Purchasing A Condominium Unit As A Long-Term Investment In Bangkok

From the PRWeb

Purchasing a condominium unit as a long-term investment is emerging as an interesting investment option in light of political and economic uncertainties, the falling interest rates, the downturn of the stock market and the falling yields of government bonds, according to international property consultants CB Richard Ellis.

Purchasing a condominium unit as a long-term investment is emerging as an interesting investment option in light of political and economic uncertainties, the falling interest rates, the downturn of the stock market and the falling yields of government bonds, according to international property consultants CB Richard Ellis.

According to the latest survey conducted by the Bangkok research team, the total stock of existing condominiums in Bangkok was 48,128 units, as of the first quarter of 2007, an increase of 9.53% or 4,188 units. This figure can be sub-divided by area, with 21.4% in the Central Business District (CBE) area (Silom, Sathorn and Suan Plu Roads), 4.4% in Central Lumpini (Wireless, Ploenchit, Langsuan and Rajdamri Roads), 34.6% in Sukhumvit (Sukhumvit Soi 1-63 and Sukhumvit Soi 2-44), 8.2% in Pathumwan (Phayathai and Phaholyothin Roads), and 29.6% in Riverside (Rama III, Charoen Krung and Charoen Nakhon Roads).

Based on the latest survey by the CB Richard Ellis Research team, in 2005, there were 1,788 newly launched units positioned at the luxury and high-end of the market while there were are 1,097 newly launched units in 2006, representing a significant decrease of 38.6%. In 2007, it is expected that there will be a similar number of new luxury and high-end condominium launches as in 2006. CB Richard Ellis recommends that buying a luxury condominium unit is a good investment option as there will be limited supply in the future.

According to Ms. Aliwassa Pathnadabutr, Managing Director of CB Richard Ellis Thailand, "Luxury and high-end condominium units in downtown Bangkok have been attracting a huge amount of interests from long-term investors even though the market has slowed down as a result of the political and economic situation. However, over the past few years, long-term investors who make profits from reselling or earning rental income from their units have remained keen to purchase condominium properties in Bangkok because of their understanding and confidence in the market. Based on their experience, they are satisfied with investment returns in the form of capital appreciation and rental yields of 5-7%, which is higher than the current deposit account interest rate of 3.5%."

Ms. Aliwassa added, "Although the growth in sales has been slowing since late 2006, CB Richard Ellis found that completed luxury condominium units which are located in such prime locations as Saladaeng, for investment purposes, continue to generate good sell-out prices. There has also been demand from long-term investors who are seeking to purchase good quality condominium units. However, these condominium owners do not wish to resell as they see high potential in their units. This frequently occurs among quality projects in prime areas as it is increasingly difficult to find good land plots, especially along the mass transit systems, which is resulting in difficulty in developing new projects."

Investors in the luxury and high-end markets are not concerned about their finance, but now they lack confidence in the market due to several negative factors in the political scene, the economy and in society. However, if the government initiates measures to support and increase confidence in the market, CB Richard Ellis believes that those investors will re-enter the market quickly, which will be reflected in sales and transfer rates. Those measures stimulating the Bangkok condominium market should include the reduction of the Specific Business Tax, transfer fee and an increase in the foreign ownership quota from 49% to 70%. The stimulus should also be activated in all market segments in order to inject new capital into the market.

Thai buyers and investors mainly focus on the middle to the lower-end of the market, as proven by the success of many projects in these markets such as Villa Ratchatewi by TCC Capital Land, and Life Rachada-Ladprao by Asian Property Development. However, Ms. Aliwassa commented that the large number of new launches in the middle to the lower-end of the market may lead to oversupply at some stage. . In 2005, there were 2,688 newly launched units positioned at the middle to the lower-end of the market and located in the downtown Bangkok while there were 7,630 newly launched units in the downtown Bangkok in 2006, representing a soar of 184%. In the first quarter of 2007 alone, 1,367 new units were announced.

CB Richard Ellis has also noted changes in Thai lifestyles as younger Thais have gradually shifted from living in single detached homes to condominiums. This trend is most noticeable among white collar workers who work in the downtown Bangkok.

"Prices have been increasing continuously for several reasons including the rise in demand, construction costs and higher land costs due to the scarcity of good land plots, especially in the CBD. The current prices have appreciated by 30-50% over the past 5 years. This has been particularly demonstrated in the average prices of luxury condominium projects in the CBD's Sathon area, which in 2002 were 58,100 baht per square metre, and are now 80,000 baht per square metre. In 2002, the average prices of luxury condominium projects in the Central Lumpini area were 77,500 baht and are now 108,000 baht while the Sukhumvit area is now Baht 88,000, but Baht 49,000 in 2002."

In comparison with other countries in the region, luxury condominium projects in Bangkok continue to be much cheaper. On average, the price of luxury condominium units in Hong Kong is Baht 860,000 - 960,000 per square metre, Baht 480,000 in Singapore, Baht 120,000 - 140,000 in Shanghai, and Baht 100,000 - 130,000 in Ho Chi Minh City, whose market is at the beginning. The average returns or yields in these cities are as follows: Hong Kong 4%, Singapore 3% and Shanghai 4-5%.

Foreign purchasers looking at owning condominiums in Thailand are permitted to buy freehold condominium units, but should not exceed 49% of the foreign ownership ratio of the condominium, and the purchase must be in cash. CB Richard Ellis believes that, if the government wishes to grow demand for the Bangkok condominium market and Thailand's resort destinations, the 49% limit on foreign ownership should be increased to 70%.

The CB Richard Ellis Research team also conducted a survey of condominium purchaser profiles, based on a sample of 3,855 units, and found that the top five nationalities of foreign investors are British, American, Singaporean, Australian, and Korean.

Existing supply in the Bangkok apartment market is now increasing at a slower rate of 1-2% per year, compared to the number of expatriates which continues to grow at 10-13% per annum. Therefore, condominium units have great potential to serve this strong demand in the market.

"CB Richard Ellis forecasts that there will be a limited supply of luxury and high-end condominium units, whilst demand for residential condominiums for long-term investment will continue to be strong, particularly among those projects located in the CBD or along mass transit routes. Prices will rise further especially for those units that meet the standards required by the luxury and high-end markets, and are of investment grade. With sustained yields of 5-7% and impressive historical capital gains, acquiring condominium units in prime locations is proving to be an attractive long-term investment choice for both Thai and foreign investors in the current economic conditions," concluded Ms. Aliwassa.