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Bangkok

Older condos can reap big rewards

New or used, the age of the development, the condition and location all play a part in the return you can expect on your investment


Spectrum, Bangkok Post / 23 January 2011 - The rapid development of the Bangkok condominium market over the past 10 years has greatly expanded the options for Thais and foreigners considering the purchase of luxury condos. At the same time, the average price of a new condo in central Bangkok has jumped by more than 150% over the decade.
With the high selling prices of units in newly launched projects or brand-new buildings, some buyers may opt to purchase more affordable units in older developments. On a per-square-metre basis, the prices of some of these units could be as low as half of those commanded by units in newly completed buildings or those under construction.
 
Findings from Jones Lang LaSalle's recent market study indicate that newly completed or luxury units now being built in central Bangkok are being offered for sale at prices ranging between 160,000 and 350,000 baht per square metre, whereas units in older luxury buildings (aged 10 years or more) in the same area are available at between 90,000 and 120,000 baht per square metre.
 
Although there are still compelling reasons to buy for investment, buying a used luxury condominium in the centre of the city as a residence is now a sound decision. The strong competition in the leasing market due to the rapid growth of new condominium supply has put downward pressure on rents. Many owners who bought condominiums for investment purposes many years ago may now find it difficult to let their units as most tenants prefer newer buildings. For this reason, certain investors are keen to divest their holdings. As a result, many luxury units are available at attractive prices and offer good value for money to those looking to buy condos to live in.
 
As mentioned earlier, there are still opportunities to purchase an older condo as an investment. Units in certain buildings, as old as 20 years, that are well designed, well located and well managed, continue to enjoy high demand from tenants. They also have the potential to enjoy capital appreciation over the long term as sites available for new developments are becoming scarce, while development costs continue to rise.
 
Managed by Jones Lang LaSalle, Langsuan Ville, an eight-year-old building on Langsuan Road, is a prime example. Resold units in this building are currently fetching between 90,000 and 100,000 baht per square metre. The building also sees continued leasing demand, with one-bedroom units achieving an average monthly rental of 40,000 baht.
While the decision to buy a unit as a residence relies mainly on the buyer's personal preferences and affordability, the purchase of a used unit as an investment is generally a more complicated process as more factors must be taken into consideration.
 
Tenant preferences count. Location should come first in the selection criteria. Location in the heart of the city does not necessarily guarantee marketability. The unit must also offer proximity to amenities (shopping centres, restaurants, schools and hospitals), access to mass transit and main roads for commutes by private car. Space efficiency and communal facilities are also important. In this regard, most of the older buildings in the luxury segment offer relatively larger common space and full recreational facilities, including large swimming pools, fitness/sauna rooms and tennis courts, which are not typically provided in many new condominiums.
 
Rental demand from locals is limited, so tenants are most likely to be foreigners living in Thailand. Many nationalities have preferred locations, amenities and furnishings, among other things. The largest group of expats officially working in Thailand is the Japanese.
 
However, the number of nationalities, particularly from other parts of Asia, have been consistently increasing as evidenced by the numbers of work permits issued. Nevertheless, European and US expats tend to have the highest housing allowances. Consideration should be given to who the target tenant of an investment will be.
 
The unit must be maintained in a like-new condition. In this respect, an investor may have to make a big cash outlay to refurbish a unit prior to putting it up for rent. Jones Lang LaSalle's Project and Development Services division estimates that a full refurbishment of a condominium unit, including full Grade A furnishings, costs in the range of 40,000 to 50,000 baht per square metre. After renovation, a 20-25% increase in rent can typically be expected.
 
The condition of some condominium buildings can deteriorate with age _ as can the asset value. Therefore, the quality of building and property management is another key factor.
Rental strategy must be realistic. Condominium rents can vary greatly, depending on location, quality and age of the development, unit size, fittings and furnishings. Generally, brand-new units achieve rental rates 25% higher than used units of the same quality in older buildings in the same location. An investor in an older unit might be satisfied with a lower rental rate as it may actually reflect a higher yield.
 
Given the varying needs of each individual, the decision to buy a used condominium in Bangkok should be carefully weighed. As a primary residence, the decision comes down to finding something suitable to one's lifestyle and simply weighing up the affordability and value of older versus newer units. As an investment, obtaining a high return comes down to identifying the right unit and negotiating a good price.
In the end, consulting a professional agent will help you minimise the uncertainty and help you set realistic expectations at the outset.
 
About the Author
 
Naporn Tansakul is the head of residential sales and leasing at Jones Lang LaSalle. Readers may contact her for advice email at inquiry.residential@ap.jll.com.