Real estate scores over bank deposits

Developer’s research indicates higher returns even after factoring in inflation

At a time when fixed deposits earn interest at only 2.5 per cent, property companies and agencies suggest buying residential property located close to the mass-transit system - an investment that can generate a return of 7 per cent to 100 per cent.

The returns will depend on the term of the investment.

According to research by CB Richard Ellis Thailand, resale prices for residential projects located close to the mass-transit system and the Central Business District from the Asoke intersection to Soi Thong Lor range between Bt110,000 to Bt130,000 per square metre. This shows an increase of between 37.5 per cent and 62.5 per cent from Bt80,000 to Bt90,000 per square metre last year.

The rental price for serviced apartments in Silom and Sathorn has shown a strong rise from Bt289.5 per square metre in 2004 to Bt399 per square metre this year, a jump of 33.7 per cent. The Sukhumvit area is a close second with rents rising from Bt280.5 per square metre in 2004 to Bt365 per square metre, a rise of 30.1 per cent. Central Lumpini now commands rents of Bt360.5 per square metre, a rise of 18.6 per cent from Bt304 per square metre in 2004.

The demand for residential properties in the Central Business District is coming from foreigners who work in Bangkok. The two-bedroom type unit, with covered area falling between 90 and 130 square metres, has seen the strongest demand.

Residential projects at resort destinations such as Phuket, Koh Samui and Hua Hin have also seen strong demand. Investors buying property at these locations can expect a return on investment at an average of 7 per cent a year. If they sell the property within one or two years, they can expect a significant return on investments, CB Richard Ellis Thailand managing director Aliwassa Pathnadabutr said.

Kasikornbank’s first senior vice president Chatchai Payuhanaveechai said if one has the money to buy a property at a good location close to the mass-transit system, one can expect returns of 7 per cent to 8 per cent a year. This is much better than making a long-term deposit in the bank, which earns only 2.5 per cent. When adjusted with inflation - presently at 6.2 per cent - the return is negligible.

Chatchai said if there is no ready cash to buy a property, investors can apply for a mortgage loan. This will generate higher returns if the investor selects the best location.

For example, if an investor buys a property at a price of Bt100,000 per square metre, the monthly payment on a mortgage loan comes to Bt56,000 a month. Investors can earn Bt50,000 a month by renting out the property. That will help generate money for the monthly instalment.

Chatchai said the property should be located close to the mass-transit routes or a main road which will allow for an easy commute. Such properties are easier to sell and rent out.

Harrison executive vice president Kitisak Jampathippong said residential properties on Sukhumvit Road now sell for Bt100,000 per square metre, signifying a rise of between 30 per cent and 60 per cent from last year. The frequency of resale of residential properties on Sukhumvit Road averages at two or three times a year. Resale prices are expected to rise between 10 per cent and 20 per cent each time, he said.

At a time of high inflation and low interest rates, Kitisak said buying residential properties is a good investment choice. However, investors must study the value of the property.

“An investor has to select the project that has lots of facilities and offers an easy commute. That does not mean the project has to be located close to the mass-transit system alone. If the project is located close to a main road or expressway, it is still a good location, especially if the project offers good facilities and a good environment for buyers,” Kitisak said.

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About the author

Somluck Srimalee Somluck Srimalee
Somluck Srimalee is a journalist with The Nation, Bangkok's independent English language newspaper and specialises in the property and real estate sectors.
Other posts by Somluck Srimalee ( 14 )

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