Why are rental condos in Bangkok rare?

Unlike other mature markets where the leasehold regime is widely recognized across all segments of the residential market, Thailand, particularly Bangkok, is lagging behind. Less than a tenth of total condominium supply was classified as lease in 1Q22. In Bangkok, leasehold condominium is a type of ownership that covers property for sale while providing long-term rental. Only 5,000 leasehold condominiums have been registered despite massive growth in supply over the past decade, with a total of 738,000 units registered in Bangkok by the end of 2021. In many developed countries, residences leaseholds tend to be an asset class that promotes housing affordability and relieves stress for middle-income households. However, most leasehold residences cater to the core segment of central Bangkok area. During this time, we have seen few multi-family leasehold assets available on the market.

Figure 1: Agglomerated leasehold condominium in central Bangkok

Source: JLL Thailand Research

In the condominium development boom of the past 10 years, vast freehold lots were available to developers. However, with this supply dwindling, the developers are seriously exploring rental options. Affordable unit price is a constraint for developers, especially with escalating development expenses. Leasehold condos may be gaining popularity as they typically cost 20-30% less than equivalent freehold units.

The 30-year maximum lease term, while relatively short in international markets, continues to limit appeal for some buyers, who remain skeptical of deals for future lease extensions and prefer freehold for the peace of mind. mind. However, there has been a proven demand from those looking for temporary housing at a time of transition in life, as evidenced by the success of Charmchuri Residences and Triple Y Residences. Many parents have purchased new condominiums for their children to study in Bangkok, ready after four years to provide recurring income, surpassing freehold units. The trend has shown that rental demand is real when it is well targeted.

Figure 2: Selling price of leasehold condominiums in Bangkok leading the market, 2010-2021

Source: JLL Thailand Research

In addition, personal mortgages on leasehold condominiums are more difficult than on freehold condominiums, which reduces the pool of potential buyers. Indeed, this is not a condition for a mortgage rather the result of an agglomeration of existing stock in the prime segment.

Although there have been few mass leasehold condominiums in recent years, those launched have left a positive impression on how future supply may fare. Factors such as shrinking land supply and rising construction costs present a ripe opportunity for leasehold condominiums, but only when targeted to the right buyer groups. Rental investors will find little concern in the lease model if there is real tenant demand, and seniors may be comfortable with the lease if they don’t mind moving on to heirs. Leasehold condos could also gain popularity among the mass market if the price proposition is high enough for them to consider it compared to a freehold property and if there is a wider range of mortgage financing products. available.

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