As the number of foreigners coming to Thailand for business and pleasure continues to increase, so too does their interest in acquiring residential property in the country. However, interest does not always translate into sales for various reasons.
Many of the foreign investors are focused on industry, with the heaviest activity in industrial estates, especially on the Eastern Seaboard. Japanese companies have been active in Thailand for decades, and Japan remains the biggest source of expatriates who have applied for work permits. However, a growing number of Chinese are also entering the country to invest and work, and they have become the second largest expatriate group among work permit holders.
China has also led the tourism surge in recent years. The number of foreign tourist arrivals last year reached a record 32.6 million, and 8.9 million of those visitors came from China. The Tourism and Sports Ministry and private sector groups have forecast that foreign tourist numbers in 2017 could top 35 million, representing almost a 10% increase over 2016, with Asians leading the way.
All foreigners who stay in Thailand over the long term need residences, and while most will rent accommodation, a good number seek to invest in condominiums. The accommodation requirements of foreigners who are here to work and those who are here for tourism are not very different, other than location.
Those in the country for work will look for residences or condominiums in Bangkok, near the industrial estates where their businesses are located, or in other primary business cities. Foreign tourists generally look to buy condominiums or property in coastal cities such as Pattaya, Hua Hin and Phuket.
The first priority for all foreigners interested in buying property is condominiums because they can own the units in their own name. In addition, condominiums are relatively easy to buy and sell, and they can serve as investments in both the long and short term.
There are three main channels through which foreigners can purchase condominiums in Thailand:
Developers: Many foreigners buy directly from developers at property exhibitions and events, either in Thailand or their home countries. Some Thai developers, especially listed or well-known companies, stage roadshows abroad and even open new project sales in other countries before Thailand if they are seeking a particular group of buyers. The main targets of all developers are still in Asia, since Hong Kong, Singapore, China, Malaysia, Taiwan and Japan account for such a significant number of foreign tourists, expatriates and investors.
Agency companies: Foreign buyers are more familiar than their Thai counterparts with buying property through agencies or brokerage services. In addition, agencies can help them to select property, provide information or advise on maintenance and rentals when the buyers cannot stay in Thailand over the long term. Some property developers have cooperative arrangements with foreign agencies, which take an agreed number of units from developers and then are responsible for selling them.
Some agency companies mark up the selling prices above what the developers announced when they opened sales. Agency companies that are more focused on the Thai property market are from Hong Kong, China, Singapore and Taiwan, reflecting the interest among buyer groups in those markets.
Unit owners: Some foreign buyers need to move into new accommodation in Thailand as soon as possible, so they are looking for units that are move-in ready. Therefore, they will search on the internet to find condominiums for sale by individual owners in the areas they favour. In addition, individual owners are more flexible in terms of payment or friendly negotiation than agencies and developers.
Many Thai developers have been trying to sell more of their condominium units to Hong Kong and Singapore buyers than mainland Chinese during the past two years. But we see a shift in interest back to mainland Chinese buyers in 2017 due to the large number of Chinese tourists visiting Thailand. Cultural similarities, as well as the rising number of Chinese who favour Thailand for work, business investment and retirement, mean this market has high potential.
While the Japanese still top the table among foreign investors in Thailand, they are not very interested in buying condominiums in the country.
In any case, one thing that all foreign condominium purchasers have in common is the desire to make a sound investment. Some will be leaving Thailand after a few years when their work contracts end and will want to sell their units. Others will be in the country for just a few weeks or months each year and will want to rent their units out for the rest of the time. The main question they have is whether the yield or profit is reliable and based on reasonable data.
Although yields on condominiums in Thailand are not that high, they are still higher than the interest rates available from commercial banks and involve lower risk than investing in the stock market. The majority of foreign investors are thus highly concerned with yield, capital gains or profits, which they expect to be based on reliable data. They will closely study the numbers forecast by developers, agencies and anyone else trying to sell condominium units to get an idea of what to expect. Thus it is not wise to promise yields or gains that cannot realistically be obtained. If foreign buyers start to discover that returns consistently fall short of the mark, they may become unhappy and disappear from the Thailand condominium market in the future.
Surachet Kongcheep is the associate director for research of Colliers International Thailand. He can be reached at surachet.kongcheep@colliers.com
CAPITAL RETURNS: Massive construction projects under way along the banks of the Chao Phraya River. Bangkok's property market is attracting much foreign investment. Photo: AP
