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Phuket Property: To raise one’s roof or not to

Legacy Phuket Gazette

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PHUKET: I am often asked how much one should spend on a primary residence, and while this is an area open for debate, my answer usually surprises people.

I have always been baffled by arguments about mortgage interest being tax deductible and many other reasons to sink way too much into one’s primary residence. This doesn’t mean I don’t think a good portion of one’s assets ought to be in real estate; however, many people place too high an emphasis on expectation of capital appreciation from their residence and not enough on short term cash flow.

I think my beliefs are best summed up by Ed Kiyosaki, the famous author of “Rich Dad, Poor Dad’. He says that if your home is your biggest investment you have serious trouble. His argument is that contrary to modern accrual-based accounting methods, one should look at things from a pure cash flow perspective and try to accumulate cash flow-positive investments.

Your primary residence is cash flow negative usually; you need to sink money into it to maintain it and you only unlock cash when you finally sell it (but then have to replace it and thus use some/all of that cash). A rental property on the other hand, is usually cash flow positive, assuming you price it so that it doesn’t sit empty.

So basically, from a financial planning perspective, a mistake I think many people make is allocating all or too much of their real estate investments in their own home. To make the concept simple, let’s depart from reality for a moment and assume square meters are a commodity and each one costs the same amount. If you can afford 500 square meters of living space, this is usually what most people sink into their own home.

Of course, they may only really need about 200 square meters to live comfortably, but most people take a lot of pride in showing their friends what a nice big house they live in. They don’t realize the opportunity cost of all those unneeded square meters. If they bought two properties of 250 square meters each, they could rent one out and have a significant positive cash flow investment. Again I am assuming the rental yield makes sense, while in reality sometimes it doesn’t.

If you have a 10 million Baht budget, you could realistically end up better off in the long run by splitting that money across two properties as opposed to sinking it all into one. Both would appreciate if the local market keeps going up, but one would be generating some positive cash flow in the meantime.

Warren Buffet is famous for saying that his favorite holding period is forever. Of course if you get a chance to cash out large gains after a market has run up this doesn’t mean that you shouldn’t do so. Yet if you continuously accumulate cash flow generating properties and especially if you diversify geographically, eventually you will build up an equivalent to an annuity that has a natural inflation hedge built in, assuming you have a long term investment horizon.

David Mayes MBA resides in Phuket and provides wealth management services to expats around the globe, focusing on UK pension transfers. Email d[email protected] or call 085-335-8573.

This article appears in the current issue (Jul 27-Aug 2) of the hard-copy Phuket Gazette newspaper, now on sale at newsstands throughout the island. Digital subscribers may download the full issue, this week and every week, by clicking here.

Keep checking our onlinePhuket Property pages for local and national property updates, alternatively ‘Like’ us on our Facebook fan page or follow us on Twitter.

— David Mayes

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Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

Property

Thailand’s property market waits for an end to Covid-19

The Thaiger

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Thailand’s property market waits for an end to Covid-19 | The Thaiger

The Coronavirus outbreak poses challenges for Thailand’s property market as potential Chinese condominium buyers remain stranded in China. Meanwhile, some believe that the outbreak may bring opportunities for non-Chinese buyers and in the long-run, the Chinese may be looking for an overseas refuge in the event of these types of emergencies popping up again

Through all this, there will be a certain level of pent up demand for Thai real estate.

Of course, it’s not just the Chinese unable to come and inspect potential buys, the rest of the world is also mostly shut out of Thailand.

Market remains weak

The pandemic is hurting the condominium market as Chinese nationals were accounting for half of the international buyers in Thailand, or 57.6% of the total foreign condo owners in 2018.

Vichai Viratkapan, acting director-general of the Real Estate Information Centre says that 50% of Chinese condo transfers are expected to disappear in the first 2 quarters of this year and the total transfer value by the Chinese will miss the mark of the usual 29 billion baht by about 25% (around 7 billion).

However, since Chinese property buyers only make up 6% of the total international and domestic housing transfers in Thailand, the proportion of total housing transfers in the country is likely to be similar to last year.

Developers looking to sell current stock whilst shelving new projects

CBRE reports that most Thai developers are postponing the launch of new condo projects to focus on clearing existing stock.

“Discounting completed projects to generate quick revenue as a financial lifeboat is the best solution for many of the country’s larger developers whilst the market is in limbo.”

Rathawat Kuvijitrsuwan, head of CBRE Research and Consulting in Thailand believes that, now business is gradually recovering, a few developers have started to launch new condominium projects.

“In the first half of 2020, the Bangkok condominium landscape was gloomy with fewer than 10,000 condominium units launched, which was much lower than the total number of new launches in the past three years of more than 60,000 condominium units per year.”

The Chinese are reluctant to complete transfers

The virus has continued to affect hospitality operators, including hotels and condominiums that service tourists, nationwide. Since China has suspended tours, put restrictions on movement, and locked down cities, home to over millions of people, it also poses a threat to real estate developers as their clients are unable or unwilling to fly.

