Given the interest in Thailand’s property industry I was delighted to receive this guest post by Thai Residential.
“Thailand is one of the most popular tourist destinations in the world, and it’s not hard to see why. The scenery – stunning. The culture – remarkable. The people – wonderful. And as anyone living in Thailand already knows, as popular as Thai food is around the world, it’s that much more amazing here in Thailand.
Because the country attracts so many tourists each year, it should come as no surprise that foreign real estate buyers have also flocked to Thailand.
This article is for anyone considering an investment in Thailand property, and who wants to know just a little bit more about the current Thai real estate market, its driving forces, and where it is headed.
It is difficult to view the Thailand real estate sector as a completely homogenous entity. Instead it is divided and subdivided into disparate markets, across distinct geographical areas, and encompasses many different types of buyers.
The largest segment of the market is obviously local Thai buyers, but this segment generally exists and operates independently of and portioned from the market for foreign buyers.
There are a number of reasons for this, but it primarily boils down to the fact that many foreign developments are constructed purely with foreigners in mind, in areas which are already densely concentrated with foreign nationals.
Furthermore, there is little access to borrowing facilities for foreigners, with precious few institutions willing to loan against Thai property. This dynamic means these developments do not end up sitting empty or unfinished due to lack of financing. This is in contrast with the broader local market (or most overseas markets) which are more sensitive to interest rate fluctuations and bank lending requirements.
This is not to say that there is no correlation between these foreign and local property markets in Thailand, only that there is far less correlation than you’ll find in most other markets around the world.
Where is Thailand’s Real Estate Sector Right Now?
Thailand’s House Price Index hit an all-time high in September, 2019, but this is not a market being fuelled by rampant speculation.
There was consistent growth with small but significant annual gains in the index for the 10 years leading up to 2016. The real estate sector slowed that year, before resuming its previous pattern of steady year-on-year gains.
With the index up around 58.3% since 2008, it is safe to say that the growth over the last decade has been consistent – free of “bubble” hysteria – which is what makes it ideal for investors.
Thailand is not that different to the rest of the world, in that its real estate sector will ebb and flow through cycles of oversupply and lack of investment. But over the last 20 years it has certainly been far less volatile than some western markets.
There have been reports over the last year-to-18 months that the nation’s real estate sector is experiencing a period of stagnation. While this is certainly the case with the condo market in the capital, any period of over-supply is generally met with efforts to stoke demand.
But Bangkok is driven more by the local real estate market than is, say, Phuket. And outside of the metropolis, there are plenty of plus points and opportunities for investors.
So, let’s look at the positives for investing in Thailand real estate in the years ahead.
Piggy Backing the Growth of Tourism
While the current slowdown in Bangkok condo sales has been widely reported, other parts of Thailand are not affected by this dynamic. The rise of foreign visitors to the Kingdom means the real estate sector continues to be buoyant in major tourist areas.
There are still plenty of bright spots for the Thailand real estate sector, including Pattaya, Phuket, Krabi, Koh Samiu, Hua Hin and Chiang Mai.
People come on holiday to relax and go sightseeing, but some of them end up investing in real estate while they are here. Because of this, over supply is certainly not an issue country wide.
In key tourist areas across the country, buyers are still being attracted to low prices. In addition to already competitive pricing compared with other global tourist destinations, many new developments coming online are being conceived on a much grander scale.
This inevitably means they can benefit from “economies of scale” on pricing, further reducing the unit costs and prices per square metre. The only drawback this causes for the market is that existing owners find it harder to sell their units when higher volumes of new units appear on the market at very competitive prices.
Low Interest Rates
We have just recently seen rate cuts by the US Federal Reserve, and on the 6th November 2019, an interest rate cut from the Bank of Thailand. The new record low rate of 1.25% tells us that the world is a long way off from abandoning the low interest rate environment it embraced after the 2008 Financial Crisis.
Economists may debate the relative merits for macro economics, but low rates are good news for the property sector. Low interest rates create greater liquidity (i.e. more money), and some of this money will find its way into Thailand’s property sector.
On top of that, as rates fall depositors in many countries begin questioning the wisdom of keeping their money in the bank where it earns almost nothing. Some countries (especially in the EU) have negative interest rates, which means you are basically paying the bank to look after your money.
Such policies also drive additional money into the property sector.
China’s Role in Thailand’s Growth
There’s no doubt about it: the wealth of China’s 1.4 billion people continues to grow. And given its population and proximity, it’s probably no surprise that more tourists come to Thailand from China than any other country.
And apart from the occasional slowdown, Thailand property remains an extremely popular investment with the Chinese buyers.
Barring a major, unforeseen catastrophe, China is likely to continue being a key contributor to Thailand’s foreign property market.
The Increase of Visitors from India
India currently sits in 7th place with 1.3 million Indian tourists travelling to Thailand each year.
Compare that with the number of tourists from Europe and North America, and it stacks up pretty favourably. Then consider two facts: (1) 1.3 million is 0.1% of India’s total population, and (2) the east coast of India is just a hop, skip and a jump from Thailand. In fact, with a flying time of just 2 hrs 30 min, Bangkok is as accessible from Kolkata as it is from Singapore.
