The current condominium situation in Sukhumvit
Is it still worth investing?
published : 2 Oct 2018 at 13:51
writer: Phornphan P.
Sukhumvit is well-known as a prime area in the city that enjoys perpetual popularity. However, the rapidly rising prices of condominium units in the area make investors wonder whether it is still worth investing there, whether to live there, rent, or to re-sell.
As a largely upscale residential, business and lifestyle centre with glitzy shopping malls and convenient transport enabling speedy and agile travel for commuters, Sukhumvit is popular among both Thais and foreigners.
No wonder major property developers continue to be attracted to invest in this area. As such, new condominiums, especially luxury projects, have mushroomed, with developers always seeking a hefty profit from higher prices when units are sold or gaining a long-term rental yield.
According to Nexus Property Marketing Co., Ltd., a property advisory company, the price of condominium units has continually increased over the past five years. Sukhumvit 39-Thong Lo has seen the sharpest increases: from 183,000 baht/sq m to 255,000 baht/sq m, up around 40%.
Whereas, average sales price of new luxury condominium units in inner and surrounding Bangkok (as of Q1 2018) was about 208,600 baht/sq m., the highest priced area was Sukhumvit 39-Thong Lo at 315,000 baht/sq m, followed by Chitlom-Langsuan (262,000 baht/sq m), and Sathon (243,000 baht/sq m).
These areas have gained popularity among both Thai and foreign investors. The prices are continually increasing due to the rarity of available plots of land remaining for development. These areas consequently have a tendency to yield a high return on investment through resale and rentals.
Condominium unit rental yields and capital gains
The rental yield of condominium units purchased in 2013 has averaged 6.1%/year over the past five years. Ekkamai has offered the highest rental yield, at approximately 7.7%. Phahon Yothin, Thong Lo, and Lang Suan & Phaya Thai, yielded 7.2%, 6.6% and 5.6% respectively.
Unit sales generated reasonable capital gains in accordance with continual price rises. The average capital gain over the past five years is 50%. Unit sales at Thong Lo offered the highest capital gain at 66%. Ekkamai and Ratchada-Phra Ram IX offered 61% and 58% respectively.
Luxury condominiums’ rental rates in inner Bangkok and outskirt areas averaged 754 baht/sq m/month. The most lucrative areas for rentals included Sukhumvit 39-Thong Lo, Lang Suan and Sathorn, where rates averaged 1,000, 955 and 823 baht/sq m/month, respectively. The majority of tenants were Japanese, European and American working in the city.
Rental prices per square metre of one- and two-bedroom luxury condominium units in the city differed quite narrowly. Rental price of one-bedroom condominium units is just 1-2% higher than two-bedroom units. Rental rates for one bedroom units at Thong Lo, Lang Suan and Sathorn ranged 43,000-52,000 baht/month, while those of two bedroom units ranged 65,000-82,000 baht/month. In the outskirts of Bangkok, rental rates were approximately 19,700-33,000 baht/month for one bed and 33,500-54,600 baht/month for two bed.
Foreign investor demand continues
Over the next three years, condominium price growth is expected to average 8%-10% a year. Rentals of condominiums in the city will increase by 12%-15%, offering a highly favourable prospect to condominiums in the outskirts of Bangkok to gain short-term rental yields. Long-term rental yields for condominiums in the city and surrounding areas will not change much.
Demand from overseas is continuing in H2 2018. The ongoing rise is largely due to the lower price of condominiums in Thailand compared with the buyers’ home countries such as Hong Kong and Japan, and convenient accessibility. These factors put condominiums in Thailand at an advantage when foreigners are looking for a second home as a place for personal recreation and/or rental.
Wealthy Chinese investors remain interested in investing outside their country to diversify their risks. Thai real estate developers increasingly market their new condominium projects overseas. They even open offices abroad to generate trust and provide direct services. Such efforts are also helping the local industry to continue to grow.
Over the years, investors have seen an opportunity to make a profit by offering foreign quota (49%) units to overseas investors. At the same time, individual local buyers continue to look for condominiums, also helping to boost the real estate market in the short-, medium- and long-term alike.