Understanding Expat Needs Key to Buy-to-let gains!

Bangkok Condo Sales estimates that about 30 to 40 per cent of units in most new downtown Bangkok condominiums have been sold to buy-to-rent investors.

An important question asked by these investors is what yield level they can expect.

In 2018, the average gross rental yield (before expenses and taxes) for Bangkok downtown condominiums is approximately 4.8 per cent, a drop from 5.4 per cent in the previous year.

This decline is underpinned by a 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 per cent year on year.

The expatriate market is the key rental market for high-end and luxury downtown condominiums.

For future buy-to-let investors, it is important to understand what expatriate tenants are looking for in order to generate a maximised yield level that beats the market average.

Based on Bangkok Condo Sales’ leasing transactions, two- and three-bedroom condominiums are the most popular types of unit rented by expatriates, while demand for one-bedroom units and studios is limited, except in serviced apartments.

As tenants for the studio and one-bedroom market are likely to be singles with no families, a fully serviced option is preferred over condominiums.

While there is a general preference for spacious units and large units of the same type, most expatriates have a fixed monthly housing allowance that dictates which property they end up going for.

The expatriate rental budget has not increased for many years, while condominium prices have risen on average by 8-10 per cent per annum for mid-range grades, and by 15-20 per cent for luxury grades.

With a fixed budget, what we are seeing is a preference for quality over unit size.

Tenants are willing to spend their budget on smaller units with a higher per-square-metre rent if it is well located, well decorated and newer. New buildings with smaller units therefore have a higher chance of being rented out than older buildings.

However, there are exceptions where well-managed old buildings are considered by tenants who prefer a larger space over the unit and building quality.

The building facilities are also an important consideration. Expatriates prefer a building that offers a range of modern facilities, such as attractive common areas, a well-equipped gym and large swimming pools.

The unit should also be well decorated with modern interiors, kitchen and bathrooms.

With increased competition from new buildings, landlords in older buildings may find it more difficult to rent out their units if the common areas are dated or the unit has not been renovated.

Location is also a key factor. Typically, expatriates prefer to live in a limited number of areas.

Most choose to live in the Sukhumvit area from Sois 1-63 and 2-42, Sathorn, and central Lumpini.

The most popular area for Japanese expatriates – the largest expat community in Bangkok – is between Sukhumvit Sois 39-49 and Sukhumvit 24.

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.

While yield levels have declined this year on average against rising property prices, considering the above market preferences and |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.