Bangkok’s real estate market outlook in one word, “Depressed”!
For several weeks since the virus-led slump, property professionals, investors and landlords would be forgiven for wanting to stay in, slouch on the sofa and bury their head in the sand.
International lockdowns, declining economic forecasts and the constant stream of negative coronavirus related news has made everyone feel like the fragile global economy is on the verge of total collapse.
Contrarian Real Estate Investors: Buying the Dip!?
However, despite the wave of negativity that has seized Bangkok’s property market, an unfazed and quirky breed of real estate investors seem to be boldly braving the storm!
They live by the mantra:
“In the midst of chaos, there is opportunity.”
These contrarian investors see this crisis as the “opportunity of the century” and are diving into the Capital’s property market head first!
This article is a market insight into the profile of these investors, the opportunities they seek and the real estate bargains currently on offer!
Investor Profile: Opportunists or Naive Optimists?
Interestingly, since mid-February Fresh Property has registered an uptick in experienced “second-time” investors looking for what they refer to as depressed deals and motivated sellers.
A brief overview of the profile of these investors:
- Most of these investors are mostly middle-aged Thai nationals (35-50 years old). Most of them are prepared to acquire a property cash if it helps their negotiation position.
- They are experienced investors with a portfolio of rental condos and their search specifically targets neighborhoods or projects in which they have personal investment experience.
- They favor rental yields over short-term capital appreciation/ resale prospects. They put a lot of attention and focus on ensuring that they are buying below “market price”.
Seller Profile: Simply Motivated or Completely Distressed Sellers?
Contrary to common beliefs, the Agency has not experienced many sellers that are at risk of mortgage defaults. However, if the current economic lockdown persists, there is no doubt that this will be an increasingly common cause of “distressed deals” hitting the market.
At present Fresh Property is seeing property discounts from two primary reseller profiles:
- Secondary Market Listings (Projects over 3 years old)
It is important to note that most of the landlords that have acquired condos in the last 5-10 years, have already benefited from good levels of capital appreciation.
On top of this, many landlords have also benefited from relatively stable rental income during this period of ownership. Therefore, these sellers have a “large margin for negotiation” even if they offer substantial discounts.
The current market condition has had the effect of grounding these sellers and making them more realistic with their profit expectations!
- Foreign Investor Sell-off
The sellers that have been the most reactive to the recent wave of negative sentiment have generally been foreign investors. Many of which have committed to down payments in off-plan projects.
These sellers are looking to offload quickly pre-transfer as they prefer to “cut their losses” and hold cash in case the downturn worsens.
Investment Case Study: Sold at a HUGE Discount!
The Base Park East Sukhumvit 77
Developed by Sansiri this project is a popular residential option for young working professionals. The Project is located in On Nut, a convenient residential neighborhood. Rental rates for a standard 1-bedroom in the condo ranges between 12-15,000 THB per/month.
Despite the strong investment fundamentals of the property, the condo unit was sold at only 2.2 M THB. This is an approx. 26.6% discount on the current market average; on top of this, the investment property is expected to offer a rental yield of approx. 6.54 – 8.2%.
The seller was a foreign national, she was previously renting out the property on a long-lease basis. However, she was finding it increasingly difficult to manage the property from overseas. On top of this, she was also growing increasingly concerned with the worsening economic conditions.
Opportunity in Crisis: Key Investment Takeaways
In this difficult time, it is important that the Editorial stress a “cautious” investment style.
The future ahead is uncertain and even the top economic pundits are unable to predict if the market has bottomed out. Also, no one can accurately forecast how long COVID-19 will continue to spread and affect the global economy.
Therefore, this article should not be interpreted as a straightforward buy recommendation!
It is important to note, that the contrarian investors current on a shopping binge, actually have a conservative approach to their investment style:
- Most of these investors are in a good financial position and many are buying cash to avoid over-leveraging themselves.
- These investors are experienced and buying in projects or neighborhoods in which they have market insight and knowledge.
- Most importantly, these investors are mostly buying resale units with rental returns/ high rental yields as the main investment objective.
Capital appreciation potential is still a consideration; however these investors seem to focus primarily on securing big discounts on asking price rather than speculate on hypothetical appreciation trends!
