Failure Rate Of Condo Developers Nation Article

[A_Traveller]

The chance of failure for condominium developers in Bangkok has grown to almost 50 per cent as competition heats up amid a glut of fresh supplies, warned Aquarius chief executive Yongyuth Chaipromprasert.

After conducting a study during the past five months, the building consultant said even inner Sukhumvit, an area once deemed immune to downturns, "no longer guarantees success". "The average take-up rate for Bangkok condominiums is now 54 per cent," he said. "That is considerably lower than about 70 per cent for last year." "Of the 50,000 units that are expected to be launched this year, about 46 per cent won't be sold," he deduced from recent statistics. "One out of every two developments could fail."

"The inventory left over from last year should also add to current stock, making the situation even tougher for sellers, especially newcomers," he said. With 15,000 unsold units from last year and 25,000 units from this year, the market will have an additional 40,000 units to clear in 2009. Because of the worrying trend, he expected new supplies to fall to 40,000 units next year. Yesterday TCC Land said it was halving the number of new projects from 5 to about 2.

Yongyuth said most of the buyers are in the outer zones where land is cheaper. "If developers can sell units for between Bt1 million and Bt2 million, they should survive. It is the large units which will find difficulty selling with rising inflation and oil prices," he said. Supharat Development managing director Sumet Sukapanpotharam agrees. "Even with the government incentives to boost home sales by suspending the sales and purchase tax, the developers who will benefit are those who have completed projects and can transfer the units within the year."

"We are building for urban workers with limited spending power. There's no point selling expensive units when purchasing power has fallen," said Ananda CEO Chanond Ruangkritya. Ananda's Ideo Mix near Sukhumvit 103 is commanding sales as the units sell from Bt1.5 million. Yongyuth said the worst hit would be developers who bought land recently at high prices and were forced to construct at escalated costs.

LINK

[bingobongo]

<br />The chance of failure for condominium developers in Bangkok has grown to almost 50 per cent as competition heats up amid a glut of fresh supplies, warned Aquarius chief executive Yongyuth Chaipromprasert.<br /><br />After conducting a study during the past five months, the building consultant said even inner Sukhumvit, an area once deemed immune to downturns, "no longer guarantees success". "The average take-up rate for Bangkok condominiums is now 54 per cent," he said. "That is considerably lower than about 70 per cent for last year." "Of the 50,000 units that are expected to be launched this year, about 46 per cent won't be sold," he deduced from recent statistics. "One out of every two developments could fail."<br /><br />"The inventory left over from last year should also add to current stock, making the situation even tougher for sellers, especially newcomers," he said. With 15,000 unsold units from last year and 25,000 units from this year, the market will have an additional 40,000 units to clear in 2009. Because of the worrying trend, he expected new supplies to fall to 40,000 units next year. Yesterday TCC Land said it was halving the number of new projects from 5 to about 2.<br /><br />Yongyuth said most of the buyers are in the outer zones where land is cheaper. "If developers can sell units for between Bt1 million and Bt2 million, they should survive. It is the large units which will find difficulty selling with rising inflation and oil prices," he said. Supharat Development managing director Sumet Sukapanpotharam agrees. "Even with the government incentives to boost home sales by suspending the sales and purchase tax, the developers who will benefit are those who have completed projects and can transfer the units within the year." <br /><br />"We are building for urban workers with limited spending power. There's no point selling expensive units when purchasing power has fallen," said Ananda CEO Chanond Ruangkritya. Ananda's Ideo Mix near Sukhumvit 103 is commanding sales as the units sell from Bt1.5 million. Yongyuth said the worst hit would be developers who bought land recently at high prices and were forced to construct at escalated costs.<br /><br /><a href="http://www.nationmultimedia.com/topstory/read.php?newsid=30075134" target="_blank">LINK</a><br />

<br /><br /><br />

great article, i guess the land of lollipops no longer tastes sweet.....................

Edited June 10, 2008 by bingobongo

[gymshark]

There's a 3 bed place where I live in a very desirable area that has been empty since way before I moved here, I looked at it myself once, the main problem here is they can't sell but they refuse to lower the asking price. Crazy.

[clausewitz]

In thailand property owners just keep hanging on. There is huge number of vacant apartments throughout the city.

