PropStat Exclusive: analysis of the market trend for long term condominium leasehold in Bangkok
PropStat Exclusive: analysis of the market trend for long term condominium leasehold in Bangkok
Is it Freehold or Leasehold? This sentence might be the most familiar sentence to hear for someone in the same age as me ( 41 years old +-) when showing parents locations for business like commercial buildings or modern home offices in the middle of the CBD area. For most Thai people, especially Thai-Chinese people, when asking about the right of owning a long term leasehold property seems to be related to a lease transaction in the form of a leasing (selling the right of the leasehold) that in the past used to be very popular with commercial building in some good location or being related to directly lease with the Landlord in short term of one or three-years contract but used to pay it monthly to open some shops. On the other side, if it is a residential property, either condominiums or houses, and do you believe that many Thai-people are not familiar, knowing the differences including the advantages/ disadvantages between fully freehold and long term leasing (Freehold). And if we take a look at the total Market Cap of the Leasehold condominium market, we will realize that the value of the market and the number of sales are significantly less than the Freehold condominium group as well. Most of the time, we will see that the group of Leasehold condominiums are usually limited and only located in the Super Prime Area of Bangkok. Some of them might have been developed in a leading holiday city like Phuket because the main group of customers are foreigners who are more familiar with the Leasehold market and there are no restrictions on the ownership for foreigners which is limited at only 49% of unit number for a Freehold project… And that might mean that Bangkok’s Leasehold Condominium market seems not to be that attractive among Thai buyers and the most of investors then? No, because the statistic that we will present in this article actually says that Bangkok’s Leasehold Condominium Market seems to increase in number of sales as well as the most expensive selling price per square meter which is higher than the Freehold condominium market in the same area!!
The Leasehold Condominium type seems to be something that we usually see in big cities around the world in many countries like the United Kingdom, Australia, United States, HongKong, China and Singapore. And in some of those countries, the Leasehold Condominium market used to have a bigger market share than the Freehold market. At the other side, the Leasehold condominium market in Bangkok only counts as 1% of the total number of Condominiums in Bangkok and they used to be located in the middle of the city that have a high potential and hard to find more land to develop some projects in the same level. Because most of the land owners belong to government agencies and also the Office of the King. In Bangkok nowaday, there are still relatively only few Leasehold Condominium projects that have been developed on private land. Even the definition of the word Leasehold does not seem to be any problem among most of the foreigner buyers. But most of the Leasehold condominiums in Thailand still have some limitations of the term of ownership which is less than in foreign countries (foreign countries used to have the limitation of 99-999 years). And the important thing is that they are so few that we can see the difference from the freehold condos that the owner of the condominium can own forever, with no expiration date, no contract of how long they can own the property. But those who buy the leasehold condo under Thai law will get the ownership of only 30 years (some projects might have the option to increase the right to own it for another 30 years). And when the contract expires, you have to return the ownership to the real owner of the property as well.
The truth and the misunderstanding between Freehold and Leasehold condos
There are still many people who believe that buying Leasehold condos have more disadvantages than freehold condos in many factors like you can not own the land forever, the value of the project used to drop at the end of the contract and there is less chance for a reselling. But the truth is even if we buy a Freehold condo, it doesn’t mean that the land or the unit you buy will belong to you forever. There is no guarantee that after 60 years, most of the residents will not vote for an En-Bloc Sale to avoid the enormous cost for the renovation of the entire building. And even in some cases, it might be possible for an expropriation or getting rid of the right to own from the government as well. The parents might be worried for their children if they buy a Leasehold condo and in the future can not pass it over to their children because of the contract. But in the end, nobody knows that after 60 years their children will still want to stay in that place or not?
However, the truth is that Leasehold condo projects in many areas do have more value, more selling price than some Freehold condo projects in the same area as well. From the fact that developers added some reachable additional value in form of Brand Value and the term of service which is often in the form of Branded Residences to attract foreigner buyers and Thai people with high purchasing power who want to have an unique lifestyle. That is why we can see that many Leasehold projects can still get some profit from the resale. Unless the project has a remaining leasing contract for less than 10 years which means that people who buy it will find out that it is not worth the investment to lease it for others even if the profitability rate of the rental (Rental Yield) is higher than the Freehold condos in the same area because of the cheaper price. However, almost every Leasehold condos usually have a higher construction budget per square meter, using durable materials than the Freehold condos which have less guarantee period and also no need to mess with the After Sale or repair notification etc. because the whole ownership of the building belongs to the project owner who have the responsibility of the maintenance until the contract expires.
