No regrets here.

Paying 7 or 8 million baht is insane from my point of view. Maybe if you have a lot more money than I have it's not out of the question but for me it IS out of the question.

2-1/2 years ago the THB-USD exchange rate was around 44 THB/USD. You've locked in your housing costs indefinitely. Not only are foreign renters at the mercy of inflation but also at the mercy of exchange rates since most keep there money in accounts overseas. Prior to the economic ollapse in 1997 the exchange rate was around 25 THB/USD for many, many years. Exchange rates can change rapidly. Can anybody imagine their housing costs increasing by 70% in addition to inflation? The long-term outlook is for stronger Asian economies and currencies (although there was a short-term market correction recently) versus the dollar. It is also the current U.S. government policy of having a weak dollar. I started sending money to Thailand on a monthly basis about 6 months ago. During that time the USD has weakened 10% effectively increasing the costs of the condo I am purchasing. These rent versus buy discussions often overlook exchange rate impacts. Gary A. has made a wise decision. I'm retring in a few more years and condo appreciation (if any) has little concern for me.

[Thaiquila]

There are lots of economic factors to consider when buying foreign real estate. How long do you plan to live there? Do you ever intend to sell? Can you earn a better return somewhere else? And, of course, currency exchange issues. Over time, currency will go back and forth. I think holding a large foreign asset can be used as a hedge with your western currency (either way, you win and lose). That all said, looking at potential rental return versus cost is a time honored method of analysis, spending 10 million baht for something that rents for 15,000 baht sounds baa baa.

[malcolminthemiddle]

It's all about the Rate of Return on your investment which on Thai residential property, it has to be said, is low.

[Heng]

Apples and oranges. The "locking in their housing costs" crowd is right and so are the "rate of return" guys - well at least as far as people can predict future rates of return and rents anyway. Just depends on the person. Myself, if I couldn't own real estate in Thailand, but planned to live here forever, and could only own condos... I wouldn't INVEST in condos either, but I'd still buy exactly ONE just to have a place to live. The real money here is in dirt. No sense in investing in thin air over dirt.

[Thaiquila]

Yeah, agreed, there is something to be said for just buying it as a place to live, and hang the investment part of it.

[mbkudu]

Spending 10 million baht for something that rents for 15,000 baht sounds baa baa.

A definite yes to the above, but if one buys in a good area, 2 million baht for something that rents for 15,000 baht doesn't sound so baa baa.

[icecubes]

A bit off topic but.

Do you need a work permit if you rent your condo out

If you?re not Thai ?

If so then you could be on a very sticky wicket if things

go wrong with your tenant.

Anyone know ?

Have a nice day.

[thaigene2]

A bit off topic but.

Do you need a work permit if you rent your condo out

If you?re not Thai ?

If so then you could be on a very sticky wicket if things

go wrong with your tenant.

Anyone know ?

Have a nice day.

This is a good question though I'm not sure if we're thinking on the same lines: Namely, if you buy a condo and then rent it out, do you need a Thai work permit since you are deriving an 'income' from the rent? (though more likely a net loss I would think)

And thanks for pointing out the exchange issues and that people buy for reasons other than investment - e.g. a secure place to live.

[icecubes]

This is a good question though I'm not sure if we're thinking on the same lines: Namely, if you buy a condo and then rent it out, do you need a Thai work permit since you are deriving an 'income' from the rent? (though more likely a net loss I would think)

Sorry

Yes if you buy a condo in Thailand then rent it out

You being a falang and living in Thailand do you require a work permit

to do this. Is this classed as working?

Hope that makes a bit more sense.

Have a nice day.

[backflip]

"I've owned several properties here in the US (unfortunately, not all at the same time), and the mortgage companies always amortized their loans using simple interest."

I would like the name of those institutions and the mortgage brokers involved, please. Perhaps you borrowed money for mom and dad. Mortgages are amortized on a different schedule than loans using simple interest, or loans using the rule of 78s.

