A strong baht, sustained economic growth, great tourism records, an influx of foreign direct investment, and continued infrastructure development — the signs of Thailand’s booming economy are loud and clear, and now, the interest rates have increased.
The rate hike is a pre-emptive measure taken by the government to control the national inflation rate. In 2018, the inflation rate reached 1.6% at the end of the third quarter. For this reason, the Thai government were compelled to raise interest rates for the first time since 2012.
In a meeting on February 6, 2019, the Bank of Thailand kept the policy rate at 1.75%. According to the committee, the current monetary policy stance would be sufficient for the periods to come and would further continue to support economic growth, financial stability, and inflation.
Now, the question is how will interest rate hikes affect your real estate investment in Thailand?
The Foreign Investor
The rise in interest rates usually increases the value of a country’s currency, in which case it is the Thai baht. This is a piece of good news for foreign owners who receive rental income. Aside from that, their Thai baht value will not only increase, but foreign real estate investors can also get higher returns by staying at a Thai bank that pays higher interest rates.
If you are a foreign investor, now is the time to go dive in the Thailand real estate market before the domestic currency against the Thai baht exchange rate falls after increasing interest rates.
Interest rates will directly affect home loans and mortgages. As borrowing costs increase, we may see potential local buyers eager to buy fixed-rate interest rates in new homes. Existing local homeowners who finance their mortgages through floating rates should seriously consider turning to fixed-rate loans before raising interest rates.
We can reasonably assume that raising the mortgage interest rate will automatically reduce the demand for home purchases, thereby reducing the value of the property. However, you should note that real estate prices are not directly related to interest rates and are more likely to be affected by broader economic factors such as employment rates, disposable income, gross domestic product and the country’s overall economic outlook.
With the development of multiple infrastructure projects and the continuous development of tourism, the future prospects of the Thai economy are bright, indicating that despite the rise in interest rates, the value of real estate should remain stable.
Thailand Rental Properties
For real estate investors who earn rental income, raising interest rates is a huge boon. When home loans become too expensive to finance, the locals turn to rent to avoid paying high mortgage rates. Overall, rising interest rates will push up demand for rental properties in Thailand.
Will interest rate increase be beneficial to you? If you already own a property in Thailand, you can get the most out of renting a property in Thailand. It is better to invest now to maximise potential returns.
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