Maximising Your Return on Rental Investment
Many condominium buyers in Bangkok are buy-to-let investors. The key to maximizing rental income is to understand the rental market – who is renting, what are their preferred locations, what their budget is and what their preferences are in terms of unit type, sizing, design and specifications.
Buy-to-let investors who are purchasing high-end units in Bangkok’s central business district (CBD) are predominantly targeting the expatriate rental market. Over 95% of tenants with a budget of THB 20,000 per month and above are expatriates who are living and working in Thailand for a period of two to three years and who will choose to rent, not buy. As of early 2016, there are a total of 82,000 expatriates in Bangkok and over 1,200 registered diplomats, the majority of whom are driving the expatriate rental demand.
There a number of expatriate tenant requirements one must understand in order to ensure a maximized return on investment. Location is one of the top considerations. The majority of expatriates prefer to only live in a limited number of locations, specifically between Sukhumvit Soi 1 to 63 and Soi 2 to 42, Central Lumpini and parts of Sathorn. Within these locations, there are neighbourhoods that are more popular than others such as the area around Phrom Phong BTS station. Regardless of the specific location, the key criteria that tick the boxes for a good residential location is one that offers easy access to retail, dining and key amenities such as schools and hospitals.
Based on CBRE’s leasing transactions, Sukhumvit records the highest rental demand, accounting for 60% of the total transactions. Connectivity to the BTS, retail amenities, restaurants, schools and hospitals make Sukhumvit an attractive area amongst expatriates.
Budget is another key consideration. Most expatriates have a fixed corporate budget and select their property based on the total monthly rent, not on a per-square-metre basis. Well-heeled expatriate tenants will seek sizeable quality units and the best available within their corporate budgets. Whilst there is a wide range of budget within each unit type, landlords should ask rents which match the majority of market’s budget for each particular unit type.
Based on CBRE’s analysis of apartment and condominium rental transactions, the most common monthly budget is THB 30,000 to THB 50,000 for one-bedroom units, THB 50,000 to THB 80,000 for two-bedroom units and THB 80,000 to THB 120,000 for three-bedroom units. In order to maximize the number of potential tenants, landlords should set asking rents that is within the housing budget for each unit type. Even if the property’s location, building, decoration and furniture is superior to the market standards, setting higher asking rents will limit the number of potential tenants who can afford the rent given their fixed budgets.
Another key investment decision is which unit type to invest in. Whilst 1-bedroom units account for the largest CBD supply (51%), 2-bedroom units show the highest rental demand amongst expatriate tenants accounting for 43% of CBRE’s leasing transactions. In terms of unit size, the average sizing according to the budget ranges from 40 to 60 square metres for one-bedroom units, 80 to 120 square metres for two-bedroom units and 150 to 200 square metres for three-bedroom units. Larger units above 200 square metres can typically achieve in excess of THB 100,000 per month, although these units are limited both in demand and supply. Choosing a unit type with less supply will reduce rental competition. Currently, there are a limited number of two and three-bedroom units on the market and this is what the majority of expatriate tenants seek. As a general preference, expatriates do prefer larger units providing this fits within their budgets. On a per-square-metre basis, smaller units typically achieve a higher rent as tenants look at the lump sum budget and does not consider the rent on a per-square-metre basis.
Choosing the right location, unit type, sizing and setting the right asking price is essential, but it does not guarantee that one maximizes the return on investment. Other factors such as the unit design, fit-out, furnishings and the building’s facilities are also important considerations for a tenant. Expatriate tenants will choose new, spacious and well-designed units. The decoration, furniture, fit-out and appliances, therefore, must match the tenant’s requirements and must be kept up to date to remain competitive. Landlords who do not refurbish their units when they are dated are faced with competition from newer units and find their units harder to rent out and achieve lower rents.
The key to a successful buy-to-let investment is maximizing yield as well as ensuring the unit’s rentability and occupancy. In summary, when looking to buy, investors should select a popular expatriate location, pick the most efficient unit layout and size that allows them to maximize the per-square-metre rent or units which are more limited in supply and set an asking rent that matches the typical expatriate budget. In the long term, the unit should also be maintained to a good condition and redecorated when required in order to ensure competitiveness with newer units.
For buy-to-let investors, it is possible to achieve gross yields ranging from 3% to 6%, which offer a significantly higher return than bank saving rates. In addition to rental returns, holding a quality well-located property in the medium to long term is also certain to make capital gains.
This is a special article written by Aliwassa Pathnadabutr, Managing Director of CBRE Thailand for Bangkok Post’s Spectrum dated 10 July 2016.