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Thailand’s housing market losing steam
- Condominium price rises decelerated sharply to 0.35% (-0.5% in real terms) during the year to Q3 2017, down from an 8.2% y-o-y rise during Q3 2016. This was the lowest annual price growth since Q1 2011. Quarter-on-quarter, condo prices increased 0.59% during the latest quarter.
- The townhouse segment is more resilient, with price rises of 4.24% (3.35% in real terms) during the year to Q3 2017. During the latest quarter, townhouse prices increased 1.86% in Q3 2017.
Land price increases are also slowing nationally. The land price index rose by 1.59% (0.72% in real terms) y-o-y in Q3 2017, a sharp slowdown from a 7.9% rise the previous year. However during the latest quarter (Q3 2017), land prices actually increased 5.3% q-o-q.
Residential construction activity is declining rapidly. Condominium registrations and land development licenses issued for residential buildings in the country fell by 19.6% y-o-y and 18.8% y-o-y, respectively in Q3 2017. In Bangkok Metropolis, land development licenses fell by 4.7% while condominium registrations plunged 15.5% in Q3 2017 from a year earlier
Demand is also slowing. Nationwide land and building transactions dropped sharply by 12.4% q-o-q to THB 251.73 billion (US$7.69 billion) in Q3 2017, according to the BoT. When compared with the same period last year, transactions in Q3 2017 were still up by 6.9%.
Although the high-end segment remains bullish, the lower-end is seeing a clear reduction in demand, says Cobby Leathers, head of international marketing at Sansiri, one of Thailand’s largest residential property developers.
CBRE expects a slowdown in overall demand, mainly due to a decline in speculative buying. “Sales will take longer as CBRE believes there will be less speculator interest in the market and demand will be driven more by end-users,” said CBRE. “The long-term market will be affected by slower growth in expatriate numbers and the change in the composition of nationalities of foreign residents.”
“CBRE expects that developers will be more cautious and seek signs of solid levels of demand before launching new projects.”
Thailand's economy expanded by 4.3% y-o-y in Q3 2017, up from a 3.8% growth in the previous quarter and the fastest pace in more than four years, mainly buoyed by strong exports and rising personal spending. Economic growth is projected at 3.9% this year, according to the National Economic and Social Development Board.
Bangkok property - yields on larger apartments moderately good
Rental yields in Bangkok range from 5.0% to 8.0%. Over the past three years, we’ve seen yields on medium-sized apartments (120 sq. m.) rise significantly.
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.
Income taxes in Thailand are high
Rental Income: Nonresidents pay tax on income derived from property located in Thailand at progressive rates.
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. Inheritance of the spouse is exempt from taxation.
Residents: Residents are taxed on their worldwide income at progressive rates.
Buying process is complicated in Thailand
Total round-trip costs are moderate at around 9.90% to 11.90% of the property value, inclusive of the realtor’s commission of from 3% to 5%. There are complications surrounding the computation of the buying costs; stamp duty and specific business tax are based on the assessed value or declared value, whichever is higher. Buyer and seller each pay for their own separate lawyer.
The landlord can call the police in Thailand
Given the absence of formal legislation, Thailand is pro-landlord.
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.
Thailand’s economy improvingThailand's economy expanded by 4.3% y-o-y in Q3 2017, up from a 3.8% growth in the previous quarter and the fastest pace in more than four years, mainly buoyed by strong exports and rising personal spending. The economy expanded by an average of 2.5% from 2013 to 2016.
Economic growth is projected at 3.9% this year, according to the National Economic and Social Development Board.
The Thai baht has appreciated against the US dollar by 9.9% in the past 2 years, reaching an average exchange rate of THB32.895 = USD1 in November 2017. The baht is now amongst Asia’s best performer, underpinned by foreign inflows and record reserves of almost US$200 billion.
Despite the strong baht, exports – Thailand’s key economic driver – rose by 7.5% in October 2017 from a year earlier to US$20.1 billion. Likewise, imports also increased 7.9% over the same period to US$19.9 billion.
Total exports are expected to rise by 5% to 6% this year, after a miniscule 0.5% growth in 2016 following three years of contraction.
Tourism is also vibrant. In October 2017, Thailand welcomed about 2.72 million tourists, up 20.9% from a year earlier. During the first ten months of this year, visitor arrivals increased 6.7% to 28.82 million people from the same period last year.
Likewise, tourism revenues also rose by 24.4% y-o-y to THB142.63 billion (US$4.36 billion) in October 2017. From January to October, revenues reached THB1.47 trillion (US$44.97 billion), up 9.3% from a year ago. Tourism accounts for 12% of Thailand’s economy.
In November 2017, inflation increased slightly to 0.99%, from 0.86% both in September and October 2017. Nationwide inflation is projected at 0.8% this year, before accelerating to 1.6% in 2018, according to the Bank of Thailand.
Having promulgated a new Constitution in April 2017, with campaigning against it being punishable by 10 years in prison, Thailand seems fated to perpetual government by military junta. Even if there are promises that an election will be held in 2018, the prime minister will be appointed by the military, as will a powerful 250-seat Senate.
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. After dissolving the government and the Senate, the NCPO vested both executive and legislative powers into its leaders and controlled the judicial branch. A nationwide martial law and curfew were declared; political gatherings were banned; opposition leaders and activists were arrested; and media and internet censorship was imposed.