Interest-rate fall spurs investments

 After the central bank’s Monetary Policy Committee cut its key rate from 3.25 per cent to 3 per cent in January, most financial institutions and research houses forecast further cuts of between 0.5 and 0.75 percentage point this year. This means it will be a good time to borrow, especially mortgages, which will carry interest rates of 7-7.5 per cent per annum.

Meanwhile, depositors will get less interest, with rates below 2 per cent per annum. That is why many property developers suggest that investors move their deposits from the banks and into the property market for much higher returns when they buy a home and rent it out. If they had bought a home three years ago and sold it this year, some of them may have enjoyed return on investment of more than 50 per cent, as prices have risen, especially in locations that were not flooded and are near the mass-transit system.

Pumiat Sinacharoen, managing director of Bangkok City Smart Co, a residential-property agency, said that when you buy a condominium before construction of the project is complete you will save 10-20 per cent compared with the price of a unit in a completed project. If in about one and a half to two years, depending on the project site, you sell the condo after the project is complete, you will generate return on investment averaging 5-10 per cent a year, significantly better than what you would have got if you had deposited your money in the bank.

Meanwhile, if you did not sell but opened your residence for rental, your return on investment would average 5-7 per cent a year, depending on the location of your condominium, he said.

For example, investors who bought The Address Chidlom, which had a presale price of Bt102,000 per square metre in 2007, are now seeing resale prices of Bt120,000-Bt130,000 per square metre, up 18 per cent. The Park Chidlom, which had a presale price in the range of Bt95,000-Bt110,000 per square metre, now has a resale price of Bt140,000-Bt160,000 per square metre, up 45 per cent.

But it’s not only condominiums that can generate high return for investors; low-rise homes can as well, if home-buyers select a location that is convenient for transport.

The former president of Bangkok Commercial Asset Management Co, Bunyong Visatemongkolchai, shared his experience. He sold his first home, a detached house in Don Muang district, 20 years ago, getting more than 100-per-cent return on his investment. He had bought it for less than Bt1 million but sold for more than Bt2 million after staying there for about 10 years.

Then he bought another home on Chaeng Wattana Road for about Bt3 million, also a detached house. He stayed there for about five years, then sold it for more than Bt5 million. After that he bought a new detached house on Ram-Indra Road near the Ekamai-Ram-Indra expressway. It cost him Bt10 million, but only three years after he bought it, he was offered Bt14 million for it. He sold it and bought a new one for Bt13 million.

Location the key

Bunyong said the key to this success was the locations he selected for his homes, close to main roads or expressways for easy access to the central business districts. They should also be close to service and shopping facilities and have a good environment.

For example, his first home in Bangkok’s Don Muang district was close to a hospital and shopping centre, and had easy access to the expressway. The same was true for the Chaeng Wattana and Ram-Indra houses. This made it easy for him to sell them when he decided to move.

"When I bought each home, I didn’t have any plan to sell it, but when someone offers me a good deal, that challenges me to accept it and buy a new home to support my family’s growth," he said.

Property developers say the price of land in metropolitan Bangkok has never dropped, even in those locations that had flooded. That is one reason investors are interested in the property sector at a time of interest rates lower than the country’s inflation rate.

Property Perfect chief executive officer Chainid Ngao-Sirimanee said that after the flood hit Greater Bangkok, most research houses said land prices in locations that had been inundated would drop. But in fact that has not happened.

"I did a survey myself that found land prices would fall after the flood, but no landlords decided to sell their land. They kept their land [to wait for] the price to return to the pre-flood level. That means the market did not suffer a negative impact from the flood, as people still buy homes located close to their family, community and workplace," he said.

Kree Dejchai, chief operating officer of SC Asset Corporation, said land prices on Ratchaphruek Road, which faced flooding last year, had stayed the same as before the disaster.

"Most landlords in Bangkok and its suburbs do not need money so badly that they have to cut their prices. They can wait" for demand to return.