But there are three clearly brownback factors for Leasehold condos; they are the limited usage that you can not improve and change as much as you can because when the contract expires, you have to return it on it´s original condition or as the promise, the amount of loan from the bank used to have a limit of 70-80% including a less duration of installment and finally, the return that you will received from the Value of Appreciation is less than a Freehold condos of the same age and in the same area.
LEASEHOLD vs FREEHOLD
Which type of land is most likely to be developed as a Leasehold project
Condominium projects as a Leasehold type used to be quite attractive because of the selling price which is around 30% lesser than other condominiums in the same area and most of them used to be located in a good location. And the most important factor for the Leasehold project development is the ownership of the land to develop the project on. If it is a general land that belongs to a normal person or a general juristic person, it will then be a normal land purchase for the project development and then sell it as a completely Freehold property as well. But if the land belongs to the government, the Crown Property Bureau, hospital, education center or some private institution that does not want to sell the land, you will need to have a long term leasing period which by the law will be at maximum 30 years (by the first contract). And every developed project on this type of land must be sold as a 30-years Leasehold under the agreement of the leasing of the land too. Therefore, most of the projects on this type of land used to be developed as an office building, hotel, service apartment, shopping mall or various forms of retail stores with no need to sell the ownership of the land. If it is a special location with high potential and has a clearly targeted group of buyers like Langsuan, Ratchadamri, Wittayu where the land prices are higher and more difficult to find. The option to develop a land into a Leasehold condo project continues to be more accepted by buyers from the average price that is cheaper than the same level of condos in the same area which has the opportunity to get more profit from the rental.
There are few land with a long-term leasing contract in Bangkok if compared to completely freehold land. As the statement above said, the land usually belongs to government agencies like The Treasury Department, various ministries, the Crown Property Bureau, Hospitals, Education Institutions like the Office of Property Management of Chulalongkorn University. The land that owns by those agencies above can not be sold, when someone wants to develop those land must then be developed in a form of long-term lease. Or some private person who doesn’t want to sell the land actually used to rent it out with a long-term lease.
The project “One City Centre” (OCC), an office building with A-grade located on high potential area in the middle of the city on Ploenchit Road is a project development on a Leasehold land by private (Thaniya Group) by Raimon Land Public Company Limited which have a partnership with a huge company like Mitsubishi Estate from Japan with a value of 8.8 billion baht. Divided into construction cost of 5.5 billion baht and the land leasing cost of 3.3 billion baht which expected to be done by 4 quarter of 2022.
A largest land plot of the same type which connected to each other is the area owned by the Office of Property Management Chulalongkorn University (PMCU) and connected to the land of The Crown Property Bureau which begins from Ban Tad Thong Road to Ratchadaphisek Road. Previously, there were some private people requested for a rent of a small land plot to develop a condominium project in this area and also the owner of the Office of Property Management Chulalongkorn University and the Crown Property Bureau had also developed various projects on their own area including condominiums with a long-term leasehold contract. Therefore, most of the long-term leasehold condominiums in Bangkok are usually located in this area as well.
Samyan Smart city project is a project with an idea by Chulalongkorn University to develop an area into a livable city. With a vision to develop the area into an innovative district and create value for the community and society including the quality of life and businesses aiming to get the best benefits for a good living of people of all ages. There are several phases of development, several projects (including Samyan Mitrtown) of almost 1153 Rai and divided into 3 main uses parts like 595 Rai of Education area, 374 Rai of Commercial area and 184 Rai of Government area.
Project development of BLOCK 33 by PMCU is a latest Mixed Use project with Leasehold contract in Samyan Smart city under the vision of “Residential & Wellness”. and this project is located next to Chulalongkorn 100 Years Park which is a big green area in the middle of the city with a leading medical center for the health promotion (Wellness Center & Medical Hub) to create a residential area that enhances good quality of life for a sustainable community in the heart of Bangkok.