Investment Property in Thailand

Investment property in Thailand is starting to attract investors from around the globe due to the low entry prices and stunning locations promising strong "Buy to Let" potential from a growing touristic demand.

Why Invest in Thailand?

Exotic Thailand is Asia’s top tourist destination and offers a world class tourist industry at affordable prices, making it a magnet for visitors, re-locators and property investors alike. In many key locations in Thailand, the local economy relies heavily on tourism and increased property investment in these locations is now good news for domestic economic growth and good capital returns.

Natural and Cultural Factors

An exotic long haul destination, Thailand is famed for its natural beauty and interesting culture. A healthy tourist industry is characteristic of Thailand, while today a growth spurt sees increasing numbers of visitors flocking to Thailand to enjoy luxury and sophistication within a stunning setting.

Beautiful Natural Scenery

Thailand boasts some stunning sandy beaches, mountains, dense forests and with the on-going improvements to the country’s infrastructure, it is easy for tourists to make the most of the beautiful surroundings.

Climate

The warm weather in Thailand makes it an ideal winter holiday destination, between the months of November and February.

English Widely Spoken as well as Traditional Thai

Thailand is becoming increasingly cosmopolitan with investors from all over the world planning investments in the area. One bonus for many buyers is that English is spoken widely in professional circles, in addition to Thai.

Popular Long-Haul Destination

Thailand is often referred to as the Spain of the East. It is hugely popular as an exotic long haul destination and has a sophistication that offers great universal appeal. With a tropical climate and cities teeming with culture and colour, Thailand entices visitors back each year.

A Retirement Destination

For thousands of people who have worked in Asia for many years, Thailand is a very attractive retirement destination, in which the living environment will feel familiar. Retirement visas are available for foreigners over 50 years of age, according to financial means.

Economic Factors

The Economist confirms: “Ongoing concerns over political stability will continue to prevent any major improvement in consumer and investor sentiment in the next year or so. However, towards the latter part of the forecast period, there will be a shift back to stronger domestic demand growth, but real GDP growth will still be slow”.

Export growth is also set to decline in the wake of the economic slowdown in important export destinations such as the USA.  Thailand inflation hit 9.2 percent last month, its fastest pace since 1998. The Bank of Thailand raised interest rates for a second month in a row in order to fight inflation. 

Tourist Figures

The government is concentrating on ambitious new marketing efforts to attract luxury tourism and meet its target of 10% annual growth in tourist numbers.

New construction in luxury resorts is expected to attract vast numbers of tourists on short term holidays, while generating excellent rental yields for investors who own these properties.

Cost of Living

The cost of living in Thailand is still much lower than in most European destinations while the facilities available to tourists and visitors are modern and of international standard.

Property is lower priced in Thailand than in many other worldwide locations, and an increase in overseas interest is strengthening the country’s economy.

Suvarnabhumi-Bangkok International Airport (SBIA)

The completion of the airport has boosted the commercial property markets in eastern Bangkok and has made travelling to Thailand even easier.

Due to its popularity as a tourist destination, Thailand is one of the cheapest places to fly to in Asia, with direct flights readily available to Bangkok from many international airports.

Property Market

Today, the government sees foreign investment as great asset while the dropping of certain financial requirements now make investment in Thailand an easier option than ever before.

Some investors are seizing the opportunity to purchase property now while prices are low.  They buy safe in the knowledge that they will be generating long term returns when political and economic conditions eventually improve and the market builds fresh momentum.

Tax

There is no capital gains tax for private investors and low ongoing property tax applicable.  Stamp Duty and transfer fees have been waived temporarily in a bid to attract more real estate investors to Thailand – all positive news for today’s buyers.