[PattayaParent]

It would be more interesting and relative to know whether it was only the Thai percentage of the condos not selling, the Farang percentage not selling or what is the mix?

[thaigene2]

"We are building for urban workers with limited spending power. There's no point selling expensive units when purchasing power has fallen," said Ananda CEO Chanond Ruangkritya.

LINK

While in the past places have sat empty at inflated asking prices - sometimes for many years - that may not be the case this time. What has been happening over the last three years was just silly - way over-built and trying to tempt people (mainly young urban 'professionals' - the ones with college degrees in whatever) who still earn only 15,000 B/Month (if that) to buy places at 3-6 million baht. If they didn't have the cash from daddy or poo-yai grandfather (or a loan guarantee from him) - then they had no hope of ever completing a deal for one of these places. With virtually no re-sale market, they're screwed.

Look at the number of these places for rent now - purchased by the buy-to-let crowd of speculators. Look at the Bangkok Post to witness the surge in rental ads. Again if bought with cash - maybe not such a bid deal - just a crappy ROI. But if credit was used to buy the place - then same-same..big problem as there simply aren't enough Thais who can afford to pay 15-30,000 B/month in rent.

As I said before, the big unknown is how many bought on credit and now can't complete. There will be a tipping point when desparation to sell sets in - as a lot of people who borowed beyond their means find themselves in trouble - and the Thai banks ever more so.

Edited June 10, 2008 by thaigene2

[midas]

There's a 3 bed place where I live in a very desirable area that has been empty since way before I moved here, I looked at it myself once, the main problem here is they can't sell but they refuse to lower the asking price. Crazy.

Oh dont worry ! They will probably even increase the price soon

because that is the way things work in LOS

[ray08]

There's a 3 bed place where I live in a very desirable area that has been empty since way before I moved here, I looked at it myself once, the main problem here is they can't sell but they refuse to lower the asking price. Crazy.

Oh dont worry ! They will probably even increase the price soon

because that is the way things work in LOS

Not probably , 99.99% they will increase price , just drove past a building which is half empty offices , they have been trying for a a very long time to rent at thb 470 psm with no success ,i offered thb 400 about 8 months ago answer " cannot "they now covered the Thb 470 and put Thb 500 , Thai logic

[quiksilva]

"The average take-up rate for Bangkok condominiums is now 54 per cent," he said. "That is considerably lower than about 70 per cent for last year." "Of the 50,000 units that are expected to be launched this year, about 46 per cent won't be sold," he deduced from recent statistics. "One out of every two developments could fail."

Rubbish!! A 54% take up rate (amount of units sold, in the first year) does not equate to 1 in 2 developers failing. LOL The author shows a complete lack of experience.

[FACT]Most developments break even at 60%, some even lower. [/FACT]

So to extrapolate upon the authors own line of thinking but now adding in our new found knowledge, we can say that most developments break even in the first year, but of course sales don't stop then.

[cclub75]

"The average take-up rate for Bangkok condominiums is now 54 per cent," he said. "That is considerably lower than about 70 per cent for last year." "Of the 50,000 units that are expected to be launched this year, about 46 per cent won't be sold," he deduced from recent statistics. "One out of every two developments could fail."

Rubbish!! A 54% take up rate (amount of units sold, in the first year) does not equate to 1 in 2 developers failing. LOL The author shows a complete lack of experience.

[FACT]Most developments break even at 60%, some even lower. [/FACT]

So to extrapolate upon the authors own line of thinking but now adding in our new found knowledge, we can say that most developments break even in the first year, but of course sales don't stop then.

It's funny : you still don't get it, don't you ?

-A- 54 % is less than 70 %... "That is considerably lower than about 70 per cent for last year."

What is important is the trend.

-B- the break even last year... was of course lower than today. Check all the increases for constructions costs (steel, cement, gasoline etc).

Add A to B, and you get something that should make you uncomfortable about the state of the market and that could lead to some developers failures.

Furthermore, we should add other items to this equation : inflation, pressure on purchasing power, increase of interest rates (last week, Bangkok Bank and other banks have increased their minimum lending rate), the political situation etc.

The list is endless.

But obviously, you're still confident. Good for you.

The market needs people like you.

