Cashing in on condos

Do the legwork and you can profit, writes Kanana Katharangsiporn

Anyapat Subyuenyong, a former salaried worker, became a condo investor a couple of years ago when she was looking to earn enough savings for her retirement. 

She started by moving 250,000 baht from her bank savings account to invest in a condo unit for rent, buying a non-performing asset (NPA) in Muang Thong Thani in Nonthaburi's Pak Kret district for 300,000 baht.

Ms Anyapat spent a bit more in renovating and decorating the unit before renting it out. With its new look, her unit is producing a lucrative yield of more than 10% a year.

After learning second-hand condo investment generated a relatively high yield, much higher than bank deposit rates of only 2-3%, she decided to invest in more second-hand or NPA condos.

Anyapat: Yield must exceed mortgage rate

She bought seven NPA condos offered by a financial institution at prices of about 230,000 baht each, spending 70,000 baht a unit on renovation, furniture and electrical appliances.

By renting them out at 3,500 baht per month, she generates a yield of as much as 14% a year.

Ms Anyapat then made a bold move to borrow from banks to buy condo units mainly at locations close to educational institutions, populous communities or workplaces.

"The loan instalments are paid by the rent the tenants pay," says Ms Anyapat, now 40, also an adviser and trainer at investment consultancy Stock2morrow Co.

"It's using other people's money for investment. But you have to make sure the yield is higher than the mortgage interest rate."

She also bought furniture and electrical appliances in bulk to receive a discount and used credit cards with promotions of zero interest for 10-month instalments.

She suggests a formula for condo investment with some powerful figures — 2, 8, 20, 80.

2 means a two-month take-up rate. A condo unit should be rented out within two months or left vacant no longer than two months.

8 is for a rental return of 8%, higher than the mortgage interest rate.

20 is for buying a unit at 20% below market price to earn a profit.

80 refers to an occupancy rate of 80% in a condo building.

Wason: Envision the most suitable tenants

Before investing in a condo unit, people should set a target, consider capability and set an investment budget in line with income. Starting an investment when relatively young is better than when we get older.

Ms Anyapat suggests choosing a good view when buying a condo for rent, as a bad view cannot be solved, but a blackout curtain can be used if a unit gets too much direct sunlight.

However, if possible a south-facing unit is best, as it can be comfortably cool for up to eight months a year. For people working at night, a west-facing unit is better due to lower sunlight and cooler temperatures in the morning.

The floor plan is also significant. Choose a corner unit or one with a garden view.

Condo investors should avoid units on the second or third floors, as noise from the ground can be easily heard, and top-floor units due to heat. Units near the garbage area or fire stairs should also be avoided.

Wason Khongchantr, managing director of Modern Property Consultant Co, says condo investment normally generates profits from two sources — capital gains when selling and rental yield when renting out.

Attractive locations in Bangkok include the Sukhumvit-Thong Lor area, with Japanese as target tenants. Ratchadaphisek Road is another interesting location popular with people working in the day and at night.

Outside the capital, good rental markets are Pattaya, Hua Hin and Si Racha, particularly near Robinson Si Racha, where landlords can gain yields as high as 12-19% due to strong demand from Japanese staff and executives.

"When buying a condo for rent, you should consider the economies of target tenants from Japan or Western countries, as this affects their decision and budget," Mr Wason says.

Investors should also consider growth of tourist arrivals at beach destinations such as Pattaya and Phuket.

After selecting a destination, investors should select a location and choose which kind of property is most attractive.

Mr Wason says land in good locations, especially near a mass-transit line, is an alternative investment due to skyrocketing land prices.

Land prices have doubled in recent years in some Bangkok locations such as On Nut-Bang Na and Bang Khae-Bang Wa due to new mass-transit lines and extensions.

In Bang Na, average land prices soared to 300,000 baht a square wah from 100,000 baht after the skytrain started running to the district.

In Bang Khae-Bang Wa on Phetkasem Road, land prices have reached 300,000 baht, up from 95,000 baht in the past two years.

"This trend will be seen in locations in the outer city where a mass-transit line is scheduled for bidding," Mr Wason says.

They include Pak Kret to Min Buri, where the Purple Line is planned, and Mor Chit to Lam Luk Ka, where an extension to the Green Line is due to be built.