Making money from Real Estate in Thailand
You ever wondered how in a country where minimum wage is below what most would call poverty that there are so many nice cars! Mind you the price of a luxury car in Thailand is at least twice what you would pay in the states. Where and how do some Thai people make so much money? I've often wondered the same thing and while those cars are probably paid for by credit in order to qualify for credit you really need to be making a decent income.
Small business owners in Thailand rarely make much money at all and just because the cafe you sit at every day is full doesn't mean that the owners are rolling in it either. Even the omelette guy that sells 500 eggs between him and his wife would be lucky to clear 1000 baht profit a day. So how do Thai people make money and lots of it?
There are exceptions to every rule like this guy I met at a conference in Bangkok started a little noodle store in Isaan and is now worth millions you've probably eaten his product before....champ noodles found on roadsides across the country. Now this guy is an exception the majority of Thai's that have money in Thailand were born with money.
Once a Thai reaches a certain level of wealth typically only a few million baht it becomes easier to make even more money. Consider lets say a guy who has 10 million baht in the bank. The interest alone could have a Thai living the rest of their life without working. Yet back in a western city it wouldn't last 10 years. But who would leave 10 million sitting in the bank, there's way better ways to make money and most Thai's are doing it through real estate.
If you live in Chiang Mai or have visited recently there is a construction boom going on. Thousands of brand new condos, apartments, and houses are being build right before our eyes. Seems everywhere I turn in this city there is a new building going up. The boom isn't just in Chiang Mai either but in most major city centers around Thailand. While the Chiang Mai boom has only started in the past few years Bangkok notably has been booming for decades in fact land prices in Bangkok alone have consistently gone up by 4.6% for the past 15 years and in many cases up 300% in the past 10.
You've probably met a lot of so called poor families in Thailand who live in a simple house and scrape by day to day. Most have met these through their associations with the bar industry. "My family is poor have no money" and in most cases this is true. But that doesn't mean they are without wealth. I met one such family in Central Thailand who really didn't have any money but their house sat on 15 rai of land that I later found out was worth 15 million baht. That's more wealth than 80% of expats I know. Are they really poor? No. Are they cash strapped, yes.
Many Thai's lose their property simply because they have no cash. Often is the case that a family member becomes sick and they hand over the deed to their place to the local sketchy dealer who gives them a small loan which they never have the money to pay back and subsequently lose their land or find themselves paying for the loan with crazy interest rates.
I'm not a money manager and have no experience with Real Estate but the numbers are pretty clear. Owning property especially land in Thailand has and continues to be one of the best ways for Thai's to create wealth.
People often ask my why there are so many condos being built in Chiang Mai right now, who's going to stay in them? Who's buying them? Are they a good investment? Like I said I'm not an expert and I personally have no interest in buying in Thailand but the majority buying are Thai's not farang.
Take a look at this screen shot from Thailand's biggest property site DDproperty
A quick search for condos in Chiang Mai province (not just the city) reveals a pultry 396 properties. Of those properties half of them haven't been built yet. And if you did another search for condos greater than 40sqm it would half again. So lets say you were looking for a property in the center of Chiang Mai greater than 40sqm with a view you might be lucky to find 5 properties available for sale! No wonder they are building them so quickly there simply isn't anything available!
Unlike westerners Thai's can and often do get up to 100% financing on Bank backed property provided of course you have a good income history and already own a few assets then getting credit is much easier. Averaging 4.6% inflation in Thailand you can expect the value of the investment to at least rise to that of the inflation. But 4.6% on your money isn't going to make anyone excited but 4.6% on the banks money is.
This is how you make money
- Purchase a 2 million baht condo with 20% down.
- Rent it for 5 years to avoid hefty taxes.
Compounding interest on the property value after 5 years is now worth 2.5 million baht!
Sure this isn't Dubai where property prices have tripled in a few years (except for Bangkok) but you can see with a small sum of 400,000 baht it's possible to double and even triple your investment within a few years.
Getting finance is very difficult for foreigners without history in Thailand if not impossible and foreigners cannot own land but for Thai's with good income and savings history it's much easier and with a bit of daddy's money they can quickly build a Real Estate empire. Don't believe me, ask your landlord how many properties he/she owns.
