Limited land supply causes continued rise in Silom-Sathorn-Rama III condo prices

Real Estate May 30, 2014 00:00

By The Nation

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Due to a limited supply of land, as well as increasing development costs, condominium prices in the Silom-Sathorn-Rama III area of Bangkok have continued to grow.

The average annual growth of condominium prices in the area is 7.8 per cent, said Frank Khan, executive director and head of residential at Knight Frank Chartered (Thailand).
During the past few years, new condominium supply in Silom-Sathorn-Rama III ranged between 2,000 and 4,500 units per annum. The area comprises 4 to 8 per cent of the total supply in the capital’s condo market.
For grade-B condominiums, the supply in Silom-Sathorn-Rama III from 2008 to 2013 was 4,020 units, contributing to 29 per cent of supply in the area. 
Compared to grade-C units, which comprised almost half of the supply, it is more competitive to lease out grade-B units, he said.
Khan explained that typically, a tenant would enter into a one-year lease agreement for residential property in Bangkok. Usually, the shorter the term requested by the lessee, the higher the rental rate.
Although one-bedroom units yield higher average rental returns than two-bedroom units, the higher supply of one-bedrooms in the market causes more competition to lease out the residence.
For investments, the property owner would be required to hold the unit for five years to avoid the 3.3-per-cent Special Business Tax when selling the unit. Therefore, condominium investments should be viewed as long-term investments for gaining both rental income and potential capital appreciation, he said.
A one-bedroom unit provides a rental yield of between 6.1 and 7.7 per cent for the investor, or rents of between Bt18,000 and Bt35,000 per month.
Two-bedroom units provide a rental yield of between 6.3 and 6.8 per cent, or monthly rents of between Bt25,000 and Bt50,000.
The rental rate for a one-bedroom unit on Charoenrat Road is conservatively estimated to be between Bt5,000 and Bt20,000 per month, yielding a rental return of 6.3 to 7.3 per cent. 
The monthly rental rate for a two-bedroom unit on Charoenrat Road is estimated to be between Bt30,000 and Bt35,000, yielding a return of 6.8 to 7 per cent, said Khan.
The main central business district in Bangkok encompasses the Sathorn and Silom areas, which offer 36 per cent of the supply of office space in the CBD. Compared to units commanding higher rents in the downtown area, condominiums with good accessibility and proximity to the business area will attract tenants who work in Silom and Sathorn offices, he added.
Khan expects that the emergence of the Asean Economic Community next year will drive demand for business expansion and residences. Thanks to Thailand’s infrastructural readiness and strategic location, foreign investments of multinational companies are expected to grow, exceeding a 90-per-cent occupancy rate of Bangkok office space. 
Economic activity from the potential flow of other AEC citizens will effectively boost the economies around the region. With its many advantages, Thailand should see demand for residential property increase as a consequence of such business growth, he said.
He added that, without considering the potential of capital appreciation – 7.8 per cent on average for condominiums in Silom, Sathorn and Rama III – Thai condos command a much higher rental yield when compared to both medium- and long-term regional investments, such as government bonds in Malaysia and Singapore.