Thailand's market situation in H1 2024 looks mixed. The country has experienced a decline in the number of transactions, but property values and annual yields have risen. The ongoing slowdown and downturn in the housing market has led to plans to liberalise laws for overseas investors, which will ensure an influx of foreign investment. It is worth noting the difference between completely dissimilar sectors: resort properties and condominiums, the latter of which are chosen for purchase with a mortgage by citizens of the kingdom.
Content:
- Market decline in Q1
- The decline continued in Q2
- Phuket is the capital of resort property
- Rental market and annualised returns
- Radical changes
- Highlights of the situation
Market decline in Q1
According to the Real Estate Information Centre (REIC) of the Government Housing Bank, a downturn in the real estate market took place in Q1 2024. Just under 73,000 transactions were performed during the period, causing the figure to drop by 13% compared to Q1 2023, becoming the smallest since 2018. The most notable decline was in transactions for properties priced between THB 5 million and THB 7.5 million ($142,000 to $213,000).
The number of new housing loans issued decreased by 20.5% compared to the same period of the previous year. The total amount of loans reached THB 122 billion ($3.46 billion), the lowest in 6 years. In the current situation, analysts believe that the government and the private sector need to collaborate to work out measures for attracting buyers from overseas.
At the same time, prices increased by 1% in quarterly and annual terms. This performance is attributed to several aspects: rising land and building material prices, as well as rising bank rates and workers' salaries.
The decline continued in Q2
At the end of July, the Thai Condominium Association (TCA) summarised the results of the 2Q. Thus, the number of transactions increased slightly compared to the Q1, but their number is noticeably lower than the same period of the previous year. Townhouses and other types of properties priced below THB 3 million ($85,000) have the lowest sales figures in 12 years. Sales of these properties declined 54% compared to Q2 2023.
According to TCA president Prasert Taedullayasatit, many Thai citizens are unable to buy homes because banks are not approving loans, although there is strong demand in the market.
Foreigners are also doing fewer deals. The expert attributed this decline to the political situation in Myanmar, due to which the number of contracts concluded by citizens of this state in Thailand decreased by 50% compared to the Q1.
The expert emphasised that the decrease in the number of deals is affecting new projects as the H1 2024 was the lowest in 13 years.
Phuket is the capital of resort property
Despite the challenging conditions in the Thai market, Phuket's resort property sector continues to grow, as highlighted by Anna Baranova, director of InDreams Phuket Real Estate. The region is particularly sought after by overseas buyers who do not need to resort to mortgages.
“We have not noticed any complications in the Phuket property market in 2024. The Thai market in the context we are interested in can be divided into the residential property segment for nationals, where purchases are mainly financed with mortgages, and the resort property market for foreigners. The latter is concentrated in Phuket; its cheaper segment is in Pattaya. It is also in Bangkok, as well as in some provinces like Samui, where the market volume is quite insignificant,” the expert said.
In Phuket, some 72,000 residential units worth THB 460 billion ($13 billion) were listed for sale in Q1 2024, with 62,000 units sold. During the period, developers handed over 25 new projects with 4,000 units with a total value of THB 54 billion ($1.53 billion). Most of them are vacation condominiums.
Anna Baranova states that 130 new projects have been announced in Phuket so far. The communities with villas and complexes with apartments, which include from 200 to 1,000 units are among them.
The demand for resort condominiums is due to their attractiveness for investment. Some foreign buyers purchase such options at the start of construction, and subsequently resell the housing after the transfer into operation with a profit of about 20-30%. Other foreign investors keep the property in order to use it during their holidays and rent it out for daily rent during the rest of the time.
Phuket's total branded resort residences will reach a record $2.3 billion in 2024, according to consultancy C9 Hotelworks. This makes the market the largest in the world, suggesting upward trends.
Growth drivers
Tourism remains the main driver of Phuket's market growth, with the island welcoming 8.38 million people in 2023, thereby increasing visitor numbers by 152% year-on-year. The region has overtaken Bali and the Maldives to become the most sought-after destination in Southeast Asia.
According to Anna Baranova, insufficient development of infrastructure, in particular roads, restrains the development of the Thai market as a whole. At the same time, the government in Phuket has created a large-scale infrastructure construction project.
“Plans have been approved to build 3 highways and 2 tunnels, which will improve logistics. In 2031, there will be a mainland airport that will accommodate 22 million passengers a year. But even earlier, in 2027, the new terminal of Phuket International Airport will be completed; after that, the airport will have a capacity of 18 million people per year,” the expert said.