[PeaceBlondie]

"I've owned several properties here in the US (unfortunately, not all at the same time), and the mortgage companies always amortized their loans using simple interest."

I would like the name of those institutions and the mortgage brokers involved, please. Perhaps you borrowed money for mom and dad. Mortgages are amortized on a different schedule than loans using simple interest, or loans using the rule of 78s.

Likewise, I've owned 6 homes on mortgages - maybe 8 - in the USA, and my kids have owned several more. Everyone I ever knew, had their morgtgages NOT amortized at simple interest. If your loan is 7.20% a year, it is 0.6% per month, COMPOUNDED MONTHLY. The first three lines on the amortization schedule of a 100,000 loan at 7.20%, with a monthly level payment for 30 years of $678.79, is:

Balance:-------Interest---Principal

$100,000.00 $600.00 $78.79

$99,921.21 $599.53 $79.26

$99,841.95 $599.05 $79.74

$99,762.21 $598.57 $80.21

Your payment remains level, payments to interest decline, and payments to principal slowly increase. But interest is compounded monthly.

I would never make a condo investment in Thailand, long term, on the assumption it would be worth more when I went to sell it. It's Thailand's equivalent of a poorly built mobile home, often.

Let's say you buy any rental real estate at 6.00% interest. You're paying 6% interest per year on the principal (including on the down payment, by losing investment opportunities elsewhere). Your gross rental price should be at least 12% of the value of the home. Two million baht home, 20,000 baht per month. You might draw even, if you have perfect tenants who pay 12 months of every year, never do any damage, never need maintenance, have no condo fees, no commissions, no bribes, etc.

But how many two million baht condos rent for 20,000 baht?

[egeefay]

Someone else has done this before, so I''ll try to do a real short version of this argument. It is in your best interests to rent - not buy - in Thailand.

Here's why. A condo of around 100 m2 in BKK at present in an A grade building sells for an average of 85,000 Baht/M2 so that's around 8.5 million baht. To rent the same place would probably be 45,000 in a popular area (say 2 bdroom).

If you were to live there for 20 years, and pay 3,000 B per month in maintenance fees it would be another 720,000 over that period (but would almost certainly rise over the years - so let's say an even 1 Million) Now the cost of buying is 9.5 million. Divide by 240 months (in 20 years) and you have a monthly 'rent' of roughly 40,000 baht.

So you've saved 5,000 per month right? Wrong. You've lost out on the investment growth of your original 8.5 million Baht unless of course the building appreciates in value. You've seen what they look after 10 years never mind 20 years. Will your condo be worth more in 20 years than what you could have made in other investments? Maybe.

The above only takes into account the fact that you paid CASH.

Look what happens if you need a mortgage from one of the two banks in Singapore that are lending for condo purchase in Thailand. Say 7 % annual interest on 70 % of the purchase price (so 70% of 8.5 million is around 6 million), your 20 year mortgage would cost you 46,200 Baht per month (Using the North American mortgage calculator - if they use simple interest it's way more). That's a total of more than 11,000,000 baht - or 2.5 million in interest. Divide the downpayment you made (the 30% - 2.55 mil into 240 months) and it's another 10,625 Baht per month that it has cost you. Total: nearly 57,000 Baht per month.

Unless the property really increases in value and/or Thailand changes the law to allow an open market to foreigners, it's silly to buy. Double-check the math, I may have made a mistake. But the principal remains the same..Wait..rent..jai yen!

I may be wrong but one thing it looks like you are assuming in your calculations is that rents will stay fixed at 45,000 baht over 20 years. It's hard to say what your hypothetical renter would be paying in rent in 20 years but my guess it would be a lot higher than 45,000 baht.

