Bangkok--22 Jan--CBRE Thailand
In 2013, residential rentals in downtown areas rose for the first time in 20 years; sale prices also rose, resulting in condominium yields remaining stable at around 5.3%, according to CBRE Thailand, an international real estate advisor. CBRE Thailand sees growing demand and limited supply for two and three bedroom units, which will push up rent and produce consistent investment yields.
Rental Yields are the return on a property’s capital value per year. The rental yield is calculated by dividing the average annual rental return by the current sale price of the condominium unit. CBRE Thailand reports that in 2013, the gross average rental yield, before any deductions, was 5.3% (the deductions include common area management fees, maintenance of the interior, fire insurance, agent’s fee, void period i.e. when the unit is not rented and is in between tenants, personal income tax, and household tax).
The CBRE Research team analysed condominium rental transactions in Bangkok’s three most popular expatriate rental areas (Sukhumvit, Silom/Sathorn, and Lumpini) using data from 176 rental transactions in 55 condominiums as presented by CBRE data which is included. The most popular type of units were two bedrooms, followed by three bedrooms, and lastly one bedroom.
The Sukhumvit area (Sukhumvit Soi 1-63) was the most popular location for unit rentals and achieved the highest yields at 6.1%.
In 2013, one-bedroom units achieved the highest gross rental yields at 6.4%, followed by two bedroom units at 5.5% and three bedroom units at 4.1%.
Interestingly, we found that the age of condominium buildings in a good location with good maintenance does not significantly impact on rental yields. If the building is in a good location and well maintained, good yields are possible despite the building’s age. Some older buildings have similar rental yields to newer buildings while the unit purchase price is as much as 30-40% lower than that of newer buildings. According to CBRE Thailand, there were a greater number of newer building transactions compared to older building transactions. For example popular newer buildings included Millennium Residence in Soi Sukhumvit 20 and The Sukhothai Residences in Sathorn. Units in older buildings are harder to resell compared to newer buildings.
Foreigners make up more than 95% of the rental demand for luxury condominium units in the downtown area.
Buy to rent investors who understand expatriate demand can achieve gross rental yields (rental yields before any deductions) as high as 8% and net rental yields of 5%.
CBRE Thailand expects that rental rates in Bangkok could fall for one bedroom units because of the amount of new supply. There will be very few new two and three bedroom units constructed in the downtown area while demand from foreign tenants continues to grow for these types of unit.
CBRE Thailand expects that rents for two and three bedroom units will increase, pushing up their yields.
The limited supply of two and three bedroom units could mean that they will be a better investment than smaller one bedroom units even though the total price will be more.
Condominium buyers looking for rental yields need to understand the supply and demand from tenants for each unit type in their preferred location.
They can then understand how easy or difficult it will be to rent their unit and what are the prospects for future rental increases.
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