Buying Property in Thailand
In this submission I would like to discuss buying and owning property in Thailand and why I believe that it's not a good idea for the vast majority of us foreigners but may be a good idea for some of us under very specific and difficult to achieve individual circumstances.
Over the long term to do well in property investing it's all about capital growth. Generally speaking – over the long term land appreciates in value (at least in a nominal sense) and buildings depreciate in value. So as an investor you want to own a property in a great location which has a high land to building value ratio. In other words – you want to own a property in which the value is almost entirely made up of the value of the land that the property sits on.
Let's consider a 1.3 million baht / $52,000 AUD property in Pattaya, Thailand. The property is a residential two storey townhouse in central Pattaya just off Suhkumvit Road. It sits on 117 square metres of land. The building that sits on the land is not new. The total value of this property is made up almost entirely of the value of the land that it sits on. The building portion of the property has depreciated over time and makes up a small percentage of the total value of the property. If I had to estimate I would say that this property is 90% land value and 10% building value.
Let's now consider another property – a 2 bedroom condo in Pattaya in a centrally located complex called City Garden. I know this property well because I have stayed in it before. It's perfectly located and I very much enjoyed my 2 week stay in it at Christmas and New Years 2015. It's currently for sale with an asking price of 5.7 million baht / $228,000 AUD. There are literally hundreds of condos (if not more) in the City Garden complex. If you added up the total value of all of these condos and calculated the corresponding value of the land that they sit on you would discover that the land value of any one particular condo makes up a very small percentage of it's value. If I had to guess I would estimate that the land value of this condo would be no more than 5% of its total value. So $11,400 is the land value and $216,600 is the value of the condo itself. Remember that land appreciates and buildings depreciate so if you owned this condo it will almost certainly be a very poorly performing investment over time. If you lived in it you would have a very comfortable lifestyle however. The complex has great facilities and it was a real pleasure staying there. The condo is located on the ground floor as well so if you have plans to one day join the Pattaya Flying Club you should probably look for a condo located on a higher floor!
Anyway – the kind of property you want to own in Thailand is the first – the one made up of 90% land value. The big problem however is this: as a foreigner you cannot own land in Thailand. As much as we may not like this fact – that is the bottom line. There are ways around it but in reality if you want to own land in Thailand you will need to become a Thai citizen. This is a long, difficult to achieve process which the vast majority of foreigners will not do and wouldn't achieve even if they tried because of the difficulty in learning the language and going through the language test in the citizenship process. The difficult process of becoming a Thai citizen interests me because most people don't want to work hard and many are lazy and this spells opportunity for those of us who are not lazy and are always working hard. In economics – the term “barriers to entry” describes a situation where there are obstacles that make it difficult to enter a given market. To buy a freehold property in Thailand which is made up of 90% land value a foreigner must become a Thai citizen. That's a barrier to entry and a difficult one. Given that the vast majority of foreigners wont do this that means freehold property sales are limited to Thai citizens – the vast majority of whom earn much less than foreigners. This means low residential property prices as Thailand doesn't (for the most part) have foreigners driving up the prices and making it difficult for Thai citizens to afford property in their own country. In Pattaya however some foreigners who want a house on land simply buy the property in their bar girls name – a big mistake in my opinion given the nature of women / Briffault's Law, the condensed wisdom available about women from our brothers on the internet, on Stickman's website etc.
Now – let's say that you as a foreigner spend the time to learn the Thai language and become proficient (1100 hours and 2 years effort), you jump through all the associated hoops of staying in the country for 5 years etc and you manage to achieve Thai citizenship and are looking for a house on land in Thailand to buy. My advice is to buy a house in the best location you can where the price is made up almost entirely of the land value of the property and the total value of the property is within the price range that is affordable to a large percentage of the Thai buying market. This means you should buy a property at the low end of the market like the 1.35 million baht townhouse I used in my first example. Owning a property like this means you are invested in an asset made up almost entirely of land value and if you ever need to sell the property you are not reliant on selling it into the foreign market. A local Thai family would be your target buyer.
Those of you who have spent time in tourist cities like Pattaya would have noticed the huge number of condos for sale targeting the foreign market. Stay away from them – they are a very bad deal. Generally speaking – the more flashy the sales, marketing and advertising of a product or service the poorer quality that product or service is in reality. <Terrible generalisation and not at all true – Stick> Condos that are marketed towards foreigners are in large supply and relatively low demand. <At this point in time that is true but two years ago the market was going gangbusters – Stick> They are expensive and unaffordable to the vast majority of Thai people. They age badly and will make for a very poor long term investment because the land value of them is so low. If you buy one of these types of condos you better be happy with owning it forever and the reality factor says that you almost certainly wont be happy with it forever and will want or need to sell it.
My advice to you as a foreigner in Thailand generally speaking is to rent a condo in a good lifestyle area and keep your money invested in your pension plan, index funds or property back in your home country. I personally will be keeping the vast majority of my assets back in Farangland but I am planning on one day becoming a Thai citizen and owning a townhouse on land in Thailand. It would almost certainly be the equivalent of my first example of a 1.35 million baht property. I plan on investing no more than 5% of my total net worth in any such property in Thailand and I will definitely as I say be keeping the vast majority of my assets in Farangland. The way I will achieve Thai citizenship is I will build up my assets in Farangland by working hard from my current age of 36 and by the age of 55 I should have a net worth position of 15 – 20 times my annual yearly wage invested in my pension plan and other assets like index funds and Australian property. When I turn 55 I will hop on a plane and head to Thailand permanently, rent a condo for 5 years and then when I'm 60 I will become a Thai citizen and then I will buy a house on land in Thailand. I'm already proficient in the Thai language so the major obstacle for me for Thai citizenship is being in the country for 5 years. The way I see it – good things come to those who wait and I am vastly better off financially continuing to do what I'm currently doing – earning money in the western world and spending some of it on holiday in Thailand. A permanent move at a relatively young age would be a mistake.
Until next time Gentlemen – all the best!
Buying a property in Thailand may make sense if you plan to stay in Thailand for a very long time and have no plans to ever sell the property. That is relevant as Thais generally don't like to buy second-hand properties and the used property market is generally not buoyant. Many people wishing to sell a property in Thailand have it listed for years before they get so much as an enquiry, and many eventually sell it for MUCH less than they had initially hoped for. Renting makes sense.