Economic Reasons Why Thailand is an Intelligent Property Investment Location

• Thai property prices remain far below those in the more established European markets
• Thailand is the largest growth market in Asia. Some businesses choose Thailand as a regional base from which to keep their employees working all around Asia
• Thailand has recently attracted significant foreign investment. It has become one of the Asian economic leaders and is one of the fastest-growing economies in the region
• The completion of the Suvarnabhumi-Bangkok International Airport (SBIA) boosts growth in commercial property markets in eastern Bangkok as well as makes Thailand even more accessible by air
• Thailand is one of the cheapest places to fly to in Asia
• The country has strong business links with China and has an excellent infrastructure as well as world-class facilities in many resort towns
• Property is much cheaper in Thailand than elsewhere and an increase in overseas interest in property purchase has helped to create an economic recovery in Thailand
• Rental potential is high, due to increased government spending luring growing numbers of tourists
• No capital gains tax, stamp duty or transfer fees for private investors. Low ongoing taxes
• Today foreigners are regarded by the government as a big investment opportunity in Thailand

Property Market Growth in Thailand

With the aid of a thriving tourist industry, property in Thailand is experiencing a quiet revival despite the temporary effects of today’s political and world economic unrest. New construction in resorts areas is still expected to attract vast tourist numbers for short term holidays, while generating strong rental yields for the investors who own these properties.

In order to meet the target of 10% annual growth in tourist numbers, the government is concentrating its marketing efforts on high-end international tourists with strong purchasing power, especially those from the European Union, the United States, Japan and China.

Focus is on areas such as Koh Samui where land prices have seen the most significant increases. Other projects in the resorts of Hua Hin and Lanta Island are also attracting substantial interest and it is important to search for property in popular areas in order to benefit from maximum investment growth.

About 33% of the Thai population is aged between 25-44 years, which is a very good demographic figure for the growth of the domestic housing market, especially in the middle-end investment sector.

Capital Growth Predictions

It is undeniable that the “Credit Crunch” has damaged property values in Thailand, as in other worldwide destinations.  Many Asian economies have seen enormous growth and are expected to experience a correspondingly dramatic fall in their economies, with property developers being hard hit. However, Thailand’s slower growth in the property sector, accompanied by its continued appeal as a top holiday destination are now allowing it to weather the current financial storm better than many.  Property in Thailand, particularly in off-plan developments, remains a relatively stable longer term investment opportunity.

Rental Yield Predictions

It is expected that the coming year may bring higher rents, particularly in Thailand’s retail and residential sectors. 

The best investment returns are to be found in apartments in the major cities which rent out to the domestic market and which have been enjoying increased rental rates, while holiday apartments in popular resorts also still experience high rental demand. Many property developers are planning new projects in the Sukumvit area of Bangkok, where demand is dominated by expatriates.

If you select a property in a suitable location, it is expected that mortgage payments and bills can be partly or totally covered for the year from the rental income achieved from the peak season months alone (November to February).

Thai Property Investment Strategies

The "Buy to Let" Market in Thailand

The "Buy-to-Let" market in Thailand is expected to grow rapidly, in line with the current government drive to entice tourists to the existing and new resorts on the island. Buy-to-let properties are high in demand and satisfy the need for more short-term accommodation to keep up with increased tourist numbers, targeted at 10% per annum.

The current tourist industry marketing drive is encouraging not only tourists, but also investors.  Property buyers are capitalising on the popularity of the destination and current low prices, with a view to achieving maximum returns on investment from their buy-to-let options.

Buy to Let (Example Only) Case Study

John decides to purchase an investment property and decides that the "buy-to-let" investment strategy is the best for him.

John has savings of around €80,000.

Investment property X is a new development with beautiful sea views and priced at €250,000.

1. John pays his reservation fee of €3,000 to hold the property.
2. John pays a 30% deposit of €75,000 (minus his €3,000 reservation fee already paid)
3. Our investment specialists negotiate a mortgage for John for the remaining €175,000 at a rate of 2.75% (example only) this translates to a monthly mortgage repayment of €481.00 (interest only) which is equal to €5,772.00 over 12 months.
4. John rents out his new property immediately and during the 3 months "High Season" he receives €2,000 per month in rental income. These rental payments exceed his annual mortgage repayments and still leave John with 9 months of rental potential to make a further profit.

If we assume that average rental rates for John’s new property are as follows (conservative figures):

• High season - €2,000 per month
• Low season - €1,300 per month

Now we assume that John decides to go on a short term rental strategy maximizing his income over the High Period. He easily rents his property for 3 Months during the high period earning €2,000 per month. After this period he has a delay in getting his next tenants but over the course of the year he rents his property for a further 6 Months only.

