Doing Business in Thailand

While I already dealt with this issue two days ago, I just read this morning a comparative study from the Global Property Guide. The Global Property Guide surveyed and compared the prices of 120 SQM good condition second hand high end apartments in 112 cities over the world. Among the cities surveyed was Bangkok which ranked fairly well in the study.

Survey Results

The first part of the survey is a ranking of 112 cities from the most expensive to the least expensive place to purchase a condominium. Out of 112 cities, Bangkok is listed a number 82/112 with an average price of 2,238 USD per square meter which makes Bangkok looks fairly affordable. The second part of the survey list the cities that offer the highest gross rental yield. Here again Bangkok fairs well 21 out of 98 with a rental yield estimated at 7,97%.

Property Prices Ranking

Now while I’m always happy to see Bangkok fairing well in a  real estate survey’s (with reasons) I think that the Global Property Guide survey results for Bangkok are a bit too optimistic. The study is comparing the purchase price of a second hand high end 120 SQM condominium units in 112 countries.

Now, in Bangkok a 2,238 USD (76,092 THB) per square meters condominium unit would translate for 120 SQM to a 9,131,040 THB price. While I know that these kinds of units are indeed available those unites if located in Bangkok inner center will be in general located in buildings that are already 10 years old and more.

If you are looking to purchase on the resale markets high end units in Bangkok inner center in buildings that are less than 5 years old the average selling price will be (for a 120 SQM condominium unit) between 90,000 THB (2,647 USD) up to 120,000 THB (3529 USD) per SQM (based on actual transactions on second hand units). Raimon Land condominium focus latest study mention an average price of 95,000 THB per square meter for second hand units in Bangkok inner center (where most of high ends units are located). Bangkok should therefore more accurately be ranked between numbers 71/112 (Budapest or Phnom Phen) to 50/112 (Krakow or Zurich) which is still a good rank.

While I confirm that it is possible in Bangkok to purchase a second hand apartment (even a new one) at 76,092 THB (even cheaper) per SQM based on our experience current prices for high end second hand are closer from 90,000 THB to 120,000 THB per square meter especially if one wants to purchase into a condominium building located in the inner center and completed within the last 5 years.

Rental Yield Ranking

I have the same comments for the rental yield. The Global Property Guide is ranking Bangkok number 21 with a 7,97% rental yield. Here again I think the survey is too optimistic.

A rental yield of 7.97%

-  on a 120 SQM apartment at 9,131,040 THB would mean a rental of 727,743 THB per year  or 60,645 THB per month.

- on a 120 SQM apartment at 10,800,000 THB would mean a rental of 860,760 THB per year or 71,730 THB per month.

-  on a 120 SQM apartment at 14,400,000 THB would mean a rental of 1,147,680 THB or 95,640 THB per month.

By experience I would say that a reasonable yield for a 120 SQM second hand unit would be between 50,000 THB to 75,000 THB per month maximum. In other words the rental yield would be between 6.5% (in the case of a unit purchased 9,131,040 THB and rented out at 50,000 THB per month) to 6% (in the case of a unit purchased 14,400,000 THB and rented out 72,000 THB per month). And for really expensive unit above 20,000,000 THB or more one should not expect a rental yield of more than 5% to 5.5%. Note that I’m talking here of normal condominium units by opposition to services apartments that have higher rental yields. Therefore in terms or rental yield Bangkok should in my opinion rank between 33/98 (like Toronto) or 48/98 (like Zurich).

Where Bangkok may do better than Toronto or Zurich is that management service fees (common property charges) and taxes that are certainly lower here than they are in Toronto or Zurich.

Conclusion

Even if the purchase price of a second hand unit may be a little higher than mentioned in the survey and even if the rental yield is lower I still believe than Bangkok is the right place to buy because if you purchase the right property now you may on the long term also realize a substantial capital gain in addition to the rental yield.

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

Originally posted 2009-08-28 10:40:06.

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