Bangkok's condo index up 14%, despite the politics
Last Updated: May 01, 2015
The coup impacted foreign investment and private consumption, stirring new forms of anti-coup resistance, and counter-repression. Toyota, the largest car manufacturer in Thailand, has said it could cut its production if political unrest perseveres. One of the sectors most hit initially was Thailand’s tourism industry and for months after the declaration of martial law the number of international arrivals fell significantly. But despite the political crisis, Thailand has been again attracting tourists from the start of this year.
In order for Thailand to regain economic stability, the political upheaval needs to be resolved in a peaceful manner.
Despite the politics, the Thai price index for single detached houses rose by 4.9% (4.11% inflation-adjusted) during the year to end-Q4 2014, after annual house price rises of 4.19% in Q3, 4.81% in Q2, and 5.71% in Q1 2014, according to the Bank of Thailand (BOT).
The condominium index soared by 14% (13.18% inflation-adjusted), and is actually a more relevant index. Condominiums are what Bangkok people, including foreign homebuyers and expatriates, tend to live in. The longer-established detached houses index over-represents the rural population.
The price index for townhouses rose by 6.60% (5.82% inflation-adjusted), and the residential land price index surged by 6.36% (5.59% inflation-adjusted).
“Property prices in Thailand remain very attractive by international standards, for example at least four times cheaper than Singapore, said Apichart Chutrakul, Sansiri's CEO and Co-founder.
With strong economic fundamentals, the market also offers good prospects for capital gains, with quality high-end and luxury projects in the best locations ensuring maximized capital appreciation in the long-term.”
Bangkok property - yields on larger apartments moderately good
Rental yields in Bangkok range from 5.0% to 8.0%. Over the past three years, we’ve seen yields on medium-sized apartments (120 sq. m.) rise significantly.
In most countries´ major cities, smaller apartments earn higher rental yields than bigger apartments. That´s not true in Bangkok. A 60-square metre (sq.m.) apartment in Bangkok’s central location now earns gross rental yields of around 5.6%, while a 120-sq.m. apartment also centrally located, earns gross rental yields of around 8.0%.
Yields have risen at the luxury end of the market, though since last year they have fallen for the large sizes, such as 250 sq. m.
The apartments included in our survey are located in Bangkok’s upscale residential areas which includes Sukhumvit Road, Silom, Sathorn, Riverside, Rama III, and Central Lumpini.
The Thai price index for single detached houses rose by 4.9% (4.11% inflation-adjusted) during the year to end-Q4 2014. The condominium index soared by 14% (13.18% inflation-adjusted), and is actually a more relevant index. Condominiums are what Bangkok people, including foreign homebuyers and expatriates, tend to live in. The price index for townhouses rose by 6.60% (5.82% inflation-adjusted).
Round trip transaction costs are low in Thailand. See our Property transaction costs analysis for Thailand and Property transaction costs in Thailand, compared to the rest of Asia.
Income taxes in Thailand are high
Rental Income: Nonresidents pay tax on income derived from property located in Thailand at progressive rates.
Gross rent is subject to 15% withholding tax, which can be credited to the actual income tax due.
Property Tax: The House and Land Tax, levied on rental properties, is payable annually at a flat rate of 12.5% of the assessed annual rental value of the property.
Capital Gains: Gains derived from the sale of immovable property are taxed at standard income tax rates.
Inheritance: There are no inheritance or gift taxes in Thailand.
Residents: Residents are taxed on their worldwide income at progressive rates.
Buying process is complicated in Thailand
Total round-trip costs are moderate at around 9.90% to 11.90% of the property value, inclusive of the realtor’s commission of from 3% to 5%. There are complications surrounding the computation of the buying costs; stamp duty and specific business tax are based on the assessed value or declared value, whichever is higher. Buyer and seller each pay for their own separate lawyer.
The landlord can call the police in Thailand
Given the absence of formal legislation, Thailand is pro-landlord.
