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Capitalization Rate in Thailand (Cap Rate)
🔹 Definition
The Capitalization Rate, or Cap Rate, is a real estate valuation measure used to compare different investment properties. It's calculated by dividing a property's Net Operating Income (NOI) by its market value.
In simpler terms:
Cap Rate = Net Operating Income / Market Value
- Net Operating Income (NOI) is the property's annual income from all sources, minus all reasonably necessary operating expenses. It does not include mortgage payments, depreciation, or capital expenditures.
- Market Value is the current market price of the property.
The Cap Rate represents the rate of return on a real estate investment property based on its income. A higher Cap Rate generally indicates a higher potential return, but it can also signal higher risk. It's a useful tool for investors to quickly assess and compare the potential profitability of different properties.
The Capitalization Rate (Cap Rate) is the annual return from a property’s net operating income (NOI) compared to its purchase price or market value.
It's used to evaluate the profitability of real estate investments.
Average Cap Rate in Thailand (Estimated for 2024–2025):
| Property Type | Location | Average Cap Rate |
|---|
| Condominium Rental | Bangkok CBD | 3% – 5% |
| Condominium Rental | Suburban Bangkok | 4% – 6% |
| Apartment Buildings | Greater Bangkok | 5% – 7% |
| Shophouse | Prime Areas (e.g., Sukhumvit, Silom) | 4% – 6% |
| Hotel/Resort | Hua Hin, Pattaya, Phuket | 6% – 10%+ (seasonal) |
Example:
You purchase a condominium in On Nut for 3,000,000 THB and rent it out for 15,000 THB/month.
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Annual income = 15,000 x 12 = 180,000 THB
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After expenses, your Net Operating Income (NOI) is 150,000 THB
Key Considerations in Thailand:
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Hidden costs: Common area fees, land & building tax, repairs and maintenance
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Location matters: Higher cap rates often come with higher risk or less developed areas
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Low Cap Rate ≠ Bad Investment: Prime locations may offer lower cap rates but better potential for capital gain (resale profit)