[pkrv]

Condominium sales take time in Bangkok, full stop. We have seen this fully documented at The Park, The Manhatten, The Athennee and The Trendy. You can go back as far as records began on these projects on Thaivisa.

These are not flat screen televisions, and I can assure you it requires balls - I would suggest the two markets are somewhat different?

Edited June 10, 2008 by pkrv

[pkrv]

Condominium sales take time in Bangkok, full stop. We have seen this fully documented at The Park, The Manhatten, The Athennee and The Trendy. You can go back as far as records began on these projects on Thaivisa.

These are not flat screen televisions, and I can assure you it requires balls - I would suggest the two markets are somewhat different?

Opps edit cut out! I just noticed highdivers post on a certain bonkers thread.

"A land sale on Sukhumvit Soi 6 has set a record at one million baht per square wah, according to the property agency CB Richard Ellis Thailand (CBRE).

http://www.bangkokpost.com/Business/10Jun2008_biz30.php

well it sure looks gloomy... "

[cclub75]

Condominium sales take time in Bangkok, full stop. We have seen this fully documented at The Park, The Manhatten, The Athennee and The Trendy. You can go back as far as records began on these projects on Thaivisa.

These are not flat screen televisions, and I can assure you it requires balls - I would suggest the two markets are somewhat different?

Same treatement than for Quicksilva...

We all know that you are very proud of your unit in the Park.

But the Park (or Trendy or whatever) is not equal to the condo market in Bangkok.

I know that it's a very basic human behaviour , but at that point it's becoming caricatural and even grotesque !

So please, we try to assess the reality of the market. Your own experience is interesting, like any other pieces of feedback on the ground...

But don't over weight it.

[thaigene2]

Condominium sales take time in Bangkok, full stop. We have seen this fully documented at The Park, The Manhatten, The Athennee and The Trendy. You can go back as far as records began on these projects on Thaivisa.

These are not flat screen televisions, and I can assure you it requires balls - I would suggest the two markets are somewhat different?

I don't doubt that the upper end places like yours (started a few years before all the troubles) will complete. But why hasn't yours finished yet? Or has it? Have all the others abovementioned transfered ownership?

[pkrv]

Condominium sales take time in Bangkok, full stop. We have seen this fully documented at The Park, The Manhatten, The Athennee and The Trendy. You can go back as far as records began on these projects on Thaivisa.

These are not flat screen televisions, and I can assure you it requires balls - I would suggest the two markets are somewhat different?

I don't doubt that the upper end places like yours (started a few years before all the troubles) will complete. But why hasn't yours finished yet? Or has it? Have all the others abovementioned transfered ownership?

thaigene2 - As I have said I will be over (now in about 6 weeks) - We have already furnished, I can only say I have transferred ownership it is done - juristic are in place. I cannot be more honest than that until I see the place myself. Is that fair?

[quiksilva]

"The average take-up rate for Bangkok condominiums is now 54 per cent," he said. "That is considerably lower than about 70 per cent for last year." "Of the 50,000 units that are expected to be launched this year, about 46 per cent won't be sold," he deduced from recent statistics. "One out of every two developments could fail."

Rubbish!! A 54% take up rate (amount of units sold, in the first year) does not equate to 1 in 2 developers failing. LOL The author shows a complete lack of experience.

[FACT]Most developments break even at 60%, some even lower. [/FACT]

So to extrapolate upon the authors own line of thinking but now adding in our new found knowledge, we can say that most developments break even in the first year, but of course sales don't stop then.

It's funny : you still don't get it, don't you ?

-A- 54 % is less than 70 %... "That is considerably lower than about 70 per cent for last year."

What is important is the trend.

-B- the break even last year... was of course lower than today. Check all the increases for constructions costs (steel, cement, gasoline etc).

Add A to B, and you get something that should make you uncomfortable about the state of the market and that could lead to some developers failures.

Furthermore, we should add other items to this equation : inflation, pressure on purchasing power, increase of interest rates (last week, Bangkok Bank and other banks have increased their minimum lending rate), the political situation etc.

The list is endless.

But obviously, you're still confident. Good for you.

The market needs people like you.

