Pattaya turning heads of investors

Backed by a thriving economy and a populace brimming with retirees, tourists, expatriates and prosperous businessmen, Pattaya is fast turning the heads of savvy investors looking for handsome returns in a beach destination.

Pattaya continues to attract astute property investors, who believe today’s market conditions offer the opportunity to lock into excellent future returns, either from rental income or through capital growth.

The year 2004 signalled the rebirth of Pattaya’s real estate sector. Prior to this, few high-quality apartments had been completed.

Continued growth in new housing construction permits since 2004, which grew to the 3.9 million square metres approved in 2006, indicates a healthy property market. Of note is the percentage of permits issued for highrise residential construction, which tripled from 7% in 2004 to 21% in 2006. A high-rise building is recognised as being more than eight stories high.

The successful launch of Raimon Land’s Northshore project in 2004 triggered a wave of upmarket beachfront high-rise developments including La Royale (2005), Ocean Portofino (2005), The Sails (2006), Northpoint (2006) and The Spinnaker (2007). A total of 1,000 new high-end beachfront condominium units are expected to be completed over the next three years.

Premium grade A condominium projects have joined beachfront developments in popularity, bringing the number launched between 2004 and 2007 to 31 sites for a total of 5,177 units.

The number of units launched per year has also climbed, with 2,268 new units announced in 2007. Pattaya itself received 33% of the newly launched units, with 11% and 22% in North and Central Pattaya respectively.

The Jomtien area attracted 26% of the new launches, with 2% in Jomtien itself and 24% in Na Jomtien. Interestingly, 41% of new launches were located outside of the Pattaya and Jomtien areas, with growing interest for Si Racha and nearby Rayong.

Condominiums are popular among international investors as they are more affordable and the only type of property in Thailand that a foreigner can own 100% freehold. Security and maintenance issues are handled by common area management, adding to the confidence in a holiday home investment.

Most foreign property buyers are British, American, Australian and Swedish, a line up that has not changed in recent years and remains a strong base for alien ownership.

Russia recently entered the top five buying nations to demonstrate the emergence of Eastern European investors. Increased interest from China and South Korea is due to the easing of restrictions on fund transfers.

The Germans, French and Scandinavians are also important buyers, and reflect the increasing trend for Europeans to purchase second homes outside traditional European resort destinations. Many have either relocated to Pattaya, spend the European winter there or live in regional business centres such as Singapore, Hong Kong and Shanghai.

However, the bottom line for investors in Pattaya’s high-end residential property market is solid returns, whether from rental yields or capital gains.

Short-term investors have already cashed in by turning over luxury condominiums during the period of short supply. An example is the 187-unit Northshore, which launched in 2004 and sold out before opening in 2006. By 2005, resales were bringing in returns of more than 30% with rates jumping to 40-50% the following year.

Appreciation has been strong. The price record of 119,718 baht per square metre in 2006 jumped 10.7% to 132,479 baht per square metre in 2007, and the sale generated a record-setting capital gain of 80%.

Most of the top 10 sales in 2006-07 generated capital gains of around 30-50%, with the latest resale occurring last month, achieving 180,000 baht per square metre.

Though the returns may not be as spectacular, low-risk, long-term investments in high-end properties can be profitable. While it may be best to steer clear of developers guaranteeing annual gross rental yields of 10%, this level can certainly be achieved as also exhibited at Northshore, where 6-8% yields are already being realised and future capital gains are expected to be handsome.

A typical rental contract is for 12 months and not by the day, with monthly rates between 500 and 650 baht per square metre. Two main markets feed the rental sector: Pattaya residents who are often North American retirees and foreign executives — mostly Japanese, South Korean and Malaysian — who work at industrial estates in the area.

Current market conditions and new developments funded by international financial institutions are signalling a wave of opportunities for high-end residential property investors in Pattaya.

For those searching for a second home and a sound investment, Pattaya looks set to offer excellent returns well into the future.