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Bangkok real estate: what you need to know about the market right now

Residential uptake in the metropolitan area flourishes

[caption id="attachment_57350" align="alignright" width="740"]Skytrain in Bangkok. Smart / Shutterstock.com Skytrain in Bangkok. Smart / Shutterstock.com[/caption]
 
By Marciano Birjmohun

Bangkok is the ever pulsing heart of investments and development in Thailand. Demand for homes close to the mass transit system is expected to grow strong. More consumers will express interest in developments near the city's edges, prioritising locations close to the BTS and MRT stations for commuting convenience.

When the government starts to invest in infrastructure projects, these automatically open new opportunities for property developers to plan residential projects. This will challenge property developers to invest in the new locations along the new mass transit route from Bangkok to the suburbs.

Investment in infrastructure such as railways, motorways, and several new mass transit routes will make Thailand a regional transport hub within the ASEAN Economic Community. They will boost demand to buy homes in Thailand, both in Bangkok and in the provinces. Foreign companies that invest in Thailand consider the country as a gateway to many other ASEAN nations.

More: Bangkok’s Thonglor in high demand from buyers and renters

The ratio of property prices to income remains a big issue for majority of Thai locals though. The income inequality in Thailand is truly visible; household debts are rising and banks are not willing to provide credit.

The fact is that most condominium units are priced beyond their budgets. The result is that the majority of the households are shifting, choosing locations that are part of the new mass transport expansion and suitable to their budget.

Surprisingly these factors do not affect the great majority of the prime positioned developments. The reason for this is that the positive influx of foreign investors have stimulated developers to continue with new, innovative projects.

Buy-to-let segment must grow

A key factor for property investment returns is buy-to-let. Looking at other prime cities such as Singapore, London and New York, long-term buy-to-let programmes are self-evident. Real estate agencies in Thailand are trying to fill up those gaps by aggressively renting out units at any price level, a practice that often disadvantages the owners.

By not screening their tenants accordingly, this often results in short-term lease and early contract terminations. My advice is to carefully select your agent and place your demands clearly on the table.

In 2015, the average gross rental yield (before expenses and taxes) for Bangkok downtown condominiums was approximately 4.8 percent, a drop from 5.4 percent in the previous year. This decline is in line with the price increase of new condominiums that exceeded the growth in rents. The good news is that the number of expatriates in Bangkok has increased by 10 percent, year-on-year.

[caption id="attachment_57351" align="alignright" width="740"]BTS-BRT SkyBridge at Sathon-Narmdhiwas Intersection. Pradit.Ph / Shutterstock.com BTS-BRT SkyBridge at Sathon-Narmdhiwas Intersection. Pradit.Ph / Shutterstock.com[/caption]

The expatriate market is the key rental market for mid- to high-end downtown condominiums. Two- and three-bedroom condominiums are the most popular types of units rented out to expatriate families, while demand for one-bedroom units is driven by singles and young couples.

Investors in Thailand often assume that one -bedroom units are more rentable. Are they really? The only answer to this is both "yes" and "no." Rentability in Bangkok is highly dependent on the location and price-size ratio. One may find two 1-bedroom units located on the same street, built in the same year, at the same size but with a 20 percent price difference.

The expatriate rental budget has not increased in all locations, while condominium prices have risen on average by 8-10 percent per annum for mid-range grades, and by 15-20 percent for luxury grades. Tenants are willing to spend their budget on smaller units with a higher per sqm rent if it is well located, well decorated and newer.

More supply

New buildings with smaller units therefore have a higher chance of being rented out than older buildings. The building facilities are also an important consideration. A building should offer a range of modern facilities, such a well-equipped gym, large swimming pools, and attractive common areas.

While Sukhumvit is the most popular area because of easy access to the BTS Skytrain and proximity to schools, hospitals, retail and leisure amenities, the area also has more supply than central Lumpini and Sathorn/Silom.

Yield levels have declined in 2015 on average against rising property prices. However, given the prevailing market preferences, picking the right property, unit size, and location will increase your chances of success as a buy-to-let investor.

For investors with a mortgage, the rent may not fully offset the loan repayment, but the combination of a consistent yield from a growing expatriate market and the potential for future capital appreciation can still make a buy-to-let investment a worthwhile consideration.

About the author:

Originally from the Netherlands, Marciano Birjmohun started his career in healthcare management as part of a merger committee. He regularly speaks at industry events in ASEAN. He manages Siam Capital Group, a pioneering consultancy firm in Bangkok, and prominent M&A advisors that project market high-end branded luxury residences on a global scale. Birjmohun moderated the Retail panel discussion at the first Property Report Congress Thailand 2016 and is a member of the central panel of judges of the Thailand Property Awards.

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