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Phuket Property Guide: What constitutes a bargain?

Phuket Property Guide: What constitutes a bargain?

This is part five of our “COVID Crash” series, which has explored the question: Will we soon find bargains a-plenty in the Phuket real estate market? Many punters are convinced it is only a matter of time, but Phuket’s history of responding to tragedy, global financial crises and even viral epidemics makes us a bit more skeptical.

propertyeconomicsCOVID-19
By Thai Residential

Saturday 30 May 2020, 10:00AM


When do you know you are getting a bargain? Photo: Allie / Unsplash

When do you know you are getting a bargain? Photo: Allie / Unsplash

Sometimes bargains, like beauty, can be in the eye of the beholder, so we have decided to explore what constitutes a bargain.

“Bargain” means different things to different people. If the buyer is looking for an idyllic home in the jungle, away from life’s hustle and bustle, an attractively priced condo or villa in Patong – with its long sweeping beach, shops, restaurants, and famous nightlife – would be lost on them at any price.

Foreign buyers are sometimes guilty overpaying for Phuket real estate, which is somewhat understandable if they are buying as a long-term home because first and foremost a home should be comfortable.

That said, you still want to get what you’re paying for. If you’re considering buying a villa, you can add up the cost of the land, construction, fixtures and finishings, and compare that to the selling price. That way you’ll get a better idea what the fair value of the property should be. This is not difficult to calculate, although you may need the help of someone with local knowledge of the Phuket property market.

Land values can be somewhat subjective, but finding out what comparable plots in the area recently sold for is relatively easy. The build cost of a villa generally ranges from around B20,000 per square metre at the low end, up to B45,000 per sqm for higher build quality. However, it is not unheard of for super luxury villas to run as high as B60,000 per sqm, or more. This should give you an idea of whether you’ve found a bargain or a grossly inflated property.

You can also take into consideration any ancillary buildings, perimeter walls, swimming pool/patio area, or even decorative features (e.g. a waterfall or a koi carp pond), mature trees and even roofing and guttering. All this helps you to guesstimate what it might cost to build this property from scratch.

While this is obviously more applicable to villas, applying even a rudimentary version of this checklist to a luxury condo can tell you if the price reflects the build quality, or if corners were cut to increase profits. After all, if you are paying B180,000 per sqm for your condo unit, you want to ensure you are getting something pretty special. 

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If you are buying as a rental property, getting the best deal possible is essential because you want to ensure that the income generated from the property makes the purchase price reasonable. The Price/Rental Income Ratio (or P/R Ratio) is the most common method of valuing a rental property. Calculated by dividing the purchase price by the annual rental income, a discounted selling price obviously increases the rental yield and lowers the P/R Ratio. 

For example, a B5 million condo bringing in B25,000 per month in rental income would have a rental yield of 6% and a P/R Ratio of 16.7. If you managed to buy that condo for B4mn, the rental yield would jump to 7.5% and the P/R ratio would fall to 13.3. (The P/R ratio essentially reflects the number of years required to pay back the purchase price of the property. In this example, the property could be paid back 3.4 years faster at the discounted price.)

A savvy buyer typically finds the best bargain when external forces, either financial or emotional, are driving the owner to sell. Let us now offer a scenario whereby both parties feel they got a good deal.

Take two different owners, for example, both from Sweden and both invested when the project was built 15 years ago. One lives in Thailand, and is unconcerned with the price paid in krona (SEK). They “think in baht” and will want to make a profit on the original baht purchase price. It may be more difficult to negotiate with this seller.

The other owner still lives in Sweden, and bought when the exchange rate was 1 SEK = B5.5. Today, B3.25 buys one krona, so the owner could sell at the original price in baht, pocketing a 40% profit on the currency. With the money being sent home to Sweden, the second owner may be motivated to sell below market value, as they are already well in the black in exchange rate adjusted terms.

Depending on their need to sell, the second owner may be willing to reduce the price so that they only recuperate the original purchase cost. Having lived in Sweden and rented the property for 15 years this individual will have profited from their investment already, and would not view such a price reduction as a loss. The lucky buyer who stumbles across the unit, however, would definitely view it as a bargain.


This article was provided by Thai Residential, creators of the 2018/2019 Phuket Property Guide. The 2019/2020 is available free online and is a comprehensive guide for anyone looking to buy real estate in Phuket safely. You can also contact Thai Residential directly at Email: phuket@thairesidential.com or Tel: +66 9484 11918.

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LALALA | 30 May 2020 - 10:54:01

... what they are doing, proper quality control is simply ridiculous etc. etc....if you put shell and core 50/50 to the whole building you can get a nice place yourself...in this regard 60K THB/m2 - even for High End - are absolutely ridiculous.

LALALA | 30 May 2020 - 10:47:16

6% or 7% yield are low figures and - as I understand from the article - do not include maintenance, taxes and other cost... regarding construction cost, cost per m2 for shell and core is about 300-400 US/m2 if you are able to organize the site yourself, including material purchase and labor supervision, so you escape inflated pricing from Thai construction companies who anyway not have a clue.... 

 

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