CBRE Says Foreigner Condo Appetite Strong
Chinese move in to fill domestic demand gap
Thailand remains appealing for most residential condominium investors because of the relatively low prices of real estate and the reasonably high rental yields, says CBRE Research Thailand.
The purchasing conditions in Thailand are also less complicated compared to a lot of other countries, with relatively low down payments and small transfer fees, said the research house.
Previously, the majority of foreign condominium buyers in Thailand were from Hong Kong or Singapore, with Chinese demand minimal.
But with weak domestic demand over the past two years, Thai developers have been expanding their customer base by holding overseas marketing campaigns. Those efforts have enticed more Chinese buyers to purchase condominium units in Bangkok and other major tourist destinations in Thailand.
Chinese Investment Trends
Baidu, China’s top search engine and web portal, said Thailand ranked seventh in the world for Chinese searches for real estate investment in 2016 and second in Southeast Asia, after Malaysia. The site reported of the total Chinese capital invested in Thailand, some 50% was for real investment.
Chinese investors most often buy properties that are priced below 10 million baht and are primarily located in downtown Bangkok or midtown areas, with easy access to mass transit stations. This segment also makes purchases in tourist hubs like Chiang Mai, Pattaya and Phuket.
Chinese Investors in Malaysia
Malaysia has had better market exposure for the Chinese as many developers have implemented long-term overseas marketing campaigns over the last 10 years. The government offers a long-term visa that allows foreigners to stay in Malaysia for up to 10 years, with loans being available to purchase property under the “Malaysia My Second Home” (MM2H) scheme.
Developers who market their projects overseas usually include the introduction of MM2H to foreign investors as one of their promotional tools. There is a minimum price for property purchased by a foreigner and it is possible for foreigners to buy freehold land in Malaysia. Despite strong marketing, growth in foreign sales in Malaysia has only been registered since 2012, particularly in Penang.
Comparison Between Thailand and Malaysia
In Malaysia, Kuala Lumpur and Penang are the two most attractive locations for foreign investors. This is similar to Thailand, where Bangkok and Phuket are the perennial favourites for foreign investors. Bangkok and Kuala Lumpur, both being capital cities, have similar characteristics such as extensive infrastructure, facilities and amenities. Likewise, Phuket and Penang are both resort areas popular for holiday homes.
The Thai market is still relatively new for Chinese residential real estate investors compared to Malaysia, which has been popular with the Chinese for over five years. As a result of today’s growth in the popularity of Thailand as a Chinese tourist destination, there is greater potential for Thai developers to expose their residential developments to overseas buyers.
The number of Chinese tourists visiting Thailand has increased from 1.1 million in 2010 to 8.8 million in 2016.
Foreign Ownership Regulations in Malaysia and Thailand
Malaysia’s foreign ownership regulations differ from Thailand’s, offering more opportunities for foreign investors. Even though all foreign property purchasers have to receive state approval, foreigners can own any type of property in Malaysia with some exceptions, such as for properties valued less than 1 million ringgit (8 million baht) in the majority of states and 2 million ringgit (16 million baht) in Selangor and Penang. Foreigners are also subject to restrictions under the Malay Reserve Land law.
In terms of financing, MM2H holders in Malaysia can obtain mortgages of up to 80% of the purchase agreement price, while non-MM2H holders generally obtaining 70% of the property value.
Thai foreign ownership regulations do not allow foreigners to own freehold land but they can hold freehold ownership of up to 49% of the saleable area in a condominium. All the financing used to purchase a condominium by a foreigner needs to enter Thailand as a foreign currency. Foreign buyers cannot borrow baht and there are few overseas banks willing to lend in a foreign currency to fund a Thai property purchase. This means most foreign purchasers have to be cash buyers.
Conclusions & Recommendations
The number of Chinese tourists to Thailand is expected to continue growing. As these tourists become more familiar with Thailand, more of them will want to purchase property, said CBRE Research Thailand.
In order to increase Thailand’s residential development exposure, developers should continue to improve construction quality, design and safety to be competitive with other investment destinations.
There are challenges in tapping the Chinese market as it has capital controls on how much money a citizen can bring out of China and restrictions on capital outflows for property investment.
To further attract long-term Chinese investment, developers need to understand the demand criteria and produce the right products that suit Chinese buyers’ required specifications, the research house said.
Another important area is to provide a high standard of customer service throughout the transaction process, especially in providing transparent transaction terms, fee structures, taxation regulations, and transfer processes for foreigners.
Source: Bangkok Post – 27 September 2017