Also, past performance is no guarantee of future returns but real estate prices generally trend upwards over the years. Condos in Bangkok cost a lot more now per square meter than they did 5 years ago. Raw materials, labor and energy costs just keep getting more expensive year after year

It's true, if you buy a condo for cash, you will lose out on the investment income that money could bring in if it were parked in a bank or...invested in the stock market. But it takes a lot of discipline to keep cash sitting untouched in a bank for 20 years. And after 20 years the purchasing power of your 8.5 million baht (plus interest) sitting in the bank will most certainly be battered by inflation.

In the end, it's a gamble any way you look at it. But for me, the houses I bought 15 years ago were the best investments I ever made. When I lived in them, they gave me the pride and freedom that comes with ownership and when I moved out of them they became rental properties that brought in enough to cover the payments...and some

[LoveDaBlues]

Yes and!!!! In 10 years time the B40,000 rent could be B80,000 and in twenty years time who knows?

So your way is not an exact science by any stretch of the imagination. If you you plan is to live here for the rest of your life and you are reasonably young it is far better to buy a place than rent.

And in 10 years time the B40,000 rent could be B45,000 and the exchange rate could be more favorable meaning the rent actually WENT DOWN and and and and.......

like someone said 'no one knows the future'. For me I'm renting now because it's so cheap and I can move when I don't like the color of the cows roaming by.......

I can't see drastic increases in rental prices. There are just too many houses, condos, whatever available to rent. Any income for the owner of these is better than ZERO income; even if the rental return is poor something is better than nothing. Also, some of the factors that drive rent higher in the States don't apply here. For instance, I was (and still am but not as many units) a landlord in the States and had to 'pass on' the yearly property tax and insurance increases to my tenants. The guy I rent from here in Thailand pays next to nothing for property tax and he carries no insurance (how can a concrete house with a tile roof burn down?).

I know some farang have made money in real estate in Thailand. Good for them. But it has been akin to a 'pyramid' scheme and only the early 'investors' have/will make money. Dangerous waters ahead for people playing the real estate game with an eye on making a profit. Overbuilding, shoddy construction, enforcement of existing laws........be careful people with your hard-earned money!

[ThaiBob]

Someone else has done this before, so I''ll try to do a real short version of this argument. It is in your best interests to rent - not buy - in Thailand.

Here's why. A condo of around 100 m2 in BKK at present in an A grade building sells for an average of 85,000 Baht/M2 so that's around 8.5 million baht. To rent the same place would probably be 45,000 in a popular area (say 2 bdroom).

If you were to live there for 20 years, and pay 3,000 B per month in maintenance fees it would be another 720,000 over that period (but would almost certainly rise over the years - so let's say an even 1 Million) Now the cost of buying is 9.5 million. Divide by 240 months (in 20 years) and you have a monthly 'rent' of roughly 40,000 baht.

So you've saved 5,000 per month right? Wrong. You've lost out on the investment growth of your original 8.5 million Baht unless of course the building appreciates in value. You've seen what they look after 10 years never mind 20 years. Will your condo be worth more in 20 years than what you could have made in other investments? Maybe.

The above only takes into account the fact that you paid CASH.

Look what happens if you need a mortgage from one of the two banks in Singapore that are lending for condo purchase in Thailand. Say 7 % annual interest on 70 % of the purchase price (so 70% of 8.5 million is around 6 million), your 20 year mortgage would cost you 46,200 Baht per month (Using the North American mortgage calculator - if they use simple interest it's way more). That's a total of more than 11,000,000 baht - or 2.5 million in interest. Divide the downpayment you made (the 30% - 2.55 mil into 240 months) and it's another 10,625 Baht per month that it has cost you. Total: nearly 57,000 Baht per month.

Unless the property really increases in value and/or Thailand changes the law to allow an open market to foreigners, it's silly to buy. Double-check the math, I may have made a mistake. But the principal remains the same..Wait..rent..jai yen!

For simplicity let's assume the potential investment growth of the capital (CASH) used for the condo purchase is offset by inflation of the rental costs (reasonable assumption) and exchange rate fluctations average out over the 20 years (unreasonable assumption IMO). The condo value could have gone up or down at the end of this period but one thing is for certain the renter will have 8.5 M worth of rental receipts and will have paid for his landlords investment.

