Achieving high yields of between 7-8% is not an impossible task in a tenant’s market as long as some key strategies are followed.
Residential Property is an extremely straightforward business affair – investors can expect to make money in two ways: “Capital Appreciation” or through “Rental Yield” derived from their properties. The best thing about a Residential Unit is that the asset is expected to produce a return in the short, medium and long term. Since most investors buy with the intention to let, most investment properties start generating an income as soon as a tenancy is confirmed.
Interestingly, this has given rise to a horde of “Yield Hunters”, constantly on the lookout for the most extensive yields the Bangkok property market can offer. At present, most Bangkok properties produce or promise yields around 4-6%, with the average making 4.5-5% for their landlords. Using this as a benchmark, numerous serious “Yield Hunters” have started to seek yields of between 7-8% on their investment properties. While this is possible, these opportunities are rare and require a certain amount of strategy to find.
So how are these yields achieved?
Let’s dissect the simple “Gross Rental Yield Calculation” which is as follows:
(Annual Rental Income/ Property Value) X 100
This is by no means rocket science, as the two main factors affecting yields are “Rental Rate” and “Property Value”. Therefore, by exploring strategies, an investor can increase the rental yields on their Investment property.
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FACTOR 1: RENTAL RATE
Please note that at the moment, Bangkok is essentially a “tenant’s market” and dictating rental prices is usually a challenging aspect of Rental Yields in the local market. Despite this, here are two tips that can help increase yields:
Property Curb Appeal
Increasing rental rates is straightforward and the most obvious way to do this is by adding aesthetic value to the property – little touches like better quality furniture, decorations (paintings on the walls) and allowing the Unit to stand out compared to other similar Units on the Market. In many cases, landlords do not care to make their Units feel “homely” and “ready to move-in”. While this might seem like a minor detail, it is important to remember that Bangkok tenants have a massive amount of choice.
Rental Term
Bangkok benefits from a transient community of working professionals, who are sometimes on very short contracts (3-6 months) or even awkward contracts (8-10 Months). By having flexibility in regards to the rental term, a landlord can justify higher rental for shorter rental terms; adding a few thousand baht to their expected monthly rate for a one-year rental.
FACTOR 2: PROPERTY VALUE
Older Properties
Bangkok benefits from a peculiar market trend, whereby the prices of older condos do not increase/rise at the same rate as new projects in the same locations. This has generated big disparities between new project launches price per sq meter and old projects. However, this means that a few older condominiums are offering cheap prices, in prime locations likely to appeal to tenants. On top of this, some of these Condos tend to be larger Units, sometimes even offering 100 square meter+ of living area at affordable resale prices. This represents an enormous opportunity especially if the Condo is in a good location.
Property Specifications
This is a broad category, with a variety of factors that may affect the overall price of the property’s resale value without compromising on the living experience for potential tenants. These can also be temporary factors that affect the property’s overall value in the short/medium term. This usually includes factors such as: • Construction next door (affecting rentals in the short/medium –term) but still good buy-to-let opportunities. • Low floors or obstructed views from the Unit. • Quality Developments from more “independent” Developers as opposed to Public Listed Branded Developments (e.g. Sansiri or Ananda). • Units in need of modernization or refurbishment works.
LOCATION
Proximity to the BTS or MRT always comes at a premium in Bangkok, a city where traffic jams are a major concern especially during peak hours. However, this obsession with being just-off the BTS means that sometimes by walking only a short distance further, some Condos get overlooked by the general property hunters. This is especially the case of developments by independent developers who do not benefit from a “famous branded development”. Many of these condos are within comfortable walking distance of the BTS and offer cheaper buying options compared to their more famous “visible” counterparts.
While it is easy to get swept away with excitement and to start looking for a property which has a combination of the factors above, it is important to remain critical and to approach investment opportunities with care.
Numerous condos that are offered for a lower price can be unfortunate “Value Traps” which in the long term can result in negative returns or lower than expected returns. Secondly, as noted earlier in this article, Bangkok is currently a “tenant’s market” and if the property is not appealing enough, it risks sitting on the market for months without ever getting rented. So investors should always conduct due diligence especially when buying to let.
On a more positive note, Bangkok is an expanding and developing city that has a lot of positive momentum driving its expansion. The city also has a substantial cosmopolitan expatriate community and is a popular holiday destination internationally. This diversity and dynamic environment the city offers means that opportunities are rife and this means there is money to be made for investors who are willing to take some risks![/ihc-hide-content]
