For investors with their eye on profit, the Thai property market’s appreciation raises mixed emotions. Sure, the trend is good for resale values. On the other hand, higher prices erode rental returns.
To put investors’ minds at rest, enterprising developers are offering more sophisticated purchasing options. Some established companies will even offer developer financing and, along with it, a guaranteed rental income.
‘Investors want to secure their returns and developers will guarantee between 4.5% and 6.5% rental return over the first two year, depending on the profile of the tenant and the project,’ says Cyrille Hareux of Company Vauban, one of the pioneers of guaranteed rental income in the Thai market.
Naturally, developers are not offering this assurance to buyers purely from generosity of spirit. Firstly, the option makes sound business sense in terms of demand.
‘People who stay in Thailand for more than a few weeks don’t want to stay in a hotel. It will cost them a fortune. They won’t have any space and they won’t feel at home,’ says Cyrille Hareux.
A guaranteed rental return also delivers an eye-catching boost to a project’s profile.
‘The guarantee gives visibility to investors,’ says Cyrille Hareux.
He adds that properties typically give a 5% return over the first two years. The return should then rise by about one percentage point over the following years.
‘You can expect about 8-10% in five years – even more if you buy at an early stage to get an appealing price,’ he says.