Edited June 12, 2006 by ThaiBob

[PeaceBlondie]

ThaiBob, I don't mean to be argumentative, but I don't follow you here:

For simplicity let's assume the potential investment growth of the capital (CASH) used for the condo purchase is offset by inflation of the rental costs (reasonable assumption) and exchange rate fluctations average out over the 20 years (unreasonable assumption IMO). The condo value could have gone up or down at the end of this period but one thing is for certain the renter will have 8.5 M worth of rental receipts and will have paid for his landlords investment.

Bob, maybe that's simplicity, but maybe it has the wrong assumptions. Let's say you pay cash of x million baht for the property, and it decreases in value (one of your assumptions, later on). Therefore, it's a bad investment, period, in the long term.

Short term: Then, do you assume that rental COSTS go up with inflation? Or did you mean to write, rental INCOME go up with inflation? That's doubful, or at least folks earlier in this thread have said that in Thailand, rents don't necessarily rise with inflation, or with property values.

It appears that many rental prices in Thailand are roughly 0.5% or 0.6% of the property value, so that a million dollar property might rent for about 5,500 baht. That's only 6.6% income, gross, in one year, if you have full occupancy and full payment. If your mortgage (or lost investment rate for the cash) is 5.6%, you're left with only 1% to pay for unreimbursed damages, vacancies, and maintenance. Lousy investment on a year to year cash flow basis.

But I'm often wrong. Last time I was a landlord, I paid $17,500 for a triplex in a near-slum, and collected $325 monthly rent, full vacancy.

[thaigene2]

By the way..in my Original Post relating to mortgages I meant to say compound interest, not simple interest sorry for the error.

One further point about that though, in N America and UK they don't slap 20 years of interest on the front end of the mortgage and then divide by 240 months - their formulas take into account that you're also paying down the principal as you go, and the interest is adjusted accordingly each year. But buying things like cars here in Thailand that's exactly what they do. In other words, four years into repayments, your still paying the same interest on money you've already paid off 3 or 4 years ago..If they do the same for mortgages here..then your overall cost would be astronomical after 20 years.

Also..about rental increases. I've never had one for the five years I've rented a house in BKK. And my friends who've live in LOS much longer than that say the rental prices haven't changed for many years..certainly not since the 97 crash. So..don't assume rents will climb when there is increasingly a glut of empty 'condos' bought by speculators..

[ThaiBob]

ThaiBob, I don't mean to be argumentative, but I don't follow you here:

For simplicity let's assume the potential investment growth of the capital (CASH) used for the condo purchase is offset by inflation of the rental costs (reasonable assumption) and exchange rate fluctations average out over the 20 years (unreasonable assumption IMO). The condo value could have gone up or down at the end of this period but one thing is for certain the renter will have 8.5 M worth of rental receipts and will have paid for his landlords investment.

Bob, maybe that's simplicity, but maybe it has the wrong assumptions. Let's say you pay cash of x million baht for the property, and it decreases in value (one of your assumptions, later on). Therefore, it's a bad investment, period, in the long term.

Short term: Then, do you assume that rental COSTS go up with inflation? Or did you mean to write, rental INCOME go up with inflation? That's doubful, or at least folks earlier in this thread have said that in Thailand, rents don't necessarily rise with inflation, or with property values.

It appears that many rental prices in Thailand are roughly 0.5% or 0.6% of the property value, so that a million dollar property might rent for about 5,500 baht. That's only 6.6% income, gross, in one year, if you have full occupancy and full payment. If your mortgage (or lost investment rate for the cash) is 5.6%, you're left with only 1% to pay for unreimbursed damages, vacancies, and maintenance. Lousy investment on a year to year cash flow basis.

But I'm often wrong. Last time I was a landlord, I paid $17,500 for a triplex in a near-slum, and collected $325 monthly rent, full vacancy.