Final note if you were to invest in a condo in Thailand remember that you make money on the Buy and not the sale. So always buy under value but regardless to get the best re-sale value and to make it easier to rent follow these points to make sure you are buying a saleable asset.
- Must Have a View of mountain or city
- Seller pays transfer fees or shared
- Property must be located near public transport and within the city limits
- Must be 40sqm or larger
- Must have swimming pool / gym
- Not be within 200 meters of a temple or government building
- Be within 100 meters of a 7/eleven
So I should buy that bar girl a new condo and trust that she will just keep it in her name for me right hahahahaha.
Sorry but just tossing my 2 cents in here. Does Thailand have a good trust system ? Or can foreign corporations own property in Thailand if so yes this would be awesome to foreigners with a bit of capital.
I don’t recommend anyone put anything in a Thai girls name. Corporations however can buy land and is a legal loophole for foreigners and a solid deal for someone to make money from Real Estate. I keep telling people if they intend to open up a business in Thailand to also buy the property. This way if the business doesn’t do well you can sell it all with the property. If you rent and the business does well it’s likely the owner will put the rates up so high that you just have to leave. Unless you own the property rarely do small businesses make any money.
Non-Thai’s can buy a condo in their name, but foreigners cannot own more than 49% of the whole development, so if you buy a condo make sure it’s in the 49% allocated to foreign ownership, otherwise it will be a 30 year lease.
True that foreigners can buy condos up to 49% of the development. I wouldn’t suggest buying any condo that was close to or nearing maximum allocation. The Thai’s would better know the property market here and if they aren’t buying then neither should you.
no no no totally wrong! the condos which are near the 49% allocation are the ones you SHOULD buy in as they are the most popular. Once the allocation goes to 49% farangs cannot buy there AND Thais cannot sell to farangs = prices GO UP
That is true of every condo building I know at 49% prices rose dramatically and Thais were stuck with their condos unable to sell or sell for 30%+ LESS because they cannot sell to farang so I’m sorry to say this piece of advice is wrong
I think maybe I messed up my answer because the article is talking more about Thai’s buying the property and that’s what was on my mind. Like you said if it was at maximum allocation if you were a Thai wouldn’t be good because they cannot sell even if the prices were going up so thanks for clarifying that.
Never buy anything in thailand unless you are prepared to loose the lot
Easy to buy.
Difficult to sell.
The Thais buying property are often Chinese business owners who do not want cash in the bank where tha tax man can take an interest. They will sit on empty property for 1000 years and not be bothered. It is a family asset.
Rent is the best plan for us.
Yep, bkk property asking prices are going up.
But try and sell a lived-in unit at say 10% more than last year. Forget it.
Here’s my reasons not to buy (I rent in one of the new buildings) in no particular order.
1. Quality of construction, or lack thereof.
2. Thai debt levels both personal and government. Will ultimately lead to further weakening of the Baht that would negate any “profit/appreciation” when the money is changed back to your home currency. I don’t expect any appreciation either and am not seeing it on the few flips in my building.
http://www.forbes.com/sites/jessecolombo/2013/11/04/thailands-bubble-economy-is-heading-for-a-1997-style-crash/2/
I’m not a fan of Forbes, but there are some good charts in the article.
3. High vacancy rates. My building has close to a 20% vacancy rate. My landlord has asked many times if I know anyone who wants to rent one of her many units in town.
4. Increasing homeowners dues and future assessments. Monthly dues have already gone up where I live but the rent hasn’t and most likely won’t in the future.
5. As you say in your post…. “most Thai’s are doing it through real estate” Herd mentality is a definite sign of a bubble.
6. P/E ratios are out of whack. Most units are asking 200x (and sometimes more) monthly rent as a purchase price. In order for it to make sense, one shouldn’t pay more than 150x monthly rent and astute investors like to keep it at 100x-120x
For example…to buy 2,900,000 http://chiangmaiproperties.co.th/condo/sale/Fully-furnished-studio-with-1-bathroom(s)-and-pool-in-Twin-Peaks-Condo/C772.aspx
same unit for rent…13,000 http://chiangmaiproperties.co.th/condo/rent/Fully-furnished-studio-with-1-bathroom(s)-and-pool-in-Twin-Peaks-Condo/C772.aspx
7 Far more properties are currently for sale than are listed on the internet. About 1/5 of the properties currently for rent or sale in my building are listed online.
