While prices continue to rise, the rental yield has dropped with competing units for rent and resale. The time for a quick profit from the resale of newly launched units has, in many cases, passed.
The residential-sales market for investors will now be far more driven by the underlying demand from tenants, and a more rigorous understanding of rental returns, as well as the potential for future capital gains.
For high-net-worth individuals (HNWI) who have funds to invest in residential properties, there are more options, but they should consider which property would be the right one to buy.
They should consider those that not only generate good returns, but also consume less time when managing the investment portfolio.
Investors may be tempted to buy units in older buildings because of their lower price per square metre and higher rental yields, but with other choices in the market, my guidance for HNWI is to look at newer properties as a primary investment. Generally, older properties require additional expenditure on top of the purchase price.
There could be additional payments required to upgrade common areas, and the interior of these units may need significant expenditure on renovation. Additionally, older properties are currently more illiquid if investors want to resell.
It is my guidance that HNWI should buy units within the luxury to super-luxury categories in prime downtown areas. If one has long-term funds to invest for five to 10 years, this option has proved to be the right choice.
Even though prices have skyrocketed over the past 10 years, there is a very limited supply of prime freehold land left within the downtown area. As a result, the projection is that the value of well-designed and well-maintained downtown luxury and super-luxury projects will only increase over time, albeit at a slower and steadier rate than in the past five to 10 years.
Demand for these types of properties should remain steady from both affluent Thai buyers and international buyers. An example of this is The Sukhothai Residences, as it has generated consistent rental yields of 3-4 per cent, and an average of 6-per-cent capital appreciation per annum since its completion in 2011.
Though luxury products also come with higher common-area management fees, the yield from a luxury project in a prime location should cover the maintenance costs and still provide good and consistent returns.
Buying hotel- or serviced-apartment-branded residences that have rental management programmes or rental guarantees has become more and more popular among HNWI. They are hassle-free investment options with consistent rental yields.
Branded hotels or serviced apartments not only provide advantages of reliable property management, but tenancy management as well. Investors do not need to deal with maintaining and renting out the unit.
In the past, we were familiar with these products in resort locations such as Phuket.
Today, there is a growing interest in launching these types of products in Bangkok, such as The Park at Em District by Ascott.
Performance of Bangkok serviced apartments has been consistent, with average rentals of Bt1,000 per square metre. Branded serviced apartments command a premium rent over unbranded and non-serviced condominium projects in the same area.
London is still the most popular location for overseas property investments by Thai HNWI.
Despite Brexit and a higher stamp duty of 3 per cent, buyers’ appetites remain strong and investors remain active.
After UK citizens voted to leave the European Union, the favourable baht-pound exchange rate has presented an opportunity for Thai investors looking to purchase properties in prime locations in London. Thai investors are able to take advantage of discounts of up to 20 per cent due to the weaker pound as compared with pre-Brexit values.
Thai HNWI should focus on quality rather than quantity when it comes to residential-property investments. It would be better to buy a few good properties rather than a larger number of more average-quality properties.
Historically, quality properties have always outperformed the rest of the market, both in Bangkok and London.