Thailand's house prices rising strongly again
Maria de Guzman | November 02, 2018
The average price of single-detached houses rose by 6.3% (5% in real terms) during the year to Q2 2018, a sharp turnaround from last year's 3.1% y-o-y decline, according to the Bank of Thailand (BoT). During the latest quarter, house prices increased slightly by 0.1% (-0.6% in real terms) in Q2 2018.
- Condominium prices rose by 4.9% (3.6% in real terms) during the year to Q2 2018, up from a 3.9% y-o-y growth during Q2 2017. However quarter-on-quarter, condo prices dropped 1.7% (-2.4% in real terms) during the latest quarter.
- Townhouse prices rose by 6.8% (5.5% in real terms) during the year to Q2 2018, a sharp improvement from last year's 0.7% growth. During the latest quarter, townhouse prices increased 2.5% (1.8% in real terms) in Q2 2018.
Land prices are rising strongly. The land price index rose by 7.92% (6.58% in real terms) y-o-y in Q2 2018, in sharp contrast with the 5.5% annual decline in Q2 2017. Quarter-on-quarter, land prices increased slightly by 0.85% (0.2%) in Q2 2018.
Residential construction activity is surging. Nationwide condominium registrations rose sharply by 69% to 53,186 units in H1 2018 from a year earlier, according to the BoT. Condominium registrations were actually about 30% higher in H1 2018 as compared to the last half of 2017.
Demand is robust. Nationwide land and building transactions rose by 5.1% to THB 539.64 billion (US$16.56 billion) in the first half of 2018 compared to the same period last year, according to the BoT. All regions, except the Northern region, saw transactions rose over the period.
CBRE expects the housing market to continue to grow stronger. “The outlook for the end-user residential market will be brighter in 2018,” said CBRE. “Banks have eased lending criteria on mortgage loans, which should increase the buyer's ability to borrow money and access to mortgage fiannce.”
Thailand's economy expanded by 4.6% in Q2 2018 from a year earlier, from y-o-y growth of 4.9% in Q1 2018 and 4% in Q4 2017, according to the National Economic and Social Development Board. The Bank of Thailand recently raised its 2018 economic growth forecast for the fifth time to 4.4% from its earlier projection of 4.1% due to rising exports and strong private consumption.
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.
Robust economic growthThailand's economy expanded by 4.6% in Q2 2018 from a year earlier, from y-o-y growth of 4.9% in Q1 2018 and 4% in Q4 2017, according to the National Economic and Social Development Board. The economy expanded by just an average of 2.8% from 2013 to 2017.
The Bank of Thailand recently raised its 2018 economic growth forecast for the fifth time to 4.4% from its earlier projection of 4.1% due to rising exports and strong private consumption.
The Thai baht has appreciated against the US dollar by 10.5% in the past 3 years, reaching an average exchange rate of THB32.592 = USD1 in September 2018. The baht is now amongst Asia’s best performers, underpinned by foreign inflows and record reserves of more than US$200 billion.
Thailand’s large current account surplus, which is partly driven by its strong tourism, also supports the baht since it means that the nation is less dependent on foreign currencies.
Exports, Thailand’s key economic driver, fell by 5.2% to THB 678 billion (US$20.7 billion) in September 2018 from a year earlier – the first y-o-y decline in 19 months as shipments of automobiles and gold declined amidst the escalating US-China trade war. On the other hand, imports rose by 9.9% y-o-y to about THB 658 billion (US$20.2 billion) in September 2018. This yielded a trade surplus of US$487 million over the same period.
Despite this, exports rose by 8.1% during the first nine months of 2018 compared to the same period last year while imports jumped 15.2%.
Total exports are expected to rise by 8% this year, after last year’s 9.9% growth.
Tourism is also vibrant. In the first nine months of 2018, Thailand welcomed 28,541,887 tourists, up 8.71% from a year earlier. Likewise, tourism revenues also rose by 10.95% y-o-y to THB 1.49 trillion (US$45.7 billion) over the same period. Tourism accounts for 12% of Thailand’s economy.
The Thai government plans to waive the fee on visa-on-arrival in November and December 2018, in an effort to boost tourism further, especially from China.
In September 2018, inflation stood at 1.33%, a slight slowdown from 1.62% in August and 1.46% in July 2018. Nationwide inflation is projected at 1.1% this year, within the lower band of the BOT’s target range of 1% to 4%, according to the central bank.
After a series of long delays and broken promises, in September 2018 Thailand’s military government enacted new laws governing the election of 500 members of Parliament (MPs) and the appointment of 250 senators. The new measures require an election to be called between February 24 and May 5 next year.
Despite this, some remain doubtful since the military junta, after coming to power in a coup in 2014, has promised every year to hold an election - but has failed to do so.
Critics argue that the new Constitution, which was promulgated last April 2017 - with campaigning against it being punishable by 10 years in prison - is aimed at cementing the military junta’s perpetual hold on power. The new Constitution is also designed to limit the power of political parties and with election rules intended to keep any single party from winning a clear majority. Also, the new constitution more or less ensures that members of the National Council for Peace and Order (NCPO), the official name of the military junta governing the nation, will not be held accountable for any rights violations committed since taking power.
Thailand’s military seized power from an elected government in May 2014, the 12th military coup 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 in its leaders, and took control of 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.