Rent: The contract prevails on issues regarding the rent, rent adjustments, and notices.
Tenant Security: If the tenant refuses to leave after the contract and/or the notice to vacate expires, the police can be called upon to forcibly remove the tenant. However, landlords are not allowed to take abandoned appliances and furniture as compensation for unpaid rent and damages.
Impact of the continuing political crisis on Thailand economyThailand’s economy expanded by only 2.50% in 2014, down from 2.9% in 2013, and a sharp slowdown from GDP growth of 6.5% in 2012, according to the International Monetary Fund (IMF).
The economy is projected to grow by a modest 3.8% this year and another 4.0% in 2016, according to the IMF. However, other agencies are now projecting below 2% economic growth for Thailand.
“All the economic engines appear to have stopped functioning rendering Thailand’s economic outlook the worst in 40 years,” said Mr. Thanawat Polvichai, director of the Economic and Business Forecast Centre of the University of Thai Chamber of Commerce.
“The contraction of economic growth, the shrinking of export and domestic consumption, farm price slump and delayed disbursement of government’s spending budget have combined to make the private sector feel not confident with the state of the economy,” he further explained.
Consumer confidence fell to 80.4 points in January 2015, and is expected to continue falling in the coming months, according to the University of the Thai Chamber of Commerce (UTCC).
Exports, which account for more than 60% of the country’s economic output, are also faltering. In February 2015, total exports fell by 6% from the same period last year, according to the Commerce Ministry. On the other hand, imports rose by 0.8% in February 2015 from a year earlier.
“The continued declines (in exports) were due to the lower shipments of oil products and gold,” said Secretary of the Commerce Ministry Chutima Bunyapraphasara.
Yet Thailand is attracting again tourists, despite the political unrest. In January 2015, international tourist arrivals surged by 16.30% from the same period last year to 2,654,634 people.
“We expect growth in tourism and foreign direct investment as well as an improvement in foreign interest in investing in the Thai property market,” said Aliwassa Pathnadabutr, Managing Director of CBRE. "This will be another key growth driver for the luxury residential market."
The value of land and building transactions fell by 2.2% in 2014 to THB 969.1 billion (US$ 29.8 billion), according to the Department of Land, Ministry of Interior. The Central region accounted for about 63% of all transactions, followed by the Eastern region (12%) and the Northeastern region (9%).
Interest rate cut
To stimulate the economy, Thailand's key interest rate by was cut 0.25% to 1.75% by the Bank of Thailand in March 2015. It had been at 2% since December 2010.
“The main motivations for rate cuts have been the recent bout of deflation and relative currency strength,” said Krystal Tan, economist at Capital Economics. "Headline consumer prices fell 0.5% y/y in February, after a 0.4% decline in January. Meanwhile, Thailand's nominal effective exchange rate has risen considerably, raising concerns about export competitiveness."
“We doubt the Bank of Thailand will make any further rate cuts this year. Deflation has been largely a reflection of the fall in global energy prices, rather than demand factors, and will likely prove temporary,” she added.
The BOT has also taken additional measures to make life easier for foreign buyers and investors by relaxing foreign exchange regulations under the Capital Account Liberalization Master Plan. Thai baht transactions by non-residents (NRs) and by corporate treasury centers will also be relaxed.
The main goal is to deepen Thailand’s financial markets by allowing greater flexibility and diversification for residents and NRs, according to the BOT.
“Thailand will allow Thais to freely purchase foreign currencies for deposit up to a limit of $5 million, raising it from $500, 000,” said the BOT. “It would double the outstanding limit for non-residents in borrowing the baht from domestic financial institutions for transactions undertaken without underlying trade and investment in Thailand to not exceeding 600 million baht ($18.3 million), which is expected to be effective in May.
The Thai baht rose modestly to THB 32.61 = US$ 1 in March 2015, after two consecutive months of decline this year.