Bangkok is facing a shortage of penthouses for rent. While demand continues and existing supply is limited, lower rental yields have discouraged investors from buying penthouses to rent out, according to property consultancy JLL.
"Penthouses represent only a small segment of Bangkok’s condominium market. The growth of supply in this segment is confined by the definition of a penthouse itself which generally must be situated on the top floor of the building and offers larger usable space than regular condominium units in the same development," said Suphin Mechuchep, managing director at JLL.
According to JLL’s Thailand Property Intelligence Centre, the penthouse supply in Bangkok has seen accelerated growth since 2013, with an average of over 80 units entering the market per year between 2013 and 2018, accounting for a 7% annual growth.
Despite the faster growth, the city’s total supply will rise to only 1,590 units by the end of 2018, accounting for less than 0.3% of Bangkok’s total condominium stock.
Of the total, 440 units are in the luxury and ultra-luxury developments, representing less than 0.1% of the market-wide condominium stock.
While supply is limited, there is continued demand from expatriate families for penthouses for rent.
Such units in Bangkok generally offer more than 300 sq m of usable space with 4-5 bedrooms and are asking rents ranging between 250,000-350,000 baht per month. These units are leasing well and are taken up not before long when tenants move out.
"Most of these rental penthouses are in aged condominium developments where investors purchased the units many years ago at a much lower price than now and thus still enjoy rental yields of 3% on average," said Mrs Suphin.
"Today, investors purchasing first-hand penthouses to rent out can expect rental yields averaging less than 1%. Such low yields have reduced investor appetite to buy penthouses for rental income," she added.
The lower rental yields have been driven largely by a sharp increase in capital values of penthouses. While the price per sq m of a penthouse is generally 20% higher than regular units in the same development, prices of condominiums in Bangkok have grown by more than 30% in the last five years while rents have increased by less than 10% over the same period.
"For this reason, penthouses in newer condominium developments cannot fetch as competitive rents as those in older buildings. This explains why demand from investors buying first-hand penthouses to rent out has dried up over the past 3-4 years," said Mrs Suphin.
Observations from JLL show that most of the penthouses in Bangkok have been purchased by high-net worth Thais and foreigners for own use in recent years.
While most Thais buy units as a second home in the city centre in addition to their main house in a fringe location, foreign buyers purchase penthouses in Bangkok as a holiday home. Some buyers are collectors who purchase penthouses because of their superior specifications and rarity.
"The rental penthouse market will remain undersupplied in the years ahead. While demand is on an upward trend, supported by a steady growth in the number of expatriates in Bangkok, compressed rental yields will continue to demotivate investors buying penthouse to rent out.
"This is good news for owners of existing penthouses. However, demand will concentrate in buildings that are well managed and maintained," Mrs Suphin concluded.