• 3 months x €2,000
• 6 months x €1,300

Total rental income = €13,800 after subtracting the €5,772 mortgage repayments John has made a profit of €8,028.

During this example we have not included any rental management or community fees that may apply but also we have only assumed rental income for 9 months of the year and with many holiday makers now booking private accommodation via the Internet this is very achievable. The above figures are intended as a guide, upon which you will need to calculate your returns according to current rental values in your particular Thai location.

Buy-to-Let Potential in Thailand

Thailand has always been a popular, exotic holiday location and it is expected that, despite the current economic and political climate, Thailand will recover its tourist numbers and continue to be the number one Asian tourist destination.

Thailand welcomes foreign investors to the real estate market and actively encourages the purchase of property that will boost its growing tourist industry. Total foreign tourist arrivals to Thailand in 2007 reached 14.5 million, but in 2008, a temporary slowdown is predicted due to the gravity of world economics and political uncertainty.  However, for 2009, Thailand predicts slow growth with total arrivals reaching 16 million, up by 3.3%, instead of a forecast 17 million.  Undoubtedly Thailand remains the most spectacular Asian tourism destination and this slowdown is set to regain momentum as soon as current unrest subsides.

The goal of any "buy-to-let" investor is to cover any mortgage payments and generate a secondary income stream from their property investment. Provided the property is selected in a prime location, Thailand allows investors to deploy this strategy. They may cover all mortgage payments and bills for the year with rental income generated from the high season months alone (4 months, November to February).

Short-Term Letting vs Long-Term Letting

The final decision to be made by the "buy-to-let" investor is which letting strategy to use. It may seem obvious that the highest income is made by the property owner by letting out short term during the high season. However you must remember the increased overheads involved in regularly finding short term rental clients and the maintenance costs involved between clients. Long term rentals typically bring lower priced rentals but they usually require far less input from the property owner and the rental income is fixed and stable over the course of the year.

Some property owners choose to rent medium term during the low season and then short term to higher paying holiday clients during the high season. The decisions to be made on your letting strategy in Thailand are usually answered in part by the property you purchase and where it is located.

Thai Property Rentals

In Thailand "buy-to-let" investments are biased towards the short term strategy due to the current luxury style of the developments that are being built and the huge influx of expected tourists. However some investors may decide to rent at lower rates aimed at the international workforce that have re-located to Thailand and who, to a degree, service the increasing tourist industry.

The "buy-to-let" strategy is not ideal for every investor and it is essential that your rental property is chosen wisely. It will need to be a rentable property in a popular location to allow you to maximize the income from your investment. Even in a very busy market, competition is high. In order to maximise occupancy rates it is vital to achieve the correct formula of location, property, unit and monthly rental charge as this will have a direct result on your rental income.

A great benefit from this type of investment is that during the time the property is being rented out, it is earning the investor an income as well as acting as a holiday home while still appreciating in value.

Tax on rental income is charged at between 10 and 30% of the rental income, depending on the type of property you are renting out.

The "buy-to-let" investment option presents a sound investment decision and developments in Thailand are now ideally positioned for this strategy.

The "Pure Investment" Approach to Thai Property

The pure investor is an unemotional investment property buyer who is purely seeking maximum short term return on capital within the safest investment market in history.

Their investment vehicle is the purchase price while the investment involvement is typically only 20-40% of the purchase price.
During the construction period, the developer is likely to increase the unit’s sale price several times in stages. These price increases reflect the developer’s risk and as the development matures, the developer's exposure diminishes, allowing them to charge more for their product with each passing stage. Meanwhile the buyer pays more for the luxury of seeing physical progress and relying less on architects’ drawings and graphical impressions when making the decision to purchase the property.

To the pure investor, this creates an excellent investment opportunity as he/she can buy at the earliest stage possible and benefit from profits at each of the phased price increases. The pure investor then seeks to re-sell his investment bought at the lowest price possible, just before project completion, to a higher paying secondary buyer.

Investors looking for short and medium term capital growth are purchasing Thai property. Most importantly, they seek to purchase early on developments to secure the highest quality property units in the best locations at the lowest prices.

With the government’s development plan for Thailand set to continue driving tourism and property market, many investors will be selling their pure investments and cashing in on worthwhile returns, without paying any capital gains tax upon resale.

