Looking at real estate in Thailand, and specifically the issue of investment in real estate, it is useful to begin with valuation. Valuation is critical because we need to have an accurate gauge of the true value or worth of the property to make informed investment decisions.
Without a sound basis for investing, which proper valuation will give us, we may make decisions based on emotional factors that are likely to lead us down a road that could wind up losing us hundreds of thousands or even millions of baht. Experts in the industry generally suggest a number of approaches that may be appropriate depending on the type of property purchased.
The cost approach simply looks at all of the elements that have gone into the building, such as construction materials, time spent creating the structure, lumber and cement costs, etc.
These are then added to the land value to come up with a cost of the property: this can then be compared with the sale price offered.
A market comparable approach looks at other properties in a similar market and compares the price
These make sense for buying residential real estate, such as a condominium in Bangkok.
If the property were to be used for rental revenues or other income such as a business, hotel etc. then an income approach would make more sense.
Let us say you wanted to buy a condominium in the Asoke area but were planning on renting it out, you should look at whether the income stream from the proposed rent charge will cover the mortgage and maintenance costs, with, hopefully, a margin of profit left over. Clearly, the amount of money you are able to put down will affect this. The more the down payment, the lower the rental charges can be, while still leaving a profit. There are a number of other approaches, but for residential real estate, specifically condominiums, or homes, the above valuation methods are likely to be the most usable.
The whole notion of ‘bubbles’ in markets has been around since the dawn of investments and investment analysis itself and is critical to understanding the current market, especially in Bangkok. Some now contend that the current condo market in Bangkok is reaching ‘bubble’ proportions. According to long established conventions of market analysis, markets are generally assumed rational. In a completely rational market, ‘bubbles,’ which, by definition, are irrational price inflation episodes, usually in a single commodity, will not exist.