Bangkok Condominiums: ROI On Condo Rents

by Michael on May 20, 2012


Here’s an article about rental properties and their ROI in BKK:

Rental yields remained largely unchanged in the first quarter of this year in the downtown Bangkok condominium market, ranging from 3% to 9%, despite prices for new properties rising and no significant growth in the number of expatriate tenants.

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Gross yield is the annual rental return compared to the capital value of the property before deducting operating costs and allowing for taxation. The average gross yield of letting transactions was 6% in the first quarter, but there was a wide range from 3% up to 9%.

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Location is one of the most important drivers of yield. Investors need to understand which locations expatriate tenants prefer. Yields have remained steady in the downtown market, with the most popular expatriate rental areas being Sukhumvit up to Soi 63 (Ekamai), Lumpini and Sathorn.

The downtown rental market is mainly driven by expatriates. Based on our rental transactions in the first quarter of this year, there were virtually no Thai lettings at this market level. Within the expatriate market, certain nationalities have specific preferences in terms of facilities and unit features. Japanese tenants are by far the largest expatriate tenant market, making up 30% of CBRE’s transactions, followed by Americans (15%), Germans (13%) and Australians (8%).

In terms of unit type, some of the best yields that have been achieved recently are in new one-bedroom units that are well furnished and located right next to skytrain stations on Sukhumvit. But this trend may not continue as the supply of new one-bedroom units will grow significantly over the next two years.

The survey also showed that the most active rental markets are in the two- and three-bedroom sector in the preferred downtown locations. Thirty-nine percent of CBRE’s first-quarter condominium rental deals were for two-bedroom units and 25% for three-bedroom units.

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Vacancy rates in condominium buildings varies. Some buildings have vacancy rates of less than 10% of available units while others, usually older, poorly maintained buildings, more than 50% of available rental units are vacant. There are, however, some older buildings in popular locations where the owners have redecorated their units to make them attractive with well managed and upgraded common areas that continue to attract tenants.

For example, as tenants have a fixed monthly lump-sum budget, some would rather spend their budget on a larger unit in an older building than a small unit in a new building. Let’s take an example of a tenant with a 50,000 baht budget who needs a two-bedroom unit. He may choose a 130 sq m unit in an older building where the unit can be bought at 60,000 baht per sq m, providing investors with a gross yield of 7.7%. Alternatively, the same tenant might choose to spend 50,000 baht on a more modern and better-located unit of, say, 80 sq m. The price of the new unit could be around 100,000 baht per sq m, providing a gross yield of 7.5%.

As sales prices per square metre for older buildings are often 50% lower than in recently completed buildings, investors should not ignore investment opportunities in older but well managed buildings, particularly those with upgraded common areas and units that have been redecorated as these can offer good value to investors.

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all this data is based CBRE’s company’s letting transactions for the last quarter.

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