8. If owning R/E was really the path to riches, then I assume the developers would prefer to build apartments and rent them out rather than sell them as condos.
I originally titled this article as “how thai’s are making money out of real estate” not sure why I changed it. Investing money from overseas is too diffucult because of the exchange rate especially if you wanted to get in and out within a few years like you said a depreciating Baht could lose you money even if you made money on any real estate deals but for Thai’s this isn’t a factor when purchasing.
The example you’ve given for twin peaks seems too low typically that building rents start at 15,000 a month with 45sqm often going for 17,000 a month. Good time to buy there? No, but it is one of the best condos in town had you bought off the plan you would be cashflow positive and selling now it would be a good deal.
Is there a pending boom in Chiang Mai? Tourism is still increasing in Chiang Mai into the double digit figures has done so for 10 years, more Thai’s are coming to Chiang Mai, but Chiang Mai is really booming from the inside and around Asia more than places like Pattaya where it’s fueled by foreigners and more likely to burst. I could be wrong and others are right only time will tell who is correct.
I turned down one of those 45sqm studios at twin peaks 6 months ago for 12,000/month. The building was nice enough but the hum of the industrial air conditioning units at the Shangri-La hotel (that could be heard even with the doors closed) would have driven me crazy in no time at all.
People can ask for 17,000 all they want but the units will sit empty for a long time until some sucker comes along and pays it.
Position of that particular condo mustn’t be good I have a friend lives in at the front and it’s really nice.
While I agree with many of your points, this one is not correct: “Most units are asking 200x (and sometimes more) monthly rent as a purchase price”.
Based on the roughly 1,000 listings at Chiang Mai Properties less than 30% have a P/R above 200. For the Chang Khlan district all of them are below 200:
170.6 Twin Peaks Condo
172.2 Changklan Resident
177.2 Peaks Garden Condo
178.8 Galae Thong Tower
185.4 Doi Ping Mansion
You often pay a premium for renting in Chiang Mai.
The premium can partly be explained by the many people who stay in Chiang Mai for a year or less. For such short stay, and without prior knowledge of Chiang Mai, it’s just not practical or financially sensible to buy. One should also add the transfer tax to the price, and if one plans to sell within 5 years, that’s 6.3%.
But if you are planning on staying the same place for more than 5 years, I’d recommend buying, though not in most of the new condominiums. These are both rather expensive (80,000 baht/sqm. and up) and many of them are north of the airport, which is only going to see more traffic (and soon throughout the night).
I agree that flipping a condo under 5 years unless you get lucky or a Donald Trump then you won’t make jack, lose money, or make the smallest of profit. However after 5 years is another story if you made a good buy you should be solid. On another point I think Chang Khlan road is the most underrated road in the city. While Thai’s have no problem moving out of the city, Foreigners want to stay in it and Chang Klan has the most potential inside the city. But that’s just my opinion.
Many properties in Bangkok selling for around 400x monthly rent – at least in the Ratchada area. Cool to see so many knowledgeable responses from everyone :]
Chris, I was talking to an Englishman whose thai wife works for a company that sells condo,s, apparently the foreign buyer’s are mostly Korean and Chinese, one Korean bought 5 condo’s.
I am living in Suthep and I have lost count of the new condo’s being built in this area.
All the wealthy thai’s I know are actually Chinese/Thai’s.
A lot of land behind CM university was purchased by police and wealthy Thai’s 30+ years ago they paid something like 20,000 baht for land that is now worth millions and millions of baht. Because the land is worth such an amount it’s easy to get loans to build onto the land and cash out or sell to a developer I know several such people. Didn’t know about the chinese and koreans though, interesting thanks.
I own 6 condos and get ROI 7/8% net – local currency and no ATM/Exchange rate issues
even in your example it is 5% ROI (13,000 x 11 – 1 month agent = 143,000pa) but most of us do much better than that
I made some mistakes when I first came here and pretty much know where to buy here and what to pay (avoid the galae thongs, riversides, hillsides)
anyway I have heard this “don’t buy here” tune for over 5 years and I just smile to myself 🙂
You can expect a 100% occupancy rate. Especially not in a few years when all the new units become available.
You also need to pay common area maintenance fees / property tax. In Twin Peaks I would expect that to be at least 1,000 baht/month.
