For the property market, which is losing steam, all this arguably matters less than the fact that Thailand’s economy is weak. Thailand is set to grow at a slower pace than most other nations in Southeast Asia, according to the IMF, its long-term prospects weighed down by structural problems including “rapid population aging, relatively low education quality and skill sets, and overdue structural transformation.” It underperformed much of the region with 3.2% growth in the first quarter of 2016, according to the Bureau of Trade and Economic Indices. The IMF forecasts the Thai economy will expand by 3% in 2016, and by 3.2% in 2017.
The property market has meanwhile been slowing:
- The condominium segment saw price rises slow to 4.7% (5.2% inflation-adjusted) during the year to Q1 2016, down from 8.9% (9.5% inflation-adjusted) during the year to Q1 2015, according to the Bank of Thailand (BoT).
- Townhouse price rises decelerated to 3.1% (3.6% inflation-adjusted) during the year to Q1 2016, from 7.3% (7.8% inflation-adjusted) during the year to Q1 2015; although the figure is a slight improvement from the previous quarter’s 3.0% growth (3.9% inflation-adjusted).
- The single-detached housing market dropped, albeit slightly, by 0.1% during the year to Q1 2016 (0.4% inflation-adjusted) - compared to price growth a year ago of 6.5% (7% inflation-adjusted).
Developers should be cautious in property development as “the economy remains slow, with high household debt, and low prices of agricultural products having an impact on consumers’ purchasing power,” has warned Bank of Thailand (BoT) Senior Director Don Nakornthab
Land development licenses issued for residential buildings during the first three months of 2016 fell 31% compared to the same period in 2015, according to the BoT.
Developers are visibly worried. Nothing makes this clearer than the aggressive marketing campaigns launched to boost second-quarter sales:
- LPN Development has a marketing campaign for Lumpini Township Rangsit-Klong 1, that allows potential buyers to rent for the first year, with the rent paid treated as a down payment on the mortgage.
- A "Free to stay in the first year" promotion was launched by Pruksa Real Estate for its nine Pruksa Ville projects.
- Property Perfect offers a zero-interest deal for the first year. Customers pay just Bt3,000 monthly instalments per Bt1 million of the loan during the first year. Transfer charges are waived.
- AP (Thailand) has an "Amazing 5 of Baan Klang Muang" promotion, offering a special fixed interest rate of 3.5% for the first five years of a mortgage.
- Sansiri has the "555 Like" campaign. Home-buyers need pay monthly instalments of only Bt555 for the first year of a mortgage.
- Ananda Development has a "Live Now by Ananda" promotion, giving buyers free transfer and mortgage fees.
All these incentives are in parallel to the “Baan Pracha Rath” incentives under which the state-owned Government Housing Bank and the Government Savings Bank give qualified buyers loans at below-market interest rates and relaxed mortgage approval criteria for homes priced up to THB 1.5 million (USD 40,000).
Analysis of Thailand Residential Property Market »
In most countries´ major cities, smaller apartments earn higher rental yields than bigger apartments. That´s not true in Bangkok. A 60-square metre (sq.m.) apartment in Bangkok’s central location now earns gross rental yields of around 5.6%, while a 120-sq.m. apartment also centrally located, earns gross rental yields of around 8.0%.
Yields have risen at the luxury end of the market, though since last year they have fallen for the large sizes, such as 250 sq. m.
The apartments included in our survey are located in Bangkok’s upscale residential areas which includes Sukhumvit Road, Silom, Sathorn, Riverside, Rama III, and Central Lumpini.
The Thai price index for single detached houses rose by 4.9% (4.11% inflation-adjusted) during the year to end-Q4 2014. The condominium index soared by 14% (13.18% inflation-adjusted), and is actually a more relevant index. Condominiums are what Bangkok people, including foreign homebuyers and expatriates, tend to live in. The price index for townhouses rose by 6.60% (5.82% inflation-adjusted).
Round trip transaction costs are low in Thailand. See our Property transaction costs analysis for Thailand and Property transaction costs in Thailand, compared to the rest of Asia.
Gross rent is subject to 15% withholding tax, which can be credited to the actual income tax due.
Property Tax: The House and Land Tax, levied on rental properties, is payable annually at a flat rate of 12.5% of the assessed annual rental value of the property.
Capital Gains: Gains derived from the sale of immovable property are taxed at standard income tax rates.
Inheritance: Inheritance tax is levied at a flat rate of 5% for direct descendants.
Residents: Residents are taxed on their worldwide income at progressive rates.
Rent: The contract prevails on issues regarding the rent, rent adjustments, and notices.
Tenant Security: If the tenant refuses to leave after the contract and/or the notice to vacate expires, the police can be called upon to forcibly remove the tenant. However, landlords are not allowed to take abandoned appliances and furniture as compensation for unpaid rent and damages.
“I find this draft constitution illiberal,” said Kasit Piromya, a senior Democrat member and former foreign minister. “It's a setback for the democratization process of Thailand.”
Pongthep Thepkanjana, a Pheu Thai member and former deputy prime minister, said the draft leaves far too much control in the hands of the military. “I read this draft charter, and I conclude that we lack a good checks-and-balances system. We have an imbalance of power."
“Thailand has become more militarized than we've seen in any contemporary period,” said Thitinan Pongsudhirak, director of the Institute of Security and International Studies at Chulalongkorn University in Bangkok. "We are not in a better place than we were two years ago. There is law and order, but it has been achieved at a price of deeper divisions. The military had a chance to be a broker and to enforce a reconciliation in Thailand, but it has become party to the conflict."
Thailand’s military seized power from an elected government in May 2014, the 12th military coup in the country since the end of absolute monarchy in 1932. Led by the present Prime Minister Prayuth Chan-o-cha, the coup came after several months of protests against the ruling Pheu Thai party and former PM Yingluck Shinawatra.