Understanding Expat Needs Key to Buy-to-let gains!

Bangkok Condo Sales estimates that about 30 to 40 per cent of units in most new downtown Bangkok condominiums have been sold to buy-to-rent investors.

An important question asked by these investors is what yield level they can expect.

In 2018, the average gross rental yield (before expenses and taxes) for Bangkok downtown condominiums is approximately 4.8 per cent, a drop from 5.4 per cent in the previous year.

This decline is underpinned by a price increase of new condominiums that exceeded the growth in rents.

The good news is that the number of expatriates in Bangkok has increased by 10 per cent year on year.

The expatriate market is the key rental market for high-end and luxury downtown condominiums.

For future buy-to-let investors, it is important to understand what expatriate tenants are looking for in order to generate a maximised yield level that beats the market average.

Based on Bangkok Condo Sales’ leasing transactions, two- and three-bedroom condominiums are the most popular types of unit rented by expatriates, while demand for one-bedroom units and studios is limited, except in serviced apartments.

As tenants for the studio and one-bedroom market are likely to be singles with no families, a fully serviced option is preferred over condominiums.

While there is a general preference for spacious units and large units of the same type, most expatriates have a fixed monthly housing allowance that dictates which property they end up going for.

The expatriate rental budget has not increased for many years, while condominium prices have risen on average by 8-10 per cent per annum for mid-range grades, and by 15-20 per cent for luxury grades.

With a fixed budget, what we are seeing is a preference for quality over unit size.

Tenants are willing to spend their budget on smaller units with a higher per-square-metre rent if it is well located, well decorated and newer. New buildings with smaller units therefore have a higher chance of being rented out than older buildings.

However, there are exceptions where well-managed old buildings are considered by tenants who prefer a larger space over the unit and building quality.

The building facilities are also an important consideration. Expatriates prefer a building that offers a range of modern facilities, such as attractive common areas, a well-equipped gym and large swimming pools.

The unit should also be well decorated with modern interiors, kitchen and bathrooms.

With increased competition from new buildings, landlords in older buildings may find it more difficult to rent out their units if the common areas are dated or the unit has not been renovated.

Location is also a key factor. Typically, expatriates prefer to live in a limited number of areas.

Most choose to live in the Sukhumvit area from Sois 1-63 and 2-42, Sathorn, and central Lumpini.

The most popular area for Japanese expatriates – the largest expat community in Bangkok – is between Sukhumvit Sois 39-49 and Sukhumvit 24.

While Sukhumvit is the most popular area because of easy access to the BTS Skytrain and proximity to schools, hospitals, retail and leisure amenities, the area also has more supply than central Lumpini and Sathorn/Silom.

While yield levels have declined this year on average against rising property prices, considering the above market preferences and |picking the right property, unit size and location will increase your chances of success as a buy-to-let investor.

For investors with a mortgage, the rent may not fully offset the loan repayment, but the combination of a consistent yield from a growing expatriate market and the potential for future capital appreciation can still make a buy-to-let investment a worthwhile consideration.

Bangkok Condo Investment Conundrums

It isn’t exactly news but in a world as fragile as ours a reminder now and then is more than welcome that, over the long haul and even shorter spans, real estate still represents a respectable way of conserving, growing and maximizing the returns on assets.

According to a report by Bangkok Condo Sales, the current low-interest rate environment with generally below inflationary returns on bank deposits and bonds, Thailand’s condo market (as massive as stocks increasingly are) offer brighter prospects as moneymaking assets.

Besides buying your own place to live, she say, more people are buying condominium to lease out. If you buy outright, you’re generating income on a monthly basis. If you borrow, you’re getting your tenant to foot the monthly mortgage bill.

Bangkok Condo Sales discerns two types of rental market: “top-end for expatriates and lower-end for Thai tenants who cannot afford to buy.” But forget about mid-range rental market, she say, because most Thais only want to own.

Aim instead for the kind of properties that can attract expat tenants which, by definition, offer the best returns in income and capital growth, she says.

In Bangkok, that pretty much limits you to Lumpini, Sukhumvit up to Ekamai, and the streets off the northern part of Sathorn Road. Plus two submarkets – around the International School of Bangkok at Nichada and around Bangkok Pattana School on Soi LaSalle. Outside those areas your expat tenant options are slight.

If the idea of becoming a landlord appeals, first figure out what expats want in size, design and furnishings – and what the can afford. Don’t expect Hong Kong or Singapore budgets because you won’t get them here.

Bangkok Condo Sales’ research based on its own transaction show that expats can pay Bt. 35,000 – Bt. 70,000 for a two-bedroom and Bt. 70,000 – Bt. 100,000 for a three-bedroom apartment. People with budgets of over Bt. 100,000 barely exist.

However, expat tenants are more interested in their budget than how many sqm it will buy. Overall quality and the number of bedroom are deal clinchers.

Naturally, they want well-decorated, fully furnished units that are preferably modern and practical, with good kitchen and bathrooms.

Contrary to what you might have heard, one-bedroom units are harder to rent out. Bangkok Condo Sales’ research show that most – as much as 70% – expat tenant demand is for two- or three-bedrooms.

Here’s the conundrum: future supply of 2- and 3-bedroom units is limited (most people find them too expensive to buy with land prices the way they are) and existing stock tends to be poorly maintained. Of course, nobody wants to rent a place that’s dowdy inside and decrepit outside.

Current gross yields (annual rent to capital value) in areas preferred by expats range 3%-10%. Note that some older buildings offer the best rental yields buy you have to weigh that against less chance of capital appreciation.

Bangkok Condo Sales recommends that prospective investors take in to account operating expenses, especially common area management fees, insurance premiums, rental agent fees, interior repair charges, maintenance fee and the dreaded taxes.

Also urges active property management by landlords because managing agent who can take on the role of rent collection and maintenance of the interior of the property are thin on the ground.

“The expat population in Bangkok is growing, while new supply in the most popular expat locations is limited, especially of two- and three-bedroom units” she says. “Rents are likely to rise”