The specialist notes the following factors that influence the growth of the market:
- warm climate;
- almost no taxes are levied on foreign citizens;
- simplified visa regime with convenient conditions for various social groups, including pensioners and students;
- financial transactions are simple and fast, and Know Your Customer type checks are minimal;
- political situation in the world forces foreigners to look for a safe location;
- low crime rates;
- friendly attitude of the indigenous population towards foreigners.
“There are 13 international schools operating in Phuket today, of which 5 opened in 2023. This shows the high demand among foreigners for local property, and that many are moving here permanently,” Anna Baranova says.
C9 Hotelworks claims that the number of international schools is expected to double in a few years.
Rental market and annualised returns
According to the Global Property report, the average rental investment return in the country reaches 6.27% per annum by the start of the H2 2024. This figure is higher than the data for the end of 2023, which was 5.79% per annum. According to some analysts, the country's citizens are forced to rent properties because they cannot afford to buy them. The demand for rentals is also supported by the demand among tourists and relocatees.
The highest yields are in Sattahip, Samutprakan and Phuket, where the rate is 7.05%, 6.75% and 6.36% per annum respectively. It means that the situation can vary from neighbourhood to neighbourhood, with Bangkok's Huai Khwang neighbourhood seeing a return on investment for studios as high as 8.41% per annum.
“Throughout Thailand, the average yield is about the same, except that in Bangkok it will be higher. To give conservative figures, for long-term rentals the yield is 6-7% per annum, for short-term rentals 7-10%. It is also possible to calculate the capitalisation of the property, the increase in its value taking into account inflation and market growth, and sell profitably. However, the investor is better to decide in advance on the investment strategy. It is important to analyse the market situation, demand and trends related to demand with the help of professionals,” Anna Baranova says.
Radical changes
To stimulate the market and boost Thailand's economy, the authorities are mulling over plans to liberalise laws for foreign buyers:
- raise the quota in condominiums for foreign nationals to 75% of the floor area, currently the ownership rate is less than 49%;
- increase the term of leasehold ownership to 99 years.
The initiators of the reforms believe that such measures are necessary because the current legislation hinders the inflow of foreign investment. For example, several projects in Phuket and Pattaya, which are sought after by foreign buyers, have already exhausted their foreign quotas. High local borrowing and stringent loan approval requirements mean that increased demand from kingdom nationals is not expected.
“Some areas are not attracting local buyers, so the government should increase quotas for foreigners to stimulate economic growth,” Vichai Viratkapan, the acting director-general of the REIC, said.”
However, Anna Baranova believes that increasing quotas for foreign buyers will not have a significant impact on the Thai market.
“Many developers do not reach this quota, because foreigners often buy property in leasehold. The only exception is investors from Russia, who are often willing to pay more for the opportunity to own property,” the expert explains.
The expert also believes that a significant impact on the market will have an increase in the term of leasehold. At present, its duration reaches 30 years with the right of prolongation not more than 3 times. If this term is initially extended to 99 years, it will lead to a significant increase in the cost and sales of property.
The proposed reforms, despite their potentially favourable impact on the state economy, have been criticised by some politicians with conservative views. Because of this, the timing of the implementation of the innovations remains unclear.
Highlights of the situation
Thailand's housing market has seen a lacklustre performance in the Q1 2024, with fewer transactions and fewer offers. According to the Thai Condominium Association, the country not only saw a record decline in the number of transactions, but also in new projects costing up to THB 3 million ($85,000).
Although there are challenges, property prices are rising at a moderate rate of 5% per year. Rental yields have increased compared to the end of 2023. At the moment, the yield reaches 6.27% per year.
While locals are not buying property due to the inability to obtain a mortgage, foreigners are actively buying resort residences. The Phuket market is particularly popular with the centre of branded projects in this sector. More and more foreigners are choosing the region not only for investment, but also for their own residence.
Phuket is in demand due to its developed infrastructure, which other provinces cannot offer: local authorities are engaged in expanding the capacity of the international airport and building new highways.
To attract more foreign investors, the government plans to increase the number of quotas for foreigners in condos to 75% and increase the initial leasehold term to 99 years. These actions are supported by REIC, but conservative politicians have reacted negatively to the proposed measures. A property expert in Thailand believes that the increase in the number of quotas for foreign buyers will not significantly affect the market. However, according to the expert, the situation will be significantly helped by the extension of the leasehold period.