Ex-Pat Rental, Condo Market

[Guest BKKvisitor]

Maintenance is the main challenge

Returns can be high but so are standards

 

NINA SUEBSUKCHAROEN

Many people who purchase condominiums for investment do so in the hope that they can secure lucrative returns by renting their units to expatriates, but the market is highly competitive.

 

 

The segment of the rental market catering to expats typically starts at around 50,000 baht a month while the figures for the Thai market range from 5,000 to 12,000 baht, says James Pitchon, executive director of the international real estate firm CB Richard Ellis.

 

 

While some people are pessimistic about the outlook for the rental market, research by CBRE shows that the five key districts comprising Bangkok's downtown area _ Silom, central Lumphini, Sukhumvit, Pathum Wan and the riverside _ now have a total of 46,500 condominium units with another 21,000 due for completion over the next three years.

 

 

While this may seem substantial, Mr Pitchon says it should be considered in the context of an urban population of between 10 million and 12 million people.

 

 

Official figures as of November 2006 showed there were 57,400 expatriates with work permits in the Thai capital, an increase of 10.7% over November 2005. However, not all of these expats live in the downtown area; there are clusters, for example, around the International School of Bangkok (ISB) to the north of the city and Bangkok Pattana School to the east.

 

 

Also, not all live in condoms, with single-owner apartment buildings and serviced apartments putting up stiff competition.

 

 

Mr Pitchon said many tenants preferred to live in apartments rather than condominiums because the single owner looks after everything including all problems within the unit itself. In a condominium, the manager is responsible only for the common area while the landlord, who might not be living in the building, is responsible for problems in the unit.

 

 

 

''So if condos want to effectively compete, then the owners have to have management in place. In other countries they would subcontract management to a professional property manager who will be responsible for dealing with all issues to do with tenants and also finding tenants, leasing, and all the maintenance issues,'' said Mr Pitchon.

 

 

CBRE provides a residential management package that covers individual units and takes care of everything including acting as the landlord's representative in letting out the unit. However, it has found that few condo owners are willing to pay for the service which is around 15 to 17% of the rent, subject to a minimum fee.

 

 

''The hardest bit about rental is maintenance, so immediately you should have an air-conditioner maintenance contract because air-conditioners need to be maintained at least every three months _ the tenant is not going to do that,'' said Mr Pitchon.

 

 

''What happens if something breaks down in the unit? Who does the tenant call? The tenant can't call common area management because they're not responsible for maintenance inside the unit.''

 

 

Sukhumvit remains the most popular and well-established location among expatriates, and the skytrain in recent years has been a big plus. ''A lot of expatriate wives don't have cars so they need to have access to the skytrain.''

 

 

Aside from this, retailers geared toward expats are in this area, as are a lot of kindergartens and schools. The Japanese community, accounting for 22% of all expats with work permits in Bangkok, is especially heavily represented in the area. All nationalities rate the areas around Soi 24 on the south side and Soi 39 on the north side as the most desirable addresses.

 

 

Expats who work for multinationals tend to be in Thailand for two to three years and most prefer to rent rather than buy. Companies generally have two types of housing packages, one a lump sum that it is up to the expats how to spend.

 

 

''Others are on a more traditional package where the company will provide a housing allowance and generally people will spend all of their housing allowance but will not spend any more than that.''

 

 

Mr Pitchon observed that this means the rental rates are almost set by the companies since they allocate how much money people have to spend on rent.

 

 

''All multinationals are trying to control their costs. And budgets come in all shapes and sizes,'' he explained. ''Let's say if we were to take the mid-budget, the budget of the average expatriate here, that is between 75,000 and 90,000 a month for a three-bedroom apartment.''

 

 

However, on the flipside, rents in Bangkok are actually significantly lower than in other markets for the size and quality that is available.

 

 

Perhaps the most important factor in letting out a condo is how one furnishes it. Mr Pitchon advises owners to remember that they are not going to live in these units themselves and therefore the de{aac}cor has to appeal to a wide range of tastes and nationalities. For this reason, it would be akin to decorating a hotel room.

 

 

''It has to appeal to a broad range of people, the furniture should be durable not fragile, it should be easy to clean or replace. Soft furnishings one day will have to be replaced.''

 

 

In terms of appliances Mr Pitchon said that aside from a stovetop, oven and refrigerator, tenants these days also expect a clothes washer and microwave oven in the kitchen. Also, they expect at least one television _ preferably a flat-screen model in the more pricey properties.

 

 

Condo owners should also insure their units against leaks or other serious problems within the premises that might cause damage to a third party, because repairs would be their responsibility.

 

 

When it comes to the contract, while tenants sign a lease for one or maybe two years, many expats will require a clause in the lease allowing them to break it if they are relocated to another country.

http://www.bangkokpost.com/Yourmoney/09Apr2007_money43.php