Pure Investment Case Study (Example Only)

John decides to purchase an investment property and he decides that it is purely a wealth building exercise and the "Pure" investment strategy is for him.

John makes a decision in conjunction with our advisors taking into account his personal criteria to purchase a unit on the development "X" at €630,000.

John pays 30% deposit (including his initial reservation fee) which totals €189,000 and signs a re-assignable contract allowing him to sell prior to the completion of the development units.

The project matures and after several phased stages John negotiates the sale of his purchased unit for €925,000 to a secondary home buyer.

To John, the pure investor, this represents a huge profit gained on invested capital of 156% (IVA and agents fees have not been included in this example calculation) as he has only ever invested the initial 30% deposit into the property.

This investment model relies on careful selection of property and entry into the investment at a very early stage. This maximises profit during the price appreciation of the property as the development progresses.

Off Plan Property in Thailand

Off plan investments in Thailand can offer investors the ability to buy at the lowest price possible and achieve maximum return on investment Keeping your property for a number of years will allow you to benefit from excellent rental income opportunities. Meanwhile you can enjoy a beautiful holiday home and watch your property appreciate in value

Thailand currently has much to offer investors in terms of off-plan villas, townhouses, apartments and condos. Buying a condo allows foreigners to buy freely, without the need to establish a limited liability company, provided the foreigner to Thai ownership ratio on your chosen development does not exceed 49:51%.

Almost all the off-plan property for sale in Thailand is located in the major investment hot-spots. The government has strict guidelines to ensure the quality of buying off-plan in Thailand is high and that it is also constructed in harmony with the environment. Obviously, as development projects are completed, it may be possible to purchase completed property but this will be priced substantially higher as it is also generating the return on investment for the original investor. We source quality new investment opportunities in Thailand and these are always located in areas that offer the greatest potential for capital appreciation on the property. They are invariably in popular tourist areas that will allow investors to generate rental returns.

Buying off-plan in Thailand at this time allows investors to purchase property in areas that will attract major rental demand and price appreciations at the lowest possible prices and with the best possible finance options. buyers who purchase our selected quality Thailand developments early will see the greatest returns on their investment.

How can property be cheaper if bought off-plan – How does it work?

The developer of any project is always exposed to risk. They want to cap this risk as quickly as possible and limit bank loans and other debts. They do this by selling units off-plan at excellent prices as the buyers cannot see a physical property at this stage and rely on the location and artist impressions, diagrams and computer simulations.

In addition to an excellent price, the investor also benefits from excellent finance structures due to the fact that the property is sold off-plan. The investor usually only needs to pay around 25% of the value of the purchase in the form of a deposit, the rest is payable on completion and can obviously be financed by a mortgage.

Once you have decided to invest in off-plan property, you need to decide which strategy you will adopt to achieve your return on investment. Our experts will help you to choose the most appropriate investment plan, be it a "pure investment" or the "buy-to-let" strategy.

Maximizing Profit from an Off-Plan Investment in Thailand

1. Purchasing Early

   At the commencement of a project, the developer offers units well below market value for the reasons mentioned above. In Thailand it is also important to buy as soon as possible as the property market is in its early stages of development and prices are still very competitive but already rising. Investors who purchase now will see the greatest profits.

2. Purchasing the Best Units

   Early investors can purchase the most sought after properties on any given development. Penthouses are often favorites. The best units always offer highest capital appreciation in the quickest turnaround time, and will also command the greatest rental incomes.

3. Price Increases as Development Matures

   As the development begins to be constructed the units value rises. There is normally a completed show home at this stage so buyers are taking less of a risk without the need to rely completely on plans.

4. Price Appreciates as More Units Sell

   As more units are sold the price of the remaining units rises. This is due to buyers being able to see current units as mentioned above. Often there is a phase payment structure in operation which mirrors the increasing value of the properties. To the early investor this means that should you decide to sell your property, it will be worth considerably more at this stage than when you made your initial purchase and paid your 25% deposit.

Investment Finance in Thailand

Financing your property investment in Thailand could entail injecting your own cash resources or, as most serious investors prefer, a mortgage or equity release scheme.

