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THAILAND’S ROBUST REAL ESTATE

With the perfect blend of a holiday destination and a real estate hub, Thailand’s prime properties make for an attractive investment opportunity.

September 2015

Be it a beachside villa in Phuket or a condominium in the business nerve-canter of Bangkok, steady rental returns and high potential for capital appreciation have made Thailand’s real estate a preferred choice for investors. Thanks to the stable political climate in the past couple of years, the economy growing at a steady clip and a booming tourism sector, Thailand’s real estate market is expanding at a robust rate, attracting investors from around the globe.

Capital magnet

From the foreign buyer’s point of view, capital Bangkok remains Thailand’s top destination. With Thai laws disallowing foreign individuals from owning landed property, condominiums and luxury apartments are their preferred choices.

“Most of the foreign investors purchase condominium units in the high-end segment where they can be confident about the quality of design, construction and management, and investment potential,” says Suphin Mechuchep, Managing Director of JLL in Thailand, adding that the current relative slowdown in the high-end segment with prices above THB 150,000 (USD 4000) is a result of short-term over-supply. Given the scarce availability of land in the capital’s select locations, once the demand-supply equation settles, investors in the prime properties can expect good capital appreciation. Even at the current price levels, prime properties in Bangkok are considered undervalued compared to prices in other major Asian cities like Hong Kong and Singapore, leaving much scope for appreciation in the years to come.

While price rise is the key objective, good rental incomes on high-end properties also contribute significantly to the returns on investment. “The rental yield from investing in a premium, grade-A condominium is around 7percent, which is not only higher than bank rates but also some of the other investment avenues,” says Risinee Sarikaputra, Director – Research and Consultancy, Knight Frank Thailand. She adds that much of this demand comes from expatriates who can afford to pay a higher rent, making CBD condominiums the best bet for investment as well as an anti-inflation solution.

Location and local factors

The Bangkok market is different from other markets in that location is important, but not always the major determinant of price. “There can be two projects in a similar location, with very different prices. In one street in a prime area of Sukhumvit, there is price difference of 300 percent between a 20-year-old development and a development completed three years ago,” says James Pitchon, Executive Director & Head of Research and Consulting, CBRE Thailand. Pitchon also says that the downtown condominium market is a low-volume-high-value market, with some of the under construction projects going for as much as 300,000 THB per square metre. The expert advises that though it may be tempting for foreign buyers to go for a property away from the downtown area at a lesser price, it could well prove to be a wrong move given the huge oversupplies, high level of speculative buying and resultant uncertainty at the middle and lower end of the Bangkok residential market.

Life’s a beach

If enjoying an exotic island life while on holiday and earning rental income from the holiday home for the rest of the year is on the mind, then Phuket is the perfect place to scout for an investment. Hugely popular with investors from Hong Kong, Singapore, China as well as some from the Indian sub-continent and Gulf region, Phuket currently receives 12.5 million visitors a year and is expanding to cater to 20 million visitors in the years to come.

“The island offers a multitude of incentives for developers of resorts and mixed-use projects, which in turn offers buyers affordable luxury in very beautiful surroundings at par with the best beach destinations in the world,” says Knight Frank’s Sarikaputra, adding that the province’s road network is being upgraded and other mega projects like rail and infrastructure are on the anvil, auguring well for the long-term prospects of Phuket.

In recent times, investors from Australia, France, Canada and other Asian countries have acquired properties in Phuket, with the Asian buyers preferring the smaller 1-2 bedroom units.
While Thailand’s other popular beach destination Pattaya is facing a rough time in the wake of payment defaults by Russian bulk buyers facing tough economic conditions back home, the quaint beach town of Hua Hin has emerged as the new investment hot-spot. Within a two-hour drive from Bangkok and a popular weekend destination for locals, the Hua Hin rental market is not seasonal and earns good rents throughout the year.

“The town’s hotels enjoy strong occupancies year round and full occupancies over weekends and holidays. This opens opportunities for owners of villas or condominiums to generate an income stream from their asset,” says JLL’s Mechuchep, adding that increasing demand and improving infrastructure are ingredients for a big boom in the Hua Hin property market in the near future.