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Low savings rate drives Residential Investments

Low interest rates on bank deposit savings accounts are driving investment demand in the residential market, where investors are seeking annual yields as well as capital appreciation.

According to CB Richard Ellis research and leasing transactions data, the average gross yield of downtown condominiums in Bangkok last year was 6.1 per cent, substantially higher than bank deposit rates, which at best are below 2 per cent for fixed deposits.

The key to maintaining a consistent yield is underpinned by picking the right properties and an understanding of what the tenant requirements are, and what they can afford. The key factors to take into consideration when picking properties for a rental portfolio include location, as well as choosing the right building and unit size, CBRE said.

Location is the No 1 factor for the rental market, particularly for expatriate tenants, the key market for downtown condominiums in Bangkok.

Based on an analysis of leasing transactions completed by CBRE last year, expatriate tenants continue to be very selective on location. Developments that offer easy access to mass-transit stations, and are in close proximity to amenities such as restaurants, shopping centres, schools and hospitals, are much more in demand.

From CBRE’s leasing-transactions data, 50 per cent were concentrated in the Sukhumvit area from Sois 1-63 and 2-42, followed by Silom/Sathorn and Central Lumpini. Popular developments among expatriates are Plaza Athenee in Ruam Rudee, Park Chidlom and Domus in Sukhumvit 16-18.

There are generally fewer resale units in these established developments, which offer good rental opportunities, and investors need to work with motivated agents to find available units, CBRE said.

While prices may substantially differ by location, rental yields do not vary significantly between Sukhumvit, Lumpini and Silom/Sathorn.

Property prices per square metre in the Lumpini area are higher than on Sukhumvit, but statistics also show that this location attracts quality expatriate tenants with the highest rental budgets. For example, recent resale transactions in Plaza Athenee achieved nearly Bt160,000 per square metre, while resale transactions in the Sukhumvit area ranged from Bt120,000 to Bt130,000 per square metre.

Picking the right unit sizes is also important. Smaller one-bedroom units achieve the highest yield of 7.2 per cent, but there is also most competition in this segment, which may cause downward pressure on yields.

Rental demand for the segment is underpinned by the local white-collar market, unlike larger two- and three-bedroom units in high-end and luxury buildings, which attract quality expatriate tenants with larger budgets. While the average yield for larger units is lower at 5.6 per cent, the occupancy level is comparatively better in this segment.

With about 11,000 one-bedroom units in the pipeline under construction, investors should also beware of buying into projects with large numbers of identical units, and need to assess the demand for these units before purchasing, said CBRE.

Another key factor is the efficiency and functionality of the unit layout, combined with the attractiveness of the location, rather than the unit size alone.

For example, a modern 150-square-metre, three-bedroom unit close to a Skytrain station can achieve the same rent as a larger three-bedroom unit that is not as attractive in terms of location, unit layout, design and decoration.

Source: The Nation

 

ThaiVest Editorial Team