Rise continues despite falling demand
Lalaine C. Delmendo | March 16, 2022
Surprisingly, Thai house prices continue to rise modestly, despite falling demand. The average price of single-detached houses in Thailand rose by 3.6% in Q3 2022 from a year earlier, following year-on-year growth of 5.2% in Q2 2022, 4.2% in Q1 2022, 2.4% in Q4 2021, and 2% in Q3 2021, according to the Bank of Thailand (BoT). However when adjusted for inflation, prices actually declined 2.6% over the same period.On a quarterly basis, nationwide house prices were more or less steady, in both nominal and real terms, in Q3 2022.
In Bangkok and vicinities, the prices of single-detached houses rose by 3.2% during the year to Q3 2022 but declined by 3% when adjusted for inflation. In other regions, house prices increased 4.5% (but dropped 1.8% in real terms).
By property type, in Bangkok and vicinities:
- Condominium prices fell by 2% (-8% in real terms) in Q3 2022 from a year earlier, in stark contrast to the y-o-y rise of 11.4% seen in Q3 2021.
- Townhouse prices rose by 4.3% (but declined 2% in real terms) during the year to Q3 2022, following the previous year's 3.2% y-o-y increase.
Land prices are now falling. The land price index dropped slightly by 0.7% (-6.7% in real terms) in Q3 2022 from a year earlier, following y-o-y growth of 4.3% in Q2 2022, 4.6% in Q1 2022, 12.7% in Q4 2021 and 8.5% in Q3 2021.
Property transactions are falling sharply. In the first three quarters of 2022, the total value of land and building transactions recorded nationwide fell by nearly 35% y-o-y to THB560.65 billion (US$15.96 billion), based on figures from the BoT. All regions registered falling transactions.
Yet with the strong rebound in tourism, demand, particularly from foreigners, is expected to improve in the coming months. Effective October 1, 2022, the government removed all Covid-related restrictions and offered a longer length of stay from 30 days to 45 days for tourists from countries entitled for visa exemption, and from 15 days to 30 days for those eligible for a visa on arrival (VOA).
From January to October 2022, there were a total of 7.16 million foreign tourist arrivals in Thailand, based on figures from the Ministry of Tourism and Sports, after an almost nonexistent tourism sector in the past two years. The government targets about 7 to 10 million visitor arrivals this year.
Investors from Mainland China and Hong Kong make up almost half foreign demand for residential condos in the country. People from the US, Singapore, Taiwan, Japan and the UK are also big investors.
The overall economy continues to improve. In the third quarter of 2022, Thailand's tourism-reliant economy grew by 4.5% from a year earlier, accelerating from y-o-y expansions of 2.5% in Q2 and 2.3% in Q1, mainly driven by robust domestic spending, a rebound in tourism, and strong international trade, according to the Office of the National Economic and Social Development Council (NESDC). Because of this, the NESDB recently revised upwards it 2022 GDP growth forecast for Thailand from 2.7% to 3.2% to at least 3.2% - a huge improvement from the 1.5% growth in 2021 and 6.2% contraction in 2020.
Analysis
of Thailand Residential Property Market »
Bangkok property - yields moderate
Rental yields in Bangkok average around 5.0%. The apartments included in our survey are located in Bangkok´s upscale residential areas which includes Sukhumvit Road, and Silom - Sathorn.
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.
Improving economic conditions, recovering tourism
In the third quarter of 2022, Thailand’s economy grew by 4.5% from a year earlier, accelerating from y-o-y expansions of 2.5% in Q2 and 2.3% in Q1, mainly driven by robust domestic spending, a rebound in tourism, and strong international trade, according to the Office of the National Economic and Social Development Council (NESDC).
In Q3 2022:
- Private consumption rose by 9% from a year earlier
- Fixed investment increased 5.2% y-o-y
- Government spending fell slightly by 0.6% y-o-y
- Net exports contributed positively as exports rose by 9.5% y-o-y while imports grew by 8.2%
“The Thai economy has been expanding since the fourth quarter of 2021 until the third quarter this year,” said NESDC Secretary-general Danucha Pichayanan. “Almost all indicators increased, including consumption and spending by the private sector, exports, and investments as well as tourism that expanded after the country fully reopened.”