PeaceBlondie, you are absolutley right. Loss of capital is bad investment, but I was conceding that point just to emphasize my point that renter has paid 8.5 M and nothing to show for it. I would not buy a condo in Thailand for investment purposes but many do. This July I will be in Pattaya and renting a condo for 15.000 THB. It's just a studio in a older building and quite frankly nothing special. These units sell for 800,000-1,400,000 furnished. I too was a landlord and I want to thank my former tenants for financing my eventual retirement in Thailand.

[LoveDaBlues]

ThaiBob, I don't mean to be argumentative, but I don't follow you here:

For simplicity let's assume the potential investment growth of the capital (CASH) used for the condo purchase is offset by inflation of the rental costs (reasonable assumption) and exchange rate fluctations average out over the 20 years (unreasonable assumption IMO). The condo value could have gone up or down at the end of this period but one thing is for certain the renter will have 8.5 M worth of rental receipts and will have paid for his landlords investment.

Bob, maybe that's simplicity, but maybe it has the wrong assumptions. Let's say you pay cash of x million baht for the property, and it decreases in value (one of your assumptions, later on). Therefore, it's a bad investment, period, in the long term.

Short term: Then, do you assume that rental COSTS go up with inflation? Or did you mean to write, rental INCOME go up with inflation? That's doubful, or at least folks earlier in this thread have said that in Thailand, rents don't necessarily rise with inflation, or with property values.

It appears that many rental prices in Thailand are roughly 0.5% or 0.6% of the property value, so that a million dollar property might rent for about 5,500 baht. That's only 6.6% income, gross, in one year, if you have full occupancy and full payment. If your mortgage (or lost investment rate for the cash) is 5.6%, you're left with only 1% to pay for unreimbursed damages, vacancies, and maintenance. Lousy investment on a year to year cash flow basis.

But I'm often wrong. Last time I was a landlord, I paid $17,500 for a triplex in a near-slum, and collected $325 monthly rent, full vacancy.

PeaceBlondie, you are absolutley right. Loss of capital is bad investment, but I was conceding that point just to emphasize my point that renter has paid 8.5 M and nothing to show for it. I would not buy a condo in Thailand for investment purposes but many do. This July I will be in Pattaya and renting a condo for 15.000 THB. It's just a studio in a older building and quite frankly nothing special. These units sell for 800,000-1,400,000 furnished. I too was a landlord and I want to thank my former tenants for financing my eventual retirement in Thailand.

This is a strange statement. If you go to the movies on Friday night do you get up Saturday morning and think 'I've got nothing to show for the money I spent at the movies'??

When I pay rent I have plenty to show for it.....namely a place to live. Nothing is free. I'd rather invest my cash for a good return instead of putting it in a (doubtful) home purchase. I can buy the place I'm in for 1.5 million or continue to pay 6,000 a month rent. Blondie is right about one thing. With few exceptions owning rental property in Thailand is a lousy investment.

[backflip]

"One further point about that though, in N America and UK they don't slap 20 years of interest on the front end of the mortgage and then divide by 240 months"

That's correct. You're referring to "add-in" interest, which is a different scenario entirely.

"their formulas take into account that you're also paying down the principal as you go, and the interest is adjusted accordingly each year."

No, the interest is adjusted every time you make a payment, whether it's monthly, bi-monthly, weekly, or...

If you use a credit card, and you look at the statement, you'll see many different methods by which "compound" interest is calculated. "If in California, use Method B." If in New York State, use Method G but, if you're in New York City, use Method H..." Again, this is a different method of calculating interest than a mortgage.

[Sophon]

I think the bottom line is, that you are trying to make calculations without having the necessary information. Nobody know the future interest rates, future rentals or the future value of the condo.

Historicaly you would be able to make the calculations, and I'm sure you would find that there have been times when it would have been better to own, as well as times where renting would have been preferable.

Sophon