China Takes the Lead. Part 1.

With direct flights available from just about every major city in China, now flying to Phuket and other Thailand destinations, Thailand is more accessible than ever before. We can expect to see these numbers continue increasing over the next few years. China has also led the tourism surge in recent years. The number of foreign tourist arrivals last year reached a record 32.6 million, and 8.9 million of those visitors came from China. The Tourism, Sports Ministry and private sector groups have forecast that foreign tourist numbers in 2017 could top 35 million, representing almost a 10% increase from 2016. This increase clearly shows the Asian market are leading the way. The Chinese investment in Thailand so far, has come in waves. The first wave was business men creating the infrastructure for future Chinese tour groups in Thailand and they invested in hotels, bus companies as well as hospitality companies across Thailand.

Chinese investors range from investors wanting to purchase within entry level projects, to those who invest in some of the most luxurious five star villas around. With Thailand becoming a favorable top tourist destination, the growing demand from Chinese investors has had a knock on effect with developers now building more investment condominium style projects to help facilitate this demand.

The level of investment is of course area dependent.  For example areas of Phuket such as Kata, Karon, Patong, Kamala and Surin have experienced the most rapid growth within the last 2 years. This growth has had a big effect in areas such as Kamala, which has developed substantially within this period. Thai property developers are looking to China for growth and developers have reported extremely fast growth in sales to Chinese mainland buyers over the past few years.

These areas are preferable to Chinese holiday makers as well as investors, therefore making them big contenders for those looking to receive strong rental yields. Typically Chinese investors are looking at the following with regards to rental yields when deciding on a property.

1.      Who is offering the strongest rental guarantee?
2.      Who will be managing the project and what kind of projected estimation returns are available?
3.      What will earn them the most amount of passive income in the short term?

We are finding more and more that investors who purchase in larger quantities, are wanting to take advantage of rental guarantee schemes, thus knowing exactly what yield they will receive on their investment per year.

Individual investors tend to favor the rental pool option which allows the rental management to rent out by means of taking a management fee and this can be anything from 30-60%, thus believing they will make higher returns than those offered on a rental guarantee scheme.

Another factor being there is a bigger dynamic driving purchase requirements as it is expected that more mainland Chinese groups will come here to co-develop with Thai companies.

The Chinese have a great need to update to modernity and have become quite selective in their property requirements. It seems they are all looking for modern homes with affable amenities and have limited investment channels in China, as those that currently exist, seem to monopolize the market.

As the infrastructure continues to develop in provinces such as Phuket, which has undergone many infrastructural changes over the past few years for example; the new international airport, underpass roads with the sky train which will run from the airport along the coast and through the middle of the island – to be built over the next few years, these are also very strong factors that cause the Chinese take notice.

Thailand previously ranked sixth for the number of Chinese real estate buying enquiries made over the course of 2016 and now ranked No.3 in the first half of 2017. Statistics show that two-thirds of Chinese buyers are looking at property that costs up to $250,000. As Chinese have had to endure property prices where significant growth has taken place since start of last year, with gains spilling over into smaller cities in recent months and authorities placing restrictions to keep prices in check in major cities, this has left many with no choice but to look to other countries to for investment opportunities.  

Another strong factor is that people who decide to purchase something off-plan within a good location, from start to completion, properties will have gained around 25-30 % in value. We can all agree that certainly is a good sign your money is working for you and most Chinese will not consider to resell before this stage. Generally speaking a lot of Chinese tend to purchase with the idea to hold on to their property for a minimum of 5 years.

Although the Chinese market is the strongest  it has ever been within Thailand, developers still need to remain competitive. This is evident with the increase of developments popping up all over and some will even incentivize clients who pay upfront with a set return until the end of completion. Various other methods are also used such as buy back schemes and furniture packages. Most of the units are not fully furnished, while buyers would normally have to spend an additional 20-30% of unit price to have their interior furnished for a unit, if purchasing in China.

As we all know the Chinese are always on the hunt for a good bargain so developers need to be extra creative and offer that little bit extra to secure the deal.