Real Estate Investment In Bangkok – Smart?
Contrary to what one might expect from a semi developed country, the Bangkok real estate market is a stable and low risk market to invest in. This is mainly because of the culture of Thai people, and that many properties on the market are not the primary residence of the owner. Thais generally sit on their property until they can get the price that they want for it. This could be for years, forever, and because a lot of properties on the market are not the primary residence of the owner they are in no rush to sell. Also, pride plays a part. Because of these factors, you will notice that the Bangkok real estate market is very robust in times of slow economic growth or recession, and prices rarely fall. Therefore, the Bangkok real estate market is low risk. Of course, let’s not forget the economy crises that arose in Thailand earlier. With a developing country there is still risk, but as time passes the chances of a re-occurrence of such an economic crises on this scale becomes quite small.
On the flip side, prices rarely increase substantially either. This is mainly because Bangkok is still a growing city and there is still a lot of land available for development, land that is currently housing small shops that can easily be demolished for a large high rise development. This continued supply of new stock into the market has kept prices stable.
However, on the residential front, condo for sale in Bangkok seem to age quite quickly. A 5 years old building is normally already showing significant signs of wear and tear. Coupled with the fact that Thais give significant importance to all things ‘new’, this has resulted in a stable demand for new buildings.
As a result, we find that the price of new developments still under construction has continued to increase, but the prices of completed projects has remained the same. What I am trying to say is, don’t expect any capital appreciation!
This trend goes a long way back. The price of a 5 year old building is the same as it was just after completion 5 years ago. The price of a 15 year old building is virtually the same as it was 15 years ago. You can see therefore that there is a big price difference between old buildings and new buildings.
So, how do you make money in Bangkok real estate. There are 2 ways:
• Buy a unit in a new development very early on, as soon as the project is launched, and sell it on near to the point of completion at a profit. This has been a very successful technique for many property investors over the past 5 years because traditionally prices off-plan have been 10-20% less than prices at completion, and the buyer only has to put down 10-20% of the purchase price at the start, hence the purchase is leveraged. However, the new supply that has hit the market over the past 5 years has soaked up a lot of the end-users/genuine buyers looking to live in the unit or keep the unit for a rental investment, and as a result it is not so easy now to sell the unit on.
Especially given the recent violent protests that hit the capital in April and May, people are less interested in buying in Bangkok. Therefore, this method of making a profit on the real estate market is much more difficult, and many people that bought early on to ‘flip’ at a profit are struggling to sell at ‘cost’. The protests have also reduced the number of people moving to Bangkok and the rental market (which is more price sensitive than the sales market) has also seen a reduction in rental prices, and rental yields have fallen.
• Buy in an old building and renovate and flip. This technique still has merit. Simply, they don’t make them like they used to. New buildings are much smaller and more compact. The problem with the old buildings is that the interior fittings are generally very old and nasty, and as mentioned buildings in Bangkok age quickly. However, the investor that has a keen eye can purchase a run down unit in an older building at a good price, renovate it and sell at a small profit. Realistically the profit will be limited, and the investor has to be located in Bangkok on order to be able to oversee the renovation work. Therefore, this is not a suitable consideration for an international investor, and it does require effort and work. However, there are some rewards with this technique still.
To conclude, currently I don’t feel that Bangkok is a good investment for international investors. I would avoid buying off-plan in order to flip, because there aren’t enough buyers in the market at the moment. I would only suggest investing for those who are stationed in Bangkok and are able to purchase, renovate and sell older units.