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Which Real Estate In Thailand Is Best Suited For Investment In 2024?

10/09/2024

Decline Continues in the Second Quarter

What type of real estate in Thailand is the most promising for investment in 2024? The situation in the market during the first half of 2024 appears ambiguous. The country is experiencing a decrease in the number of transactions, while property prices and annual yields are simultaneously rising. The slowdown in the growth rate of the housing market has sparked discussions about liberalizing legislation for foreign investors, which may attract new investments. It is important to note the differences between two market segments: resort properties and condominiums, the latter of which are frequently purchased by citizens of the kingdom using mortgage financing.

At the end of July, the Thai Condominium Association (TCA) released the results for the second quarter. While the number of transactions slightly increased compared to the first quarter, it remains significantly lower than in the same period of the previous year. Sales of townhouses and other types of properties priced under 3 million Thai baht (approximately $85,000) reached the lowest levels in 12 years, with sales down by 54% compared to the second quarter of 2023.

According to TCA President Prasert Thadulayasatit, many Thai citizens are unable to purchase homes due to banks' refusal to approve loans, despite high demand in the market.

Foreign transactions have also decreased. The expert attributed this drop to the political situation in Myanmar, where the number of contracts signed by Myanmar citizens in Thailand fell by 50% compared to the first quarter.

He emphasized that the decline in the number of transactions is affecting new projects, which reached their lowest level in 13 years during the first half of 2024.

Phuket – The Capital of Resort Real Estate

Despite challenges in the Thai real estate market, the resort real estate sector in Phuket continues to grow. This region is particularly popular with foreign buyers who do not require mortgages.

No major issues have been observed in the Phuket real estate market in 2024. The Thai market can be divided into the residential segment for local citizens, where purchases are mostly financed through mortgages, and the resort real estate market for foreigners. The latter is concentrated in Phuket, with a more affordable segment in Pattaya. It is also present in Bangkok and some provinces like Samui, where the market size is relatively small.

In the first quarter of 2024, approximately 72,000 residential units valued at 460 billion Thai baht (13 billion dollars) were put on the market in Phuket, with 62,000 units sold. During this period, developers delivered 25 new projects, totaling 4,000 units and valued at 54 billion baht ($1.53 billion), most of which were resort condominiums.

Currently, 130 new projects have been announced in Phuket, including villa communities and apartment complexes with units ranging from 200 to 1,000 units.

The demand for resort condominiums is driven by their investment appeal. Some foreign investors purchase such units early in the construction phase and later resell the properties upon completion, earning a profit of about 20-30%. Other investors retain the properties for personal use during vacations, while renting them out on a short-term basis during the rest of the year.

According to consulting firm C9 Hotelworks, the total number of branded resort residences in Phuket is expected to reach a record $2.3 billion by 2024, making it the largest market globally, indicating ongoing growth trends.

Growth Factors

Tourism remains the primary driver of Phuket’s real estate market growth: in 2023, the island is expected to welcome 8.38 million visitors, marking a 152% year-on-year increase. The region has surpassed Bali and the Maldives, becoming the most sought-after destination in Southeast Asia.

However, insufficient infrastructure development, particularly in road networks, limits the overall growth of the Thai market. Meanwhile, the Phuket government has launched an extensive infrastructure development project.

Plans have been approved for the construction of three highways and two tunnels, which will improve logistics. By 2031, a mainland airport is expected to open, with a capacity of 22 million passengers annually. Before that, by 2027, the new terminal of Phuket International Airport will be completed, increasing the airport’s capacity to 18 million passengers per year.

An expert highlights several factors contributing to market growth:

  • warm climate;
  • minimal taxes for foreign citizens;
  • a simplified visa regime with convenient terms for various social groups, including retirees and students;
  • fast and simple financial operations with minimal “Know Your Customer” checks;
  • global political instability driving foreigners to seek safer locations;
  • low crime rates;
  • the friendly attitude of locals toward foreigners.

Currently, there are 13 international schools operating in Phuket, five of which opened in 2023, reflecting the high demand for local real estate among foreigners, many of whom are relocating permanently.

The number of international schools is expected to double in the next few years.

Rental Market and Yield

According to a Global Property report, the average rental property investment yield in Thailand will reach 6.27% per year by the start of the second half of 2024, up from 5.79% at the end of 2023. Some analysts believe that Thai citizens are forced to rent out their properties because they cannot afford to buy them. The demand for rentals is also supported by tourists and expatriates.

The highest rental yields are observed in Sattahip (7.05%), Samut Prakan (6.75%), and Phuket (6.36%). In Bangkok’s Huai Khwang district, yields on studio investments can reach up to 8.41%.

Overall, yields across Thailand are relatively stable, with Bangkok showing slightly higher returns. Conservatively, long-term rental yields range from 6-7% annually, while short-term rentals offer yields between 7-10%. Investors can also consider property capitalization, accounting for market growth and inflation, to sell at a profit. However, it’s advisable for investors to define their strategy in advance and analyze the market with professional assistance.

Radical Changes

To stimulate the market and accelerate the growth of Thailand’s economy, the authorities are considering plans to liberalize regulations for foreign buyers:

  • increasing the quota for foreign ownership in condominiums to 75% of the total area, compared to the current limit of less than 49%;
  • extending the lease term to 99 years.

The reform initiators believe these measures are necessary because the current laws restrict foreign investment. For example, several projects in Phuket and Pattaya, which are popular among foreign buyers, have already exhausted their foreign ownership quotas. High local borrowing levels and strict credit approval requirements mean that an increase in demand from Thai citizens is not expected.

Certain areas fail to attract local buyers, so the government should increase foreign ownership quotas to stimulate economic growth.

However, increasing quotas for foreign buyers is unlikely to have a significant impact on the Thai market, as many developers do not meet existing limits. Foreigners often prefer to rent properties. The exception is Russian investors, who are often willing to pay more to own property.

Extending the lease term would have a significant impact on the market. Currently, leases last up to 30 years with the right to extend for up to three times. If this term is extended to 99 years, it would lead to substantial growth in property values and sales.

Despite the potential positive impact of these proposed reforms on the economy, they have been criticized by conservative politicians, making the timeline for implementation uncertain.

Key Points of the Situation

In the first quarter of 2024, the Thai housing market saw sluggish activity, with fewer transactions and listings. According to the Thai Condominium Association, the country experienced a record drop in the number of deals and a reduction in new projects priced under 3 million baht (approximately $85,000).

Despite the challenges, property prices are rising moderately at a rate of 5% per year. Rental yields have also increased compared to the end of 2023, with returns currently reaching 6.27% per year.

While local residents are not purchasing property due to difficulties in obtaining mortgage loans, foreigners are actively acquiring resort residences. The Phuket market is especially popular due to branded projects, which attract foreigners not only for investment but also for permanent residence.

Phuket remains attractive due to its developed infrastructure, including the expansion of the international airport and the construction of new highways.

To attract more foreign investors, the government plans to raise the foreign ownership quota in condominiums to 75% and extend the lease term to 99 years. These actions are supported by REIC, but conservative politicians have reacted negatively to the proposed measures. Real estate experts believe that extending the lease term will have a more significant impact on the market.

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