Older condos offer a lucrative opportunity to buy into prime locations for savvy investors willing to do extensive research.
Lack of transparency is a hurdle every property investor in Bangkok faces; while the Land Department collects data on sale prices achieved during transfer of property titles, this information is not publicly available. This lack of information and data gives rise to speculation, and the only available research material is property listings marketed by property agents. While these provide valuable benchmark “Marketing Prices”, they fail to reflect the true market conditions and actual “Achieved Prices”.
An opaque marketplace always gives rise to potential pitfalls; on the flipside, it could also mean opportunities for investors. Perhaps one of the most interesting aspects of the Bangkok property market is: “Prices of older condominiums do not move upwards at the same rate as newly-launched projects” (as pointed out by CB Richard Ellis, a prominent Property Consultancy).
Unlike developed property markets such as London, prices per sq metre cannot be evaluated simply based on an Area. While location plays a big factor in a Condo’s Price, many other factors come into play and therefore the rate of return (or potential loss) varies condo-by-condo. Interestingly, new projects tend to sell at a higher price per sq metre compared to its neighbouring counterparts; giving rise to variances in price between condos that are sometimes located only a few hundred meters apart.
So the big question is “why”?
This is a complex subject that realistically cannot be answered in the course of a short article; however it is possible to briefly conduct a cause-and-effect overview:
Freehold condominiums are actually a relatively new legal title in Thailand, with the first Condominium Act introduced in 1979 (B.E. 2522). Upon its introduction, began a speculative wave of condominium development projects by companies with varying degrees of expertise. The result -many buildings were poorly built with awkward designs, inefficient layouts or poor construction work. This meant that residents were affected by these negative factors and as a result, the value of these Condos failed to keep up with more modern and better built/ designed condos.
Poor Management
Another important factor which has often plagued Bangkok condos is simply poor management which has translated into poor maintenance of buildings. Condos, due to their residential nature are subject to enormous wear and tear, especially in common areas such as Facilities and Corridors. Without an efficient Management Team, a building can quickly look unappealing or even worse, neglected. This again has an important effect on prices especially when new condos are being offered next door.
Cultural Preferences
While Bangkok is a relatively attractive investment option for foreign investors, as things stand, Thais still make up the bulk of property purchases in the capital. Ask any Thai whether they would choose to buy an “Old Condo or New Condo” and the answer is likely to be “New”. The Thai market automatically flocks to newer and fresher options offered by new project launches as opposed to the secondary condo market.
Despite these two factors, there are some fundamental reasons why Old Condos are presenting an increasingly interesting investment case.
1. Scarcity of Land in the Central Business District (CBD)
Old or new, property are subject to two major market factors – demand and supply. Bangkok Mass Transit Systems (i.e. BTS and MRT) and the commercial activity they have generated have effectively anchored Bangkok’s CBD. While land plots are still available, developable plots for large Residential Condos are gradually becoming rare. Land prices have been massively increasing over the past years; thus forcing developments in the CBD to focus on the luxury end of the market. This has also resulted in shrinking standard unit sizes with increasingly small compact living areas. This trend means that eventually property buyers will have no choice but to buy second hand homes especially if they are looking for more space or more affordable prices.
2. Lower Cost per sq m
Location is a vital consideration in any property investment;
at present, older Bangkok condos in the City Centre are representing an opportunity to buy into some of the Capital’s most desirable areas at massive discounts per sq meter. Provided the Condo selected is not suffering from any major construction defects and/or maintenance issues, this could be an excellent opportunity to buy into some prime areas.
On top of this, unlike new projects with restrictive living space, older condo units tend to offer more spacious living. This means from a refurbishment aspect, they offer more scope for a complete interior redevelopment. This often represents an opportunity to add value to a property by simply improving its interior.
3. Higher Yields
Bangkok benefits from an active rental market especially in CBD locations that benefit from expat demand. On average, Bangkok Rental Yields tend to be between 3-6%, however some older condos are offering up to 7-8%. It is important to understand that this is not always the case, however older condos definitely offer lucrative opportunities for BTL investors who are prepared to do their research.
As they say “Caveat Emptor” or “Let the buyer beware”, while this article in its essence praises the opportunity that older condos offer, it is important for investors to understand that not allold condos are positive opportunities. Care should be taken and investors should be cautious not to end up in a value trap which in the long run yields negative returns. However, for those investors ready to do extensive research and prepared to take some form of calculated risks, older condos offer a lucrative opportunity “hidden in plain sight”!
Pierre Leung is the Sales Manager of Fresh Property, a boutique property agency that specializes in Sales and Rental of Residential Property in the Sukhumvit Area of Bangkok. He can be contacted via www.freshbangkok.com or Pierre@freshbangkok.com