Best Condominiums for Buy-To-Let Investors
19 Apr 2017
Investors looking to buy residential condominiums to rent out need to understand tenant’s needs in order to choose the best units to maximize their returns.
The prime rental market is leasing to expatriates, buy-to-rent investors need to understand where these tenants want to live, what are the preferred sizes and types of units and how much rent they can pay.
Most expatriate tenants in Bangkok are working rather than retired.
There are about 85,000 expatriates in Bangkok with work permits, according to the Alien Occupation Control Division of the Department of Employment plus diplomats and people with work permits for areas outside of Bangkok but live in Bangkok.
Most of these tenants want to live in a few specific areas of central Bangkok; Sukhumvit between Soi 1-63, 2-42 is the most popular location followed by Lumpini and Sathorn.
If a property investor wants to maximize the number of potential tenants, then they need to buy a property in these locations. Not every street in these areas is equally attractive and preferred locations are those closer to the BTS stations and not in a street with a lot of entertainment outlets.
There is sometimes a misconception that all expatriates have large housing allowances. This is incorrect. Unlike Hong Kong and Singapore where there are many highly paid foreigners in the finance sector, most expatriate employees in Bangkok work in the manufacturing sector or services that support that sector and have much more modest housing budgets.
CBRE has analysed all their recent residential leasing deals over the past two years and have found that the most common budget was 60,000 – 70,000 baht per month for a two-bedroom unit and 80,000 – 100,000 baht per month for a three-bedroom unit.
There were only five transactions at rentals of more than 150,000 baht per month over the last year.
If an investor wants to maximize the possible market appeal of their property, then they need to ask for a rental that matches the most popular budgets.
Many expatriate employees receive a housing allowance from their company. They will spend all that allowance but contribute nothing more from their own salary so these housing budgets are not flexible.
A major item to consider is tenant preferences for unit size and type.
CBRE’s analysis of their leasing deals showed that only 18% of the transactions were for one bedroom units, 45% for two-bedroom units and 31% for three bedroom units with less than 5% of transactions being for four bedrooms or more.
When it comes to unit type there is more demand for two bedroom units.
In terms of size, 90–120 square metres was the most popular size of a two-bedroom unit and 160–180 square metres for three bedrooms.
Size alone is not a perfect guide because there are many qualitative features that determine the level of demand for a particular property including the overall look and feel of the building and the unit, efficiency of the layout and quality of fittings, furnishings, appliance and facilities.
Investors need to remember that over 90% of demand is for furnished units.
Having identified the favoured locations, level of budget and preferred unit type and size, investors need to consider the supply side to estimate potential competition.
There are a total of approximately 11,200 apartments (single ownership) rental buildings and 71,000 condominiums in the most popular locations of Sukhumvit, Lumpini and Sathorn. CBRE estimates that around 35 - 40% of the condominium stock is owned by buy-to-rent investors. The occupancy rate for apartments is about 95% and approximately 80% for condominiums.
There is a greater range in the occupancy of condominiums because there is a much greater range in the quality of unit decoration, building quality and management.
Some condominium owners have not renovated the interior decoration of their units for many years and the property is no longer attractive to tenants.
In some older condominium buildings, the common areas were not designed well, for example having an entrance lobby tucked away in the middle of the car park. In some condominium building more than 20 years old, the co-owners have not refurbished and updated the common area, lobbies, corridors and facilities. The combination of old and unattractive unit interiors and poorly maintained common areas has significantly reduced the attractiveness and rental earning potential of a number of condominium developments built in the speculative boom of the late 1980’s and early 1990’s.
By contrast, many of the old single ownership apartment buildings were better designed, and in most cases, have been well maintained with regular redecoration of unit interiors and new furniture and appliances.
In terms of future supply, there are a few apartments under construction in the Sukhumvit, Lumpini and Sathorn area while approximately 11,000 condominium units are being built in these areas and 63% of the new condominium supply will be one bedroom units.
If the proportion of buy-to-let buyers of one-bedroom condominiums under construction is 35 - 40% as estimated by CBRE, then there could be increased future competition to find tenants for one-bedroom units with less competition for two- and three- bedroom units.
In terms of maximizing market appeal, two- and three-bedroom units are the best option but subject to total monthly ranges of 60,000 – 70,000 baht for two bedrooms and 80,000 – 100,000 baht for three bedrooms.
These sizes and budgets appeal to the broadest possible expatriate tenant markets, but may not necessarily produce the highest rents per square metre or the highest yields.