Traditionally foreigners have not been able to borrow money in Thailand for property purchase. However, times are changing and loans are regarded as a positive way to attract foreign investment and further boost Thailand’s growing economy.

Terms of Thai loans

Currency

Baht (THB)

Loan to Value

Up to 70% of the valuation price

Term

20 years

Thai banks are just beginning to regard foreigners, not as a credit risk, but as an investment opportunity and mortgages in Thailand are gradually increasing in availability.  The opening up of borrowing possibilities for property investment in Thailand and will have a positive impact on property prices.

Recently a new branch of the Bangkok Bank (BBL) has opened in Singapore and now finances sometimes as much as 70% over 20 years for property purchase. Loans can be in Euros, US Dollars or Singapore Dollars, with interest rates varying in accordance with your choice of currency.
HSBC in Thailand offers loans of between 1,500,000 and 35,000,000 Thai Baht. Typically they will lend up to 80% of the purchase price and interest rates can be fixed for up to three years.

For condo purchases, many investors still obtain a loan in their country of origin and then transfer funds via currency exchange deals to a Thai bank account, while some well-known developments offer finance options of 70%, which are also well worth considering.

Off-Plan Financing

Investors must remember that sometimes the developer will offer various finance options. This will often entail altering the required initial deposit and other key payment points throughout the construction phases of the property. Usually the developer can offer the most competitive finance options to investors and these are certainly worth considering. As always, before making a commitment, we recommend you discuss your investment strategy with a lawyer, a reputable property agent with experience in the area and even a financial advisor.

Equity Release

Put simply, equity release is a way of releasing some cash from the home without having to sell up and move house. If you have property in your own country and would like to borrow against this in an equity release plan, we can introduce you to independent financial advisors who can help you raise the necessary finance for your investment in Thailand. If you are in your mid-50s or older and own your own home, you may be able to get a cash lump sum, a regular income, or both, by using an equity release scheme based on the value of your property. These schemes can be helpful in certain circumstances to raise money for a mortgage to finance your Thai property investment.

Alternative Finance

Not everybody falls into a category and some investors will need to raise alternative finance to equity release or a mortgage options. There are other borrowing facilities available to investors of Thai property.

Tax Planning for Thailand

Tax planning should be a core consideration during any form of property investment. The tax system in Thailand has many foibles - this section is designed to offer a generic guideline to the Thai tax system.

Those living outside their home country may be currently free of the burdens of taxation, but future changes in personal circumstances may mean that tax could once again become payable, whether or not they plan to return “home”. We strongly advise that all clients speak with our independent tax advice partners regarding their individual case.

Property Taxes and Costs

Stamp duty of 0.5% and transfer fees of 2% have, for now, been waived for the short term as the government entices buyers to the market. 

Business tax of 3.3 % (levied against a vendor who has been in registered possession of the property less than 5 years) is also charged, along with income tax (similar to capital gains tax) at a variable rate.

Capital Gains Tax

There is no Capital Gains Tax in Thailand, unlike many other countries.

Income Tax

This is usually between 1.0% and 3.0% on property and is the comparable replacement to capital gains tax.

Land Tax

This is an annual tax levied on land ownership. The amount is often so small that in practice the body charged to collect it rarely bothers to do so. When they do collect it, it is usually after several years when the amount has accumulated.

Structures Usage Tax

This only applies to commercially used properties. The rate is 12.5% on the actual or assessed gross rental value of the property. However, this notional value is well below the commercial market rental value.

If the property is purchased through a company, you need to remember that corporate tax is higher than personal tax, and the cost of setting up the company must be considered as part of the initial investment.

Tax on Rental Income

This tax is charged at between 10 and 30% of the rental income, depending on the type of property leased.

Inheritance Tax

There is 0% inheritance tax for all family members in Thailand.

Summary

Thailand remains less exploited in the property investment sector than many other areas and for this reason prices are far below those in more established European markets. However in many areas, prices are moving upwards at a rate of approximately 10-15% per annum.

There are undoubtedly some very attractive investment options to be found in certain locations of Thailand and, according to world experts, Thailand’s economy is undergoing a steady growth spurt. While improvements to Thai property investment provisions continue, a symbiosis with the tourist economy and the real estate economy, will allow mutual growth at unprecedented levels.