As such, the NESDB recently revised upwards it 2022 GDP growth forecast for Thailand from 2.7% to 3.2% to at least 3.2%. This is a huge improvement from the 1.5% growth in 2021 and 6.2% contraction in 2020.
Tourism continues to recover. In January to October 2022, there were a total of 7.16 million foreign tourist arrivals in Thailand, based on figures from the Ministry of Tourism and Sports, after an almost nonexistent tourism sector in the past two years due to travel restrictions and lockdowns imposed around the world. The government targets about 7 to 10 million visitor arrivals this year.
Thailand’s economy relies heavily on tourism. Before the pandemic, tourism accounted for about 11% of the country’s GDP and around 20% of total employment, according to the BoT. In 2019, Thailand’s inbound visitors breached 39 million, the country’s highest number of arrivals to date.
Nationwide unemployment fell to 1.23% in Q3 2022, from 1.37% in the previous quarter and 2.25% a year earlier, according to BoT figures.
Inflationary pressures seem to be moderating. Overall inflation stood at 5.55% in November 2022, a slowdown from 5.98% in the prior month and from the 14-year peak of 7.86% recorded in August 2022, amidst the central bank’s interest rate hikes.
The Thai baht (THB) weakened against the US dollar by more than 16% in the past two years, reaching average exchange rate of THB 36.394 = USD 1 in November 2022 from THB 30.446 = USD 1 in November 2020, as multiple waves and new variants of COVID-19 globally delay the much-awaited recovery of tourism. This partially offsets the nearly 20% gain of the value of the bath against the US dollar from January 2016 to December 2019.
Flawed democracy; Prayuth retained as prime minister
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 country’s 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 National Council for Peace and Order (NCPO), the official name of the military junta that governed the nation, 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.
Then after winning the March 2019 elections, in July 2019 Prime Minister Prayuth formally resigned as the head of the military government. He declared that the country would now function as a normal democracy.
“Thailand is now fully a democratic country with a constitutional monarchy, with a parliament whose members are elected,” Prayuth said. “All problems will be addressed normally based on a democratic system with no use of special powers.”
However Thailand is really a hybrid of democracy and authoritarianism. True, the junta, which had given itself sweeping powers without oversight, was dissolved with the inauguration of the new Cabinet. But Prayuth was retained as prime minister with the backing of military-appointed Senate and pro-military parties in the parliament who were elected during the March 2019 general election, which was marred by irregularities, and was held under a new constitution enacted by the junta aimed at disadvantaging established political parties and keeping any single party from winning a clear majority.
Most of the powerful cabinet positions are held by former members of Prayuth’s military government. In fact, Prayuth also serves as defense minister in the new government. The military also keeps its power of arbitrary detention, which was used in the past to silence critics. Also, the new constitution ensures that members of the NCPO will not be held accountable for any rights violations committed during its rule.
Prayuth has faced increased public anger and protests in recent years, amidst the government’s difficulty in containing the coronavirus infections,and dismal economic conditions. Protesters in Bangkok in June 2021 demand his resignation and the removal of 250 military appointees from the parliament. But the call failed to produce any real result.
Then just recently, the Constitutional Court received a petition from opposition lawmakers on a legal term limit for PM Prayuth, triggering fresh political crisis and street protests. As such, the court released a temporary suspension for Prayuth on August 2022, while it hears the petition from the opposition.
The country’s constitution stipulates a term limit of 8 years for a prime minister. With this, the opposition contends that Prayuth has overstayed his tenure, which started when he seized power in a military coup in 2014. However, Prayuth’s supporters argued that the term limits cannot be applied retrospectively, with the new constitution becoming effective only in April 2017. As such, they insist that Prayuth’s term officially began in 2017.
In October 2022, the court’s ruling as released, and the verdict was in favor of Prayuth, giving him two more years to serve as PM, if he is reelected during the May 2023 general elections.