“Currently multiple off-plan condominium developments are approaching completion, and Chinese clients are unable or unwilling to transfer. Chinese clients who made a reservation in Q4 2019 are requesting a refund and withholding their investment,” said Marciano Bijmohun, Business Development Director at FazWaz Property Group.

He believes every condominium that is in transfer status will see the percentage of non-transfer units rise in the coming months.

“These non-transfer units will cause a big financial hit to developers.”

If a client refuses to transfer, does not comply with the terms and conditions stipulated in the sales and purchase agreement, and decides to release the property, their deposits will be forfeited.

“However, there is some good news, these non-transferred units can be offered with a discount to new clients.”

Also, as China has been susceptible to a few disease outbreaks – from bird flu to the current coronavirus – it may prompt Chinese buyers to look for second homes outside of China.

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Bangkok

Silom Road tops as the most expensive area to buy land in Bangkok

Caitlin Ashworth

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Silom Road tops as the most expensive area to buy land in Bangkok | The Thaiger
PHOTO: Unsplash: Paul Szewczyk

Silom Road, Bangkok’s nightlife district, is the most expensive area to buy land in Bangkok, followed by Phloen Chit Road, according to data the Treasury Department gathered from 2016-2019. The pandemic may have fluctuated the prices, but no data on land value for 2020 has been reported by the department. They also say only asking prices were recorded, so it’s unclear how much the price decreased by during negotiations.

On Silom Road, land prices per square wa are up to 1 million baht while land on Phloen Chit Road have been reported to cost up to 900,000 per square wa. A square wa is about 4 square metres. Land on Rajadamri Road ranges from 750,000 baht to 900,000 baht per square wa. The cheapest areas to buy land in Bangkok are farmlands in the Bangkhuntian district. Land prices range from 500 baht to 10,000 baht per square wa.

Properties on Silom Road are also the most expensive in Bangkok. The price for a 170 square wa 4 storey office on the road costs around 155 million baht, according to the data. The highest asking price was 7 billion baht for a 37 storey office building on Sathorn Road.

Here are the top 10 most expensive areas to buy land in Bangkok:

1. Silom Road at 700,000 baht to 1 million per square wa

2. Phloen Chit Road at 900,000 baht per square wa

3. Rajadamri Road at 750,000 baht to 900,000 baht per square wa

4. Rama I Road at 400,000 baht to 900,000 baht per square wa

5. Wireless Road at 500,000 baht to 750,000 baht per square wa

6. Sathorn Road at 450,000 baht to 750,000 baht per square wa

7. Yaowarat Road at 700,000 baht per square wa

8. Thaniya Road, Pattanapong Road, Pattanapong II Road at 600,000 per square wa

9. Narathiwas Rajanakarin Road at 280,000 baht to 600,000 baht per square wa

10. Ratchawong Road, Sampeng Road at 550,000 baht per square wa

SOURCE: Nation Thailand

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Thailand

Thai condo developers clearing inventory rather than starting new projects

The Thaiger

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Thai condo developers clearing inventory rather than starting new projects | The Thaiger

“With waves of uncertainty and financial stress crashing into the market from the COVID-19 pandemic, most residential property developers have decided to postpone their plans.”

CBRE, the international property consultants, reports that most Thai developers are postponing the launch of new condo projects to focus on clearing existing stock. Discounting completed projects to generate quick revenue as a financial lifeboat is the best solution for many of the country’s larger developers whilst the market is in limbo.

Rathawat Kuvijitrsuwan, head of CBRE Research and Consulting in Thailand believes that, now business is gradually recovering, a few developers have started to launch new condominium projects.

“In the first half of 2020, the Bangkok condominium landscape was gloomy with fewer than 10,000 condominium units launched, which was much lower than the total number of new launches in the past three years of more than 60,000 condominium units per year.”

Since June, CBRE Research says new condominium projects, along new extensions and future routes of mass transit lines, with starting prices under 2 million baht, and those along existing mass transit lines are usually priced lower than 3 million baht.

“On the other hand, there has been no newly launched condominium in the high-end and above segments this year due to the high level of unsold supply and high land cost in prime locations. Investors have become more cautious in spending a large amount of cash during these uncertain times.”

“Some of the newly launched condominiums have had a good sales rate during their first launch. Most of these projects have been launched with a product and pricing that are mainly targeting large demand from buyers with lower-purchasing power and are located in an attractive location with limited available condominium supply in the area.”

But despite the slowdown of general activity and the current sales and promotions to dispose of excess stock, over 60,000 condos are expected to be completed this year and around 80,000 units each year over the next 2 years.

“With over 140,000 condo waiting to be transferred over the next 2 years, there is a possibility that a large number of booked units could return to such a volatile market as some cash-strapped buyers could decide not to transfer their units.”

“The future of the condominium market depends on the direction that residential developers will take collectively. With the 10 year record low number of newly launched condominium projects, this is the moment for the market to correct its long-standing oversupply and overpricing issues.”

CBRE Research believes that there are still opportunities for developers, including the 4 under-construction mass transit lines that are expected to be completed in 2022, the new Bangkok City Planning that will unlock many new locations for condo development and foreign demand that will come back… eventually.

To find the best range of condos, houses and villas, around Thailand, click HERE.

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