I would also set aside money for renovation, but given some of the rentals I have seen, it might not be uncommon to spend zero baht on keeping the place looking decent 😉
That said, the mentioned condo is a bad example. The asking price is 18% above the average for Twin Peaks, but the rental price seems inline with the other units available for rent there, which makes its P/R ratio biased toward of renting.
As for knowing in what buildings to buy, I would love to pick your brain, as I am contemplating buying something (mainly for myself, i.e. not looking to become a landlord). If you’d be willing to share some of your experience then please contact me by mail: lkn_1976 (at) yahoo.com.
Hi guys – as you both have asked I’m happy to put any info on here so all can read it – I really should write an article one as I learned so much (and made several mistakes).
Basically the ‘good old days’ of bargains has mostly gone! when I first came here there were many of us picking up cheap rooms and ‘flipping’ them after renovations but all my friends who were doing that have ‘retired’ and bargains are very hard to find – now I rarely do that and as I need regular income I have selected those condos that I know can rent easily and kept them.
Things I wished I had known : when buying ask about the committee, who is on it and how active it is – what is the state of the accounts? parking – what’s the ‘space ratio’ to rooms? (typically Thailand is 60% which is appalling).
Many of the beautiful condos are outside of town (The Resort springs to mind). Renters, generally, want convenience and the higher rentals want quality and stricter condo management.
Personally I have gravitated to the Nimman area – it has some disadvantages but renters love the small restaurants, wine bars and ‘atmosphere’. whereas Thapae come across much more ‘touristy’ and most of us want the long term renters not the tourist renters (I ask for 12 month contracts).
All my contracts run from Sept/Oct if a contract finishes after Feb it is very difficult to get a new tenant – another thing I learnt along the way!!!
I use all the major agents to find tenants – they take one month commission – some are good and some are bad.
I have also gone away from the ‘Studio’ end of the market and concentrated on getting better tenants and better rooms – just as tough to get a studio tenant than a ‘quality’ tenant and as the rent will be 3/4 times as much you need 3/4 Studio tenants to only 1 quality tenant will to pay 20k – ‘but up to you’
Research the building including noise etc. (example is Punna Residence@Nimman – a great and well run condo – one side is very noisy one very quiet)
research, research, research
hope this helps
Thanks for sharing!
The abundance of “studios” does surprise me. I wouldn’t want to live long-term on less than 46 square meters, yet that is the median size of current listings at Chiang Mai Properties (so at least half the units available are 46 sqm. *or less*).
As for the Nimmanhaemen area: Definitely seems to be the hot area. I would be a little concerned about noise from the air traffic, I read that they’ll soon keep the airport open during night hours as well. It’s also a “modern” area, so while I am only vaguely familiar with it, it does seem to lack many of the things I associate with and like about Thailand. For example I buy most food, fruits, snacks, and other delicacies east of Bunrueang Rit Road, even though I am presently west of Nimmanhaemon.
My favorite yoga studio though is in the Nimmanhaemon area (despite most of them being in the old city), but favorite massage parlor is again east of Bunrueang Rit Road (but I haven’t tried any in the Nimmanhaemon area, so this is perhaps an unfair judgement, though I have tried enough to know that once you find something good, stay with it, cause most of the places are crap).
ChaingMaiGuy I’m also interested in possibly investing for rental and eventually 2nd home part time until I retire somewhere in Asia… billbottom34 (at) gmail.com
Just my opinion:
Avoid:
hillside 4, hillside 3, riverside, galae thong, twin peaks, supanich, the trio
Worth a look:
nimmana, punna@nimman, skybreeze, the stylish,
Why avoid Hillside 3 & 4?
Here is some recent data on the condo I own and have rented out – make of it what you will.
Building: Peaks Garden – Chang Klan Rd – view of Doi Suthep (at present)
Size: 87 sq mt / 1 bedroom corner unit
Purchased 5 years ago for 5 million
New high end décor / furniture added since
Current agency quoted value: 7.5 million
Currently rented out on a yearly rent for 33,000 a month.
Do you have a reason why it’s not a good idea to buy a condo near a temple? I was looking at a condo and it’s right next to a bts station but there is a temple and a hospital within 100 meters of the condo
Because it’s damn loud when they have their festivals, do they do cremations there? maybe you’ll get a whiff.