No one denies what is happening. Go back and check out my post history. I have even sided with bingo bongo on the supply side of the condo market before (see below).

http://www.thaivisa.com/forum/index.php?sh...t=#entry1819493

But I will not back any one up when they use irrelevant data eg housing stats to back up theories about the condo market and other such rubbish.

I prefer to avoid hysterical leanings towards one way or the other, because the reality is never quite as clear cut as we might like it to be.

This article claims that 54% take up = 1 in 2 developments could fail. This is misleading. This is my point. [Also what statistics is this guy citing?]

The big take away here, really, is that some developers will be less profitable than last year. Hmmm well that's not exactly a big surprise, so it's hardly newsworthy is it?

Cue alarmist headline:

"Failure rate for condos nears 50%".

**shakes head**

Really?

I thought we were talking about reality....

[pkrv]

"The average take-up rate for Bangkok condominiums is now 54 per cent," he said. "That is considerably lower than about 70 per cent for last year." "Of the 50,000 units that are expected to be launched this year, about 46 per cent won't be sold," he deduced from recent statistics. "One out of every two developments could fail."

Rubbish!! A 54% take up rate (amount of units sold, in the first year) does not equate to 1 in 2 developers failing. LOL The author shows a complete lack of experience.

[FACT]Most developments break even at 60%, some even lower. [/FACT]

So to extrapolate upon the authors own line of thinking but now adding in our new found knowledge, we can say that most developments break even in the first year, but of course sales don't stop then.

It's funny : you still don't get it, don't you ?

-A- 54 % is less than 70 %... "That is considerably lower than about 70 per cent for last year."

What is important is the trend.

-B- the break even last year... was of course lower than today. Check all the increases for constructions costs (steel, cement, gasoline etc).

Add A to B, and you get something that should make you uncomfortable about the state of the market and that could lead to some developers failures.

Furthermore, we should add other items to this equation : inflation, pressure on purchasing power, increase of interest rates (last week, Bangkok Bank and other banks have increased their minimum lending rate), the political situation etc.

The list is endless.

But obviously, you're still confident. Good for you.

The market needs people like you.

No one denies what is happening. Go back and check out my post history. I have even sided with bingo bongo on the supply side of the condo market before (see below).

http://www.thaivisa.com/forum/index.php?sh...t=#entry1819493

But I will not back any one up when they use irrelevant data eg housing stats to back up theories about the condo market and other such rubbish.

I prefer to avoid hysterical leanings towards one way or the other, because the reality is never quite as clear cut as we might like it to be.

This article claims that 54% take up = 1 in 2 developments could fail. This is misleading. This is my point. [Also what statistics is this guy citing?]

The big take away here, really, is that some developers will be less profitable than last year. Hmmm well that's not exactly a big surprise, so it's hardly newsworthy is it?

Cue alarmist headline:

"Failure rate for condos nears 50%".

**shakes head**

Really?

I thought we were talking about reality....

I agree a neutral thread title would be far more appropriate to discuss this issue, and without the obviously loaded intent.

[PattayaParent]

Quicksilva, as a man in the business what is your take on the downturn (if there is one).

Is it less Farangs buying into the 40%, less Thais buying their 51% or is it a mix?

[quiksilva]

It is a mix. As a whole the market is softening, although some market sectors are doing better than others.

The projects that are still selling well, are the ones that cater to both local and international tastes. The markets which the locals prefer have also been the most resilient i.e. Bangkok, Hua Hin, Cha am, Rayong, and Sri Racha.

The latter of which is interesting because this is where Thais are buying to rent to the largest expatriate population in Thailand. The Japanese who have > 8x as many expats as say, the Brits who have the largest Western presence here (10,000). Of course the Brits are buying less right now and have been more subdued over the last year, and are hardly what one could call a growth market.

However with all that being said, I personally think that the landlord and tenant mix is the most important factor in the condo market today.

The biggest player in this market is the Thais. fair portion of this group is new money, made from SET gains made 2001-2006, but there are quite a few Western players too. But it is the leveraged group that may have to face up to tough choices in the times to come and potentially be the ones that will be hardest hit by the coming yield crunch (from pressure from both interest rates and a shift towards a tenant's market).

Some may be over exposed and may be forced to cut their losses, but this is a relatively new concept for Thai players in the residential market. Selling for less than you paid, is an alien concept and coming to terms with this will be a very difficult learning process for them. Think of the loss of 'face'!

