Condo investors eye capital gains rather than yields
26 April 2017
The Bangkok condominium market has witnessed lower rental yields in
recent years as prices have increased faster than rentals but luxury
condos in prime locations continue to attract both Thai and foreign
buyers expecting capital gains in the long term, according to
international property consultant JLL.
rental yields averaging 3%
High-end condos in Bangkok are now offering rental yields averaging 3%
a year, half that five years ago. While the selling prices have grown
by more than 30% over the past five years, rentals have risen by only
10%, leading to yield compression.
Generally, a yield is the actual rental expressed as a percentage of
the capital value. For example, a brand-new 150-square-metre luxury
condominium priced at 30 million baht (200,000 baht per square metre)
with the annual rent at 1.2 million baht (100,000 baht per month) would
yield 4% a year.
However, even if the unit was purchased by cash, with no borrowing
cost, such a yield calculation could be misleading as there may be
other expenses that should be deducted from the annual rent such as the
initial investment outlay such as for fit-out or furnishing, unit
maintenance costs and common area management (CAM) fee.
For instance, the typical CAM fee for luxury condominiums is
approximately 840 baht per sq m per year. If the CAM fee were the only
expense to add up (annual rent of 1.2 million baht minus the annual CAM
fee of 126,000 baht), net yield on the condo unit would be 3% a year,
provided that the property is continually rented.
A similar trend has been witnessed in older luxury condominiums. For
example, 150-sq-m units in well-managed 10-year-old developments are
now trading at 22.5 million baht (150,000 baht per sq m), fetching
monthly rents at 80,000 baht and yielding a net 3%. However, there are
cases where investors can acquire used units at lower prices and
consequently enjoy higher yields.
"The 3% yield does not sound attractive but many people have continued
to buy luxury condominiums in Bangkok as an investment, particularly in
prime locations", says Bunthoon Damrongrak, head of residential
property, at JLL.
"A lot of buyers of luxury condos whom we have recently represented
were Thais buying for their own use and as an investment. Those who
purchased as an investment focus more on a potential capital
appreciation in the long term than rental yields," says Bunthoon.
"Investors have become better informed than in the past. They are aware
that prime sites or land plots that are suitable for luxury condominium
development have become increasingly scarce and expect future condo
projects to offer higher prices as development costs, particularly the
cost of land, will continue to rise," he adds.
Demand for luxury condos in Bangkok comes not only from Thais but also
overseas investors, lured by relatively more affordable investment
opportunities. Most of the foreign buyers in the Bangkok luxury condo
market are from Asia, particularly Singapore and Hong Kong.
"Excluding the ultra-luxury segment, luxury condo prices in Bangkok
have remained very competitive. Products of similar quality in Bangkok
are twice cheaper than in Singapore and five times cheaper than in Hong
Kong. In addition, though the rental yields in Bangkok are
generally low, they remain competitive, compared to many more mature
markets such as Singapore, where yields are less than 2%," says Mr
"When it comes to property investment decision-making, rental yields
are an important factor to consider but not everything. Long-term
capital appreciation is among a few other factors of no less
importance," he concludes.
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