Rental Yields See Significant Rise in Bangkok

Rental Yields See Significant Rise in Bangkok-43645

“The economy may not grow, but it won’t die either.”[1] These were the words of Bangkok Bank executive vice-president Korbsak Phutrakul quoted in the Property Focus supplement published by the Bangkok Post in May 2014.

At the time the capital was still in the grip of a major political crisis which was ‘eroding the country’s economic health and damaging consumer and investor sentiment…’, and was seen as the ‘key risk factor for the property market for [2014].’[2]

Then, on 22 May the military, led by General Prayuth Chan-ocha, announced that it had taken control of the government. Despite the expected protests at this takeover and the suspension of the democratic process, led mainly by the United States, the military have remained in firm control now for almost 12 months. Certainly it has taken steps to build a semblance of a new democratic paradigm, but at its heart, the men in uniform are well and truly in control.

While the economy as a whole remains stagnant, the past year has actually seen what the Global Property Guide has termed a significant rise[3] on rental yields on larger apartments in what would be classed as the more popular areas of Bangkok for foreigners. Those areas, specifically, are Sukhumvit Road, Silom, Sathorn, Riverside, Rama III, and Central Lumpini. These are all classified as ‘upscale residential areas’.

According to the report, published in April this year, rental yields in Bangkok range from five to 6.8 percent with smaller apartments earning higher yields than bigger apartments, although that difference is now ‘very much smaller.’

The difference can be expressed via an example of a 65-square metre apartment in central Bangkok which can earn yields of around 6.8 percent, while a 350-square-metre apartment in a similar location will earn approximately 6.16 percent.

When it comes to the actual purchase prices involved for an investor, the following figures are quoted in US dollars, but with the Thai baht figures in brackets (and at a rate of 30 baht to one US dollar). See also the graphic below.

A 40-square-metre Bangkok apartment in the aforementioned upscale areas of the capital is currently priced around US$135,440 (4.06 million baht). This equals US$3,386 (101,580 baht) per square metre.

That apartment should be able to be rented out for the equivalent of US$718 (21,500 baht) per month, thereby giving a yield of 6.36 percent.

AT the top end of the scale, a 250-square-metre apartment costs around US$863,000 (25.9 million baht) to buy and offers a return of about US$3,525 (105,000 baht) in rental returns. That’s a yield of just 4.9 percent.

 

Last Updated: Apr. 20, 2015
BANGKOK – Apartments COST (US$) YIELD (p.a.) PRICE/SQ.M. (US$)
TO BUY MONTHLY RENT TO BUY MONTHLY RENT
40 sq. m. 135,440 718 6.36% 3,386 17.95
60 sq. m. 214,620 1,000 5.59% 3,577 16.66
85 sq. m. 257,040 1,314 6.13% 3,024 15.46
120 sq. m. 436,560 1,837 8.05% 3,638 15.31
250 sq. m. 863,000 3,525 4.90% 3,452 14.10
 

Districts researched:
Bangkok: Bangkok: Sukhumvit Road, Silom, Sathorn, Riverside, Rama III, and Central Lumpini
Source: Global Property Guide

Basically, unless there was a good long-term reason to buy and lease out a large apartment in Bangkok, overseas investors would be better served purchasing five or six smaller apartments, especially if they’re looking for a stronger percentage return on investment.

By way of further comparison, the Global Property Guide notes that the price of a single detached house across Thailand had risen by about 4.81 percent, although that figure was only to the second quarter of 2014.

Bangkok Birds eye view

Bangkok is considered as a ‘moderate’ on the Long Term Investment Rating[i], coming in with a 5.13 percent yield. Sydney, Australia rates a ‘poor’ 4.39 percent as does Kuala Lumpur, while Singapore, at just 2.83 percent rental return on investment, is classified as ‘very poor’.

It’s noticeable, at least from the standpoint of potential investment from Europeans, that Copenhagen (4.84 percent), Prague (4.18 percent), Moscow (3.22 percent), Rome (3.86 percent), Berlin (3.34 percent), Paris (2.89 percent), and Vienna (2.18 percent), as a basket of just six capital city examples, are rated from ‘poor’ to ‘very poor’ as long-term investments for rentals.

The British capital, London, also rates a ‘very poor’ at just 3.21 percent, although this seems largely due to the incredibly high cost of purchasing a house. According to a report in Reuters, ‘The average London house costs more than 10 times average earnings, up from around four times in 1993, according to the Institute for Fiscal Studies.’[ii]

As the end of 2015 will mark the official beginning of the Asean Economic Community (AEC), it’s worth looking at those regional capitals which are likely to pose serious future competition to Bangkok in the investment rental stakes.

Currently, Jakarta is showing a good 7.05 percent yield, although the downsides are high rental income tax, high transaction costs and belief the Indonesian capital may well be already overbuilt.

Metro Manila is easily the leader in Asean when it comes to rental returns, showing 7.51 percent on average. The downsides are that foreigners cannot buy land and taxes are high. On the positive side, as with Bangkok, there is a strong expat rental market and yields are high in luxury accommodation.

Thailand’s near neighbor Cambodia is currently showing strong GDP growth and although the Phnom Penh rental market is classified as ‘moderate’, with 5.33 percent returns, it has a pro-landlord rental market and the advent of the AEC is likely to continue that expansion. Nonetheless, there are ‘serious ownership restrictions’ which will need to be addressed in coming years.

As the Global Property Guide notes, among the advantages to buying property in Thailand, especially Bangkok, is the high yields and what they term a ‘pro-landlord rental market’ while ‘unusually low prices offer buying opportunity’. The downsides are that ‘foreigners cannot buy land’ and the buying process is ‘complicated’.

‘The report of my death was an exaggeration’ wrote the famed writer Mark Twain in 1897, and, similarly, while many may claim Thai democracy is dead or the economy is going down that same path, the reality is that along with almost every over nation on the planet it is continuing to function, albeit no longer at the levels it experienced in the 1980s and 1990s.

That Bangkok will remain a relatively good deal for those looking to invest for income is almost guaranteed.

[1] Page 8, Property Focus, Bangkok Post, May 2014

[2] ibid.

[3] http://www.globalpropertyguide.com/Asia/Thailand/Rental-Yields, accessed 7/5/2015

[i] http://www.globalpropertyguide.com/investment-rating, accessed 7/5/2015

[ii] Page 19, Spectrum, 26/4/2015