So many of these new investors will face more pain than they expect. But eventually some will come to the realisation that cutting losses will be better than holding on to a mortgage that will become gradually more expensive as time draws on.

However some will be able to carry that burden though, and it is important that we do not underestimate the wealth that is here. Many can wait before for interest rates drop again even if that could be a long time coming, as oil and food shortages continue.

So yes I think we will see true condo values drop over the coming 24 months, however, this will not be across the board and I guess will not be as severe as some expect, because only those buyers that are heavily leveraged to invest will be forced into that position.

So the severity of the down turn here will be dependent on the number of new expats coming to Thailand (i.e. the tenant pool) and the amount of leveraged buy-to-let stock.

The number of work permits issued in Thailand rose last year, will it be enough? Only time will tell.

Edited June 11, 2008 by quiksilva

[highdiver]

for the past 4 years this has been discussed on thai visa.

the over supply, over development, the statistics and many many posts all the same on the subject of what will happen with the housing and condo market.

its amazing that the "doom gloom"brigade and specially the leading bonker (AKA koko) have not realized that after 4 years of debating this issue the prices are still going up and condos are still sold.

if there was such an over supply as some have claimed in the past we would have seen a price reduction or a slow down in the market....

but it not the case.

some of out posters like to use the term "reality"

We ll the reality is that regardless of the dooms day speculations for the past few years, there are more projects built and prices are going up all the time ....

thats reality!!!

[midas]

for the past 4 years this has been discussed on thai visa.

the over supply, over development, the statistics and many many posts all the same on the subject of what will happen with the housing and condo market.

its amazing that the "doom gloom"brigade and specially the leading bonker (AKA koko) have not realized that after 4 years of debating this issue the prices are still going up and condos are still sold.

if there was such an over supply as some have claimed in the past we would have seen a price reduction or a slow down in the market....

but it not the case.

some of out posters like to use the term "reality"

We ll the reality is that regardless of the dooms day speculations for the past few years, there are more projects built and prices are going up all the time ....

thats reality!!!

Of course Thailand is the only place in the world where real estate values only GO UP !

Even when the Israeli bombs start to fall on Tehran and oil reaches $200 + per barrel - Thailand

real estate values will still go up - but I wonder if anyone is prepared to guarantee that

[thaigene2]

Condominium sales take time in Bangkok, full stop. We have seen this fully documented at The Park, The Manhatten, The Athennee and The Trendy. You can go back as far as records began on these projects on Thaivisa.

These are not flat screen televisions, and I can assure you it requires balls - I would suggest the two markets are somewhat different?

I don't doubt that the upper end places like yours (started a few years before all the troubles) will complete. But why hasn't yours finished yet? Or has it? Have all the others abovementioned transfered ownership?

thaigene2 - As I have said I will be over (now in about 6 weeks) - We have already furnished, I can only say I have transferred ownership it is done - juristic are in place. I cannot be more honest than that until I see the place myself. Is that fair?

Is it fair? I don't know - was I questioning your honesty?

[thaigene2]

Quicksilva

It may be that the guy did say that one-in-two could fail - but maybe he wasn't referring to the data of 50% of units (the main focus of the data)? In other words two unrelated points?

[pkrv]

Condominium sales take time in Bangkok, full stop. We have seen this fully documented at The Park, The Manhatten, The Athennee and The Trendy. You can go back as far as records began on these projects on Thaivisa.

These are not flat screen televisions, and I can assure you it requires balls - I would suggest the two markets are somewhat different?

I don't doubt that the upper end places like yours (started a few years before all the troubles) will complete. But why hasn't yours finished yet? Or has it? Have all the others abovementioned transfered ownership?

thaigene2 - As I have said I will be over (now in about 6 weeks) - We have already furnished, I can only say I have transferred ownership it is done - juristic are in place. I cannot be more honest than that until I see the place myself. Is that fair?

Is it fair? I don't know - was I questioning your honesty?

Prove you can contribute to a neutral titled thread on condominium ownership of property and I will answer your question. Is it a deal?

[thaigene2]

Of course Thailand is the only place in the world where real estate values only GO UP !

