Why real estate in Thailand, specifically in Phuket, has a yield of 7–12% per annum, while property in Turkey and other popular locations in the world brings its owners a much smaller income? What scheme of profit experienced buyers of investment property in Thailand choose? We share the opinion of the experts.
Content:
Why Thailand?
Currently, there are many opportunities to invest in foreign real estate and receive a passive income from leasing property. If you are planning such investments, it is better to be guided not by emotions but by facts, analytics and numbers when choosing a place to buy a house.
Economy
One of the most important indicators of the potential profitability of investments is the stability of the national currency.
For example, by the end of 2021, the Turkish lira collapsed against the U.S. dollar by 70%. In 2023, the lira exchange rate continues to decline. For owners of investment property in Turkey, this means a loss of real income while maintaining the same nominal rental income in the local currency.
The Thai baht, Thailand's national currency, is one of the five most stable currencies in the world.
Tourism
Thailand beats Turkey and even the UAE in terms of the tourist influx because travelers go to the Kingdom all year round.
In Turkish cities on the Mediterranean Sea, the holiday season lasts 5–6 months and ends with the arrival of winter. The best time for vacation in the United Arab Emirates is from March to December. The rest of the months are incredibly hot in the country.
In Thailand, the tourist season lasts all twelve months of the year, although it is divided into high and low seasons, which differ from each other as follows.
- In the high season, Thailand is full of travelers from the post-Soviet space, America and Europe, in other words, the tourists, in whose countries bad weather lasts from October to May. Hotel occupancy during these months ranges from 80 to 95%.
- In the low season, there are many tourists from Australia and Southeast Asia.
There are many Chinese visitors in Thailand. Chinese citizens come to Phuket all year around. For them, a vacation here is about as familiar as a vacation in Hawaii for Americans.
China's relative proximity to Thailand is a great advantage for the Kingdom's tourist sector, as Chinese citizens have money and are happy to spend it. The Chinese rent expensive properties.
Each year the most developed and popular resort in the Kingdom, the island of Phuket, receives 10,000,000 tourists. According to statistics, each tourist spends here an average of $250 per day. The major part of these funds goes to renting an apartment or a villa.
According to the experts, the influx of tourists after lifting the COVID restrictions will continue to grow. Representatives of Thailand's Ministry of Tourism say that by 2024, the number of travelers will reach 13–14,000,000 per year and will continue to increase in the following years.
Taxes
Before calculating the income you can get, you need to figure out the mandatory expenses. These include taxes that are mandatory for all foreign owners of an apartment or a villa in Thailand.
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Home purchase tax
In Thailand, the buyer pays the state from 1 to 2% of the apartment or villa value, depending on how the transaction is executed, in freehold or leasehold.
In comparison, this index is 4% in Dubai and Turkey. According to the Turkish law, the buyer and seller must pay a tax of 2%, but in practice, the seller's tax amount is included in the value of the residential property, which means that in fact the buyer pays the entire amount.
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Annual tax
The maximum rate for foreign property owners in Thailand is 15%.
In comparison, if a rental property in Turkey brings its owner an income of up to 6,600 Turkish liras per year, the owner does not pay income tax on the rental property. However, if the owner has more than this amount, then he pays the state 15–40%, depending on the amount of income. Owners of residential properties in the UAE do not pay annual property tax. However, every year they make contributions from the owners. Funds are spent on maintenance of the residential complex: care for the territory of the residential complex, maintenance of appliances, cosmetic and major repairs, upgrading gyms, playgrounds and so on. The exact amount is determined by the developer, depending on the area of the apartment and the rates for a particular residential complex. The average annual rate is $14.6-58.7 per 1 m2 a year.
Real Estate
According to the Central Bank of the Kingdom, in the last decade, the price of houses and apartments in Thailand has been increasing by 4–5% each year.
Faster than elsewhere, housing prices are rising in popular tourist locations. The most balanced and developed real estate market is in Phuket.
In addition to the tourist appeal, Phuket has another important advantage for property buyers – the restriction on mass construction of high-rise residential buildings.
They don't construct buildings on the island higher than seven floors. Residential complexes with 400–500 apartments are rare in Phuket, while in Pattaya, there are many residential complexes with thousands of apartments. This feature of Phuket attracts wealthy tourists to the island and positively affects the occupancy rate and income from local residential properties.
How to make profit on real estate in Phuket?
The most interesting area for investment in the Kingdom is the resort property.
Among the resort residential properties, the best solution for the investor is to buy apartments under the management of a large hotel chain. The reasons are as follows.
- Hotels have a large customer database and agreements with travel agencies working in different countries around the world.
- Hotels are run by a professional management, which increases income and reduces costs.
- Tourists are ready to pay more for a well-known brand.
Investor strategies
Due to low taxes and real estate maintenance costs, as well as high occupancy rates year round objects of secondary apartments and apartments in development projects bring more income than in popular tourist countries such as the UAE and Turkey.
After several years of leasing the apartment owner can profitably resell it.
Usually investors use 3 strategies.
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Buy-to-sell during the construction phase.
The strategy involves buying property at an early stage of construction and reselling it before the house is commissioned. Thus in one to three years you can build up capital by two times or more.
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Buy-to-rent for the long term.
The most reliable strategy is to buy an apartment and lease it for a long time. Apartments in Phuket will bring the owner a guaranteed annual income of about 7% of the value of the property.
The owner has no worries in this case, as he transfers the management of the apartment to a specialized organization. Specialists of the management company will find tenants and will clean the apartment after the eviction.
There is almost no risk either, but this scheme brings less income than other strategies.
Many developers offer a buy-back option. In this case, the developers are obliged to buy back your apartments after the lease is finished. However, the wish of the buyer is taken into account here: if you do not want to resell your property, no one can force you.
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Buy-to-rent-to-sell.
The maximum benefit from this scheme can be obtained if:
- you purchase a property at the initial stage of construction, that is, as cheap as possible;
- you lease out the property through a hotel chain;
- you resell the property no earlier than in five years when the property will increase its value by 20–25%.
