Thailand is in an enviable position when it comes to its property market. Overseas investors show no signs of abandoning the country any time soon, and its modest, steady growth is underpinned by unemployment sitting at below 1 percent and rising demand from domestic buyers — the ideal kind of market to have. Though foreign nationals are still only allowed to own, freehold, 49 percent of a given development and are restricted to 30-year leaseholds on landed property (usually in 30-30-30 lease terms in, say, Phuket) that’s not dissuading buyers.
A Changing Landscape
There’s more to Thai investment than just the resort sector now, as urban investment in cities like Bangkok is increasingly attractive. Regardless of what the point of the purchase is, the residential market is healthy: 80 percent of condominium buyers in downtown Bangkok are local Thais. In resort locations like Pattaya the numbers are more varied — along the lines of 50 percent — and in the neighbourhood of 30 percent foreign owners in Hua Hin. But in Phuket’s resort sector, the numbers are reversed. Nearly 90 percent of buyers there are overseas investors. “If there has been any shift at all it’s been that for the first time we’re seeing some Thai interest in Phuket,” explains James Pitchon, head of research and consulting at CBRE Thailand.
In the residential market, Thailand’s property markets are as varied as the country itself. Central Bangkok is a low-volume high value market. “New projects are being launched at record prices at over THB200,000 per square metre [HK$19,000 per square foot]. We’re seeing prices for resales in the best quality existing buildings increase by 10 percent year-on-year.” Add to that a clearance of unsold stock cleared post-2008 to bring it to minimal levels and the broad adoption of urban condo living and you’ve got a recipe for a generally healthy market.
As far as gross yields go, Bangkok has a range of rates that put Hong Kong and Singapore to shame. But thought they swing from a low of approximately 3 percent to as high as 10 percent (depending on location, size and quality of the property) Bangkok rental investments are influenced by the nature of the city’s expatriate leasing pool. The housing budget for expats, which makes up over 90 percent of the tenant market, is concentrated between THB30,000 and 100,000 per month (HK$7,500 to $25,000). “You don’t have the range of rental budgets you might see in Hong Kong and Singapore, particularly at the upper end because of the nature of foreign business in Thailand. The biggest foreign companies and expatriate employers are Nestle and Unilever and Ford and Toyota as opposed to investment banks. So the remuneration structure is different,” Pitchon states.
Another thing that’s changed about Thailand in the last few years is who is purchasing there. Asian buyers, from Hong Kong, Singapore, China and Malaysia, now dominate investment in the country, and have overtaken Australians and Europeans working in the region. Hongkongers like the top end of the market, whereas Singaporeans tend to focus on value but still in the downtown core. The mass market doesn’t really appeal, as Thai renters with increasing incomes tend to opt for their own purchases. Residential investment of any note speaks largely to overseas residents.
Rules and Regulations
With all this investment, despite Thailand’s strong domestic demand, the question of cooling the market down inevitably comes up. When asked in June about possible challenges down the road for Thai real estate, Wanchak Buranasiri, chief operating officer of Bangkok-based property developer Sansiri stated, “For the Thai market it’s probably regulation change. The Bank of Thailand wants to cool down the market by lowering the loan-to-value ratio. I think they’re targeting holiday homes rather than end-users. It depends on how much they do it. At the moment it’s 90 percent if they bring it down to 85 I don’t know how much that’s going to have an effect. But if they bring it down to 70, that’s scary. Having said that about 30 percent of people who buy holiday homes pay cash.”
Pitchon agrees, pointing out that the BoT is concerned about one sector in particular, which is the one-bedroom condo market in mid-town and suburban Bangkok. “There is concern that there could be oversupply. Mid-town and suburban are very different markets than the downtown market in central Bangkok,” says Pitchon. So far there have been no significant measures introduced — no market dampening special stamp duties, no reduction in the loan-to-value ratio. “To some extent the market may be less subject to hot overseas money coming in and out because almost all foreign buyers in the Thai market must be cash buyers. They can’t borrow to fund the purchase. The market dynamics are very different to Hong Kong and Singapore … If the rules changed to allow foreigners to borrow money that would be significant catalyst for demand. However, as the Bank of Thailand is concerned about activity in the property market, I doubt that’s going to come in any time soon,” he finishes.
Thailand’s conservative banking sector has done a great deal to keep the market healthy, and despite regularly scheduled coups, the country is stable for the most part. The food, the people, the weather and sophisticated infrastructure (continually developing) make it a perpetual favourite for vacationers, many of whom take off for the country multiple times each year. They don’t call it the land of smiles for nothing.