Condo price increases lower investment yields in Bangkok

Investment yields on luxury condominiums have softened this year, according to a real estate services and investment management firm, Jones Lang LaSalle.

A recent report by the firm depicts higher prices and strong competition in the residential leasing market as major factors that are curtailing investment returns.

Despite strong competition, prices for new luxury condominiums in central Bangkok have continued to rise. While most newly launched projects set relatively higher selling prices, mainly due to increasing construction costs and higher standards, some projects nearing completion have raised prices in anticipation of continued demand in the market.

On the other hand, condominium rental rates have stayed relatively stable. This is mainly due to stronger competition in the residential leasing market as more units are completed and put up for rent.

"All these factors are putting downwards pressure on investment yields for investors who intend to buy and let the units," said Dan Tantisunthorn, Head of Research at Jones Lang LaSalle.

The latest study from Jones Lang LaSalle indicates that the average price of luxury condominiums in completed projects in central Bangkok is standing at some Bt78,000/sqm, compared to Bt72,000/sqm in January whilst the average rental stayed unchanged at approximately Bt3,900/sqm/annum over the same period.

Findings from the study say investment yields for luxury condominiums are currently ranging between 4.4% and 5.6%, compared to the range between 5.0% and 5.7% in 2005 and the previous peak in 2000 ranging between 5.5% and 6.8%.

Though investment returns on luxury condominiums in Bangkok have moderated, most of the projects that are being marketed now are enjoying healthy sales rates. Projects that are under construction see the average sales rate of over 70% whereas completed projects witness the average sales rate of almost 100%.

"Given the fact that yields are likely to come under further pressure, investors are becoming increasingly cautious on decisions to purchase. Nevertheless, there is continued interest from potential owner-occupiers, particularly from wealthy individuals currently living primarily abroad, but acquiring for personal use as a second home or after retirement, an emerging source of demand for luxury condominiums in Bangkok," concluded Tantisunthorn.

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