Even when the Israeli bombs start to fall on Tehran and oil reaches $200 + per barrel - Thailand

real estate values will still go up - but I wonder if anyone is prepared to guarantee that

Guaranteed, 30+30+30 year leaseholds in paradise my son -- and ROI 8% per annum - guaranteed! Call Cockney Steve on his pattaya mobile right now guv on 081 555 xxxx, (before he moves to his next horizon! Mexico timeshares!)

[highdiver]

for the past 4 years this has been discussed on thai visa.

the over supply, over development, the statistics and many many posts all the same on the subject of what will happen with the housing and condo market.

its amazing that the "doom gloom"brigade and specially the leading bonker (AKA koko) have not realized that after 4 years of debating this issue the prices are still going up and condos are still sold.

if there was such an over supply as some have claimed in the past we would have seen a price reduction or a slow down in the market....

but it not the case.

some of out posters like to use the term "reality"

We ll the reality is that regardless of the dooms day speculations for the past few years, there are more projects built and prices are going up all the time ....

thats reality!!!

Of course Thailand is the only place in the world where real estate values only GO UP !

Even when the Israeli bombs start to fall on Tehran and oil reaches $200 + per barrel - Thailand

real estate values will still go up - but I wonder if anyone is prepared to guarantee that

i don't think anyone can guarantee anything accept maybe for one esteemed member (who is PKRV favorite)

I agree with you that Thailand has impact from worldly affairs.... however as this thread is debating condos and at this time there are 3 threads in this section debating the same thing my answer was in place.

you have been a member on this forum over the past 4 years. I am sure that you can recall that there hasn't been a month gone by with out this topic getting some exposure.

while I enjoy reading the doom and gloom reports and posts the reality is different and if you live in Thailand you see it every day.

over the past 4 years prices have gone UP...

over the past 4 years more and more buildings and development. ie supply.

over the past 4 years more and more multinational companies investing in condo projects.. they must be really dumb to do it without consulting with us here at this forum... they probably use really expensive feasibility reports for the multi million dollar projects and have no clue about the facts

i don't think anyone can guarantee that prices will stay up but for 4 years we have been told that the crisis is coming, housing bubble ready to explode, and investors fleeing...

[midas]

i don't think anyone can guarantee that prices will stay up but for 4 years we have been told that the crisis is coming, housing bubble ready to explode, and investors fleeing...

All I am saying is that maybe people cried Wolf in the past and now it seems less serious

- BUT this time around it just looks to me like a " perfect storm " brewing - i.e serious

economic problems PLUS insurmountable geopolitical problems at the same time

[quiksilva]

Quicksilva

It may be that the guy did say that one-in-two could fail - but maybe he wasn't referring to the data of 50% of units (the main focus of the data)? In other words two unrelated points?

Yes true, it could be read like that, but still that's a very bold statement to make based on undisclosed data.

I could claim that according data 90% of all developments will make 100% profit, but you would be rightly skeptical. You would say prove it. [edit: just an example not true]

Same thing. Whether the news is good or bad, the people breaking that news should back their stories up with hard facts, not hearsay.

Reporting on key economic indicators, such as the performance of the real estate market, is an important job, and it should be carried out responsibly.

Edited June 12, 2008 by quiksilva

[backflip]

"After conducting a study during the past five months, the building consultant said, 'One out of every two developments could fail.'"

The person repsonsible for this nonsense is a business consultant, obviously unschooled in rationality, and tried to get his name in print. It worked.

[thaigene2]

Quicksilva

It may be that the guy did say that one-in-two could fail - but maybe he wasn't referring to the data of 50% of units (the main focus of the data)? In other words two unrelated points?

Yes true, it could be read like that, but still that's a very bold statement to make based on undisclosed data.

I could claim that according data 90% of all developments will make 100% profit, but you would be rightly skeptical. You would say prove it. [edit: just an example not true]

Same thing. Whether the news is good or bad, the people breaking that news should back their stories up with hard facts, not hearsay.

Reporting on key economic indicators, such as the performance of the real estate market, is an important job, and it should be carried out responsibly.

True enough, though since it was the Nation, they'll be chearleading another property story which says the opposite thing tomorrow and the editors wouldn't even bat an eye. Mental erase.