The numbers arriving in Southern Thailand have increased considerably over the last few months, as direct flights were introduced to Phuket on GoAir. GoAir now flies from Bangalore, Mumbai and Delhi, with more flights expected on the schedule soon.
We have already seen an increase in the number of Indians purchasing property in Thailand. We would expect this trend to continue as more and more Indians visit the Kingdom.
Better Buying Options – Branded Residences and ROI
If you love buying the best, you should probably look into an investment in Thailand’s branded residences. Branded Residences are luxury hotel complexes which have integrated residential homes onto the grounds of the development.
Most of these developments are managed by international hotel chains, usually a luxury brand which specialises in 5 star comfort, quality and facilities.
These residences usually come at a premium price tag, but owners are assured that what they own will retain its value, will always be in demand and will generate an attractive return.
The attraction of branded residences is obvious. Your home is tied to brand name which stands for quality and service, and you know your rental property is being managed for you by some of the best in the business.
You can also be assured that these resorts are being run with a hotel license, something that most condominium projects in Thailand cannot boast. This legal standing is important when it comes to the short-term holiday rentals needed to drive your returns because, as elsewhere in the world, Thailand restricts the activities of websites such as airbnb.com to monthly bookings.
Thailand is now attracting an increasing amount of branded residences and these are becoming more and more popular with discerning buyers. Thailand’s growing middle class is also one of the major purchasers of branded residences throughout Thailand. This not only offers greater long-term stability to the resort, but also greater options for eventually selling the property.
Thailand is Still a Cheap Place to Live
It seems we can’t go a day this year without someone bringing up the strength of the Thai Baht. But regardless of the local currency’s relative strength in recent years, people are still attracted to Thailand by the low cost of living.
If you need a reminder of how inexpensive it is in Thailand, go back and visit the US, Australia or Europe and you’ll soon get a memory jolt. Most people who live here long term just forget how cheap it really is. Expatriates and retirees can live here at a fraction of the cost they can in their home countries.
Thailand’s Ongoing Infrastructure Improvements
Anyone who has lived in Thailand for the past decade or two has experienced a massive transformation in the country’s infrastructure. The rate of progress in many ways has been incredible, and it does not appear to be easing off.
Thailand is still on a fast track to modernisation, which will doubtless attract growing numbers of residents, which will have a marked effect on the real estate sector.
Easier Accessibility – Global Airport Hubs
Thailand is a long flight for Europeans, and even longer for Americans. Fifty years ago, no one would have imagined that the Middle East would have grown into such an important hub for global air travel. But today, ultra-modern airports in Doha (Qatar), Abu Dhabi (Etihad) and Dubai (Emirates) collectively handle over 150 million passengers. With connecting flights to most major cities, and fares which forced European and US airlines to compete on price, these flagship Middle Eastern carriers have changed the nature of global travel.
In fact, Dubai alone sees more travellers pass through its gates each year than Heathrow, and many of these are travelling either to or from Southeast Asia.
Future Accessibility – The Pan-Asia Railway Network
Another positive on the horizon is the Pan Asia Railway Network. It has been mooted for years, and while we don’t know how far away it is from being realized, it does appear as though it will finally go ahead.
The idea of a Kunming to Singapore train line has been discussed since the early 20th century. As we move deeper into the 21st century, there looks to be enough political will across the major countries to move forward. Individual stages of a High Speed Rail network have been built, joining them together in a unified system from north to south would certainly be a boost to travel from China to Singapore.
And with The Kingdom of Thailand lying right in the middle of the proposed route, it would increase tourism figures into Thailand, as people would not be limited to the congested roads and airports.
Bangkok is already positioning itself as one of South East Asia’s key aviation hubs; the introduction of high speed trains would make it a rail hub, as well.
Thailand Has Low Taxes
Buying a property in some countries can be so costly that prospective purchasers think twice before committing. Spain charges a minimum 8% property transfer tax, and other countries charges are more.
Thailand, on the other hand, continues to attract a constant stream of overseas buyers thanks in large part to its low tax regime. The Thai government appreciates that by accommodating foreign buyers with low taxes (currently just over 3%), the country will be able to attract greater foreign investment in Thailand property.
There is no indication that this low tax policy will be changing anytime soon.
Thailand has experienced remarkable economic growth over the past 50 years. There have been hiccups along the way, and these have nearly always had a knock-on effect on the real estate sector.
Thailand’s dynamic property market has suffered slowdowns in the past, yet these lulls have always been followed by recoveries and further growth. This is normal in any business cycle, but any periods of high volatility are tempered by the fact that foreign investors have very few borrowing facilities available to them. The largely “cash market” limits the classic “boom-bust” risk found in other countries.
No one is suggesting that Thailand’s growth will continue unabated for the next 50 years, but its amazing transformation continues with no major indicators of risk to the property market.
It may not always move forward at a blistering pace, nor will it be smooth sailing every year, but those investors in the Thailand property market who exhibit some foresight, and a little patience, will be certainly be rewarded over the medium to long term.”
This article has been provided by Thai Residential Co. Ltd. The Thai Residential Phuket Property Guide, one of Thailand’s most comprehensive buyer’s guides is available online free of charge, and can be viewed by visiting this link: thairesidential.com/phuket-property-guide.