Market in Depth

Good yields on larger Bangkok apartments reflect the Thai capital's moderate price rises.

Lalaine C. Delmendo | August 11, 2019

Thailand's housing market is now cooling.  There's been tighter mortgage regulation, higher interest rates, and slowing economic growth, not to mention the country's volatile political situation.  Yet investors in larger apartments could be well rewarded.

The average price of single-detached houses rose by 3.1% (2.3% in real terms) during the year to Q1 2019, down from y-o-y rises of 4.5% in Q4 2018, 6.2% in Q3, 6.3% in Q2 and 7.1% in Q1, according to the Bank of Thailand (BoT). During the latest quarter, house prices increased 2.1% (2.3% in real terms) in Q1 2019.

For other property types:
  • Condominium prices rose slightly by 1% (0.3% in real terms) during the year to Q1 2019, a sharp slowdown from last year's 6.3% growth. However during the latest quarter condo prices fell 2.3% (-2.1% in real terms).
  • Townhouse prices rose by 7.3% (6.5% in real terms) during the year to Q1 2019, the biggest y-o-y increase in four years. During the latest quarter (Q1 2019), townhouse prices rose 3.6% (3.9% in real terms).

Land prices are rising modestly. The land price index rose by 3% (2.2% in real terms) y-o-y in Q1 2019.

Supply is weakening. The nationwide condominium registrations plummeted by 44.5% to 15,037 units in Q1 2019 from a year earlier, in sharp contrast to the 40% increase in condo registrations in 2018, according to the BoT. In Bangkok Metropolis, condominium registrations fell by more than 57% y-o-y to 6,926 units in Q1 2019.

Demand continues to rise, but at a much slower pace. Nationwide land and building transactions rose by 3.8% y-o-y to THB 266.15 billion (US$8.62 billion) in the first quarter of 2019, following a 7.7% growth in 2018, according to the BoT.

Demand is expected to slow further during the remainder of the year amidst the introduction of tighter mortgage regulation. Effective April 2019, second-home buyers will be restricted to a maximum loan of 80% of the property value if the first mortgage is less than 3 years old or priced at THB 10 million (US$324,000) or higher. Third and subsequent home buyers will be restricted to a loan not exceeding 70% of the property value.

CBRE Research believes that these measures will favour end-users with genuine demand as opposed to buy-to-rent investors with multiple outstanding mortgages.”

With the recent transition of government from military rule to democracy, homebuyers and property investors are also expected to adopt a wait-and-see attitude in the medium term.

The economy expanded by 2.8% y-o-y in Q1 2019, down from last year's 3.6% growth and the slowest expansion in four years, mainly due to slowing exports caused by the U.S.-China trade war, according to the National Economic and Social Development Board (NESDB). The economy grew by 4.1% last year, the highest growth in six years. Recently, NESDB reduced its 2019 economic growth forecast to between 3.3% and 3.8%, from the initial projection of 3.5% to 4.5%.

Analysis of Thailand Residential Property Market »

Rental Yields

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.

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Taxes and Costs

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.

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Buying Guide

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.

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Landlord and Tenant

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.

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Economy slowing, amidst falling exports

Recently, Thailand's NESDB reduced its 2019 economic growth forecast to between 3.3% and 3.8%, from the initial projection of 3.5% to 4.5%, largely due to the impact of the U.S.-China trade war.

The Thai baht has appreciated against the US dollar by 16.2% since January 2016, reaching an average exchange rate of THB31.105 = USD1 in June 2019. 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.

Thailand GDP inflation
Exports, Thailand’s key economic driver, fell by 5.8% to US$21.02 billion in May 2019 from a year earlier – the seventh consecutive month of y-o-y decline and the lowest level in almost three years, as shipments of automobiles and parts, electronics and oil declined amidst the ongoing global trade tensions. On the other hand, imports fell slightly by 0.6% y-o-y to about US$20.84 billion in May 2019. This yielded a trade surplus of just US$180 million, sharply down from US$1.34 billion a year earlier.

Total exports are expected to rise by just 2.2 this year, a sharp slowdown from growth of 6.7% in 2018 and 9.9% in 2017.

Yet tourism remains vibrant. In 2018, Thailand welcomed a record 38.27 million tourists, up 7.5% from a year earlier. Tourist arrivals are expected to breach the 40 million mark this year while revenues are projected to grow by 9.5%, according to the Tourism Authority of Thailand. Tourism accounts for 12% of Thailand’s economy.

Recently, the Thai government announced that the visa-on-arrival fee waiver for citizens of 20 countries, which was first introduced in November 2018, is extended for another six months until October 31, 2019, in an effort to boost tourism further, especially from China.

In May, headline inflation stood at 1.15% while core inflation was 0.54%. Nationwide inflation is projected at 1% this year, within the lower band of the BOT’s target range of 1% to 4%, according to the central bank.

In July 2019, Prime Minister Prayuth Chan-o-cha formally resigned as the head of military government and declared that the country would now function as a normal democracy after five years of military rule.

Thailand interest rate
“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.”

The junta, which had given itself sweeping powers without oversight, was dissolved with the inauguration of the new Cabinet. But critics remain doubtful, as most of the powerful cabinet positions will be held by former members of Prayuth’s military government. Prayuth will also serve as a defense minister in the new government. The military also keeps its power of arbitrary detention, which was used in the past to silence critics.

Prayuth was retained as prime minister with the backing of military-appointed Senate and pro-military parties in the parliament elected during the March 2019 general election. The election, which was marred with controversies and irregularities, was held under a new constitution and laws enacted by the junta aimed at disadvantaging established political parties and keeping 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 that governed the nation, will not be held accountable for any rights violations committed during its rule.

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, 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.