Bangkok Condo Investment Conundrums

It isn’t exactly news but in a world as fragile as ours a reminder now and then is more than welcome that, over the long haul and even shorter spans, real estate still represents a respectable way of conserving, growing and maximizing the returns on assets.

According to a report by Bangkok Condo Sales, the current low-interest rate environment with generally below inflationary returns on bank deposits and bonds, Thailand’s condo market (as massive as stocks increasingly are) offer brighter prospects as moneymaking assets.

Besides buying your own place to live, she say, more people are buying condominium to lease out. If you buy outright, you’re generating income on a monthly basis. If you borrow, you’re getting your tenant to foot the monthly mortgage bill.

Bangkok Condo Sales discerns two types of rental market: “top-end for expatriates and lower-end for Thai tenants who cannot afford to buy.” But forget about mid-range rental market, she say, because most Thais only want to own.

Aim instead for the kind of properties that can attract expat tenants which, by definition, offer the best returns in income and capital growth, she says.

In Bangkok, that pretty much limits you to Lumpini, Sukhumvit up to Ekamai, and the streets off the northern part of Sathorn Road. Plus two submarkets – around the International School of Bangkok at Nichada and around Bangkok Pattana School on Soi LaSalle. Outside those areas your expat tenant options are slight.

If the idea of becoming a landlord appeals, first figure out what expats want in size, design and furnishings – and what the can afford. Don’t expect Hong Kong or Singapore budgets because you won’t get them here.

Bangkok Condo Sales’ research based on its own transaction show that expats can pay Bt. 35,000 – Bt. 70,000 for a two-bedroom and Bt. 70,000 – Bt. 100,000 for a three-bedroom apartment. People with budgets of over Bt. 100,000 barely exist.

However, expat tenants are more interested in their budget than how many sqm it will buy. Overall quality and the number of bedroom are deal clinchers.

Naturally, they want well-decorated, fully furnished units that are preferably modern and practical, with good kitchen and bathrooms.

Contrary to what you might have heard, one-bedroom units are harder to rent out. Bangkok Condo Sales’ research show that most – as much as 70% – expat tenant demand is for two- or three-bedrooms.

Here’s the conundrum: future supply of 2- and 3-bedroom units is limited (most people find them too expensive to buy with land prices the way they are) and existing stock tends to be poorly maintained. Of course, nobody wants to rent a place that’s dowdy inside and decrepit outside.

Current gross yields (annual rent to capital value) in areas preferred by expats range 3%-10%. Note that some older buildings offer the best rental yields buy you have to weigh that against less chance of capital appreciation.

Bangkok Condo Sales recommends that prospective investors take in to account operating expenses, especially common area management fees, insurance premiums, rental agent fees, interior repair charges, maintenance fee and the dreaded taxes.

Also urges active property management by landlords because managing agent who can take on the role of rent collection and maintenance of the interior of the property are thin on the ground.

“The expat population in Bangkok is growing, while new supply in the most popular expat locations is limited, especially of two- and three-bedroom units” she says. “Rents are likely to rise”