Oversupply In Upper And Middle Condo Markets

[quiksilva]

Middle to upper condos face oversupply this year

The middle-to-upper condominium market has shown a trend of oversupply due to a predicted low growth in demand this year and throughout next year, according to a research report by Raimon Land's Condominium Focus Thailand yesterday.

CEO Nigel J Cornick said that 5,037 condominium units in Bangkok worth over Bt37.4 billion were unsold at the end of last year. The statistics pertained to condominium projects priced up to Bt2 million per unit. {edit must be a mistake by the paper, surely they mean over Bt2m / unit, because this equates to an average of Bt7.4m / unit which absolutely screams massive over supply in the top end of the market)

Inner-city Bangkok includes the Sathorn, Sukhumvit, Central Lumpini, Silom, Riverside, Rama III and Phya Thai areas.

Sukhumvit is the main location for unsold condominium projects worth Bt13.3 billion or 35 per cent of total unsold stock worth Bt37.4 billion, followed by Silom/Sathorn worth Bt8.7 billion, Riverside (Bt6.9 billion), Central Lumpini (Bt5.6 billion) and Bt1.5 billion for the Phya Thai and Rama III areas.

Cornick said that if demand shows slight growth lower than supply - both, the existing supply of 5,037 units, and the new projects launched with construction completed of 5,460 units this year, 8,333 units in 2008 and 2,553 units in 2009 - the market for middle to upper condominiums will be at risk of oversupply this year and next year.

Meanwhile, resort condominiums at tourist destinations Pattaya, Koh Samui, Hun Hin and Phuket also risk facing oversupply in some locations.

According to the research, as of last December, unsold projects at the four tourist destination areas were recorded at 2,466 units, worth Bt29 billion.

Despite the business risks, Raimon Land is continuing three new condo projects worth Bt18.5 billion this year. The three projects are The River on the Chao Phya worth Bt10 billion, 185 Rajadamri worth Bt6 billion and Amanpuri in Phuket worth Bt2.5 billion.

The company will also invest Bt2 billion to buy land for developing new property projects next year. Half of its investment budget will come from the company's cash flow and the rest will be borrowed from banks.

"We believe that our new projects in prime locations will meet both foreign and domestic customer demand and will succeed after launching in the market this year," he said.

Somluck Srimalee

The Nation

Looks like it will be another interesting year in real estate

Edited March 28, 2007 by quiksilva

[percy2]

Looks like it will be another interesting year in real estate

[Gary A]

If you take these numbers;

According to the research, as of last December, unsold projects at the four tourist destination areas were recorded at 2,466 units, worth Bt29 billion.

That works out to 11.76 million per unit. WAY out of my price range.

[LoveDaBlues]

one is born every minute.....but 2,466 is a lot of minutes and a lot of suckers......

Sooner or later even Thailand must observe to some extent the laws of supply and demand.....when the crash comes it won't be pretty

[jumnien]

Why wouldn't a crash be pretty? For those of us always ready to snatch up a few prime condos a crash would be lovely indeed. For speculators and sellers, oh well.

[Gary A]

Why wouldn't a crash be pretty? For those of us always ready to snatch up a few prime condos a crash would be lovely indeed. For speculators and sellers, oh well.

Most of the farang condo owners I know bought their units to live in and not to sell or to try to make money. I'm naturally happy to have seen my condo appreciate so much but it really doesn't matter because I don't want to sell it. There would have to be a HUGE crash of maybe eighty percent before I would ever consider buying what now sells for more than ten million baht.

[atlastaname]

Talking about condos, anyone any experiences at all of the 3 La Raffine developments in Bangkok? They look very very good , my kind of condo, but no-where can i find the price of the various units except by contacting them direct and then you don't know if the price is for real or not . Anyone know anything?

[bingobongo]

the real estate noose is tightening while supply is increasing........

PROPERTY

Check buyers' credit, firms are urged

Banks reject 30% of presales purchasers, seminar is told

Property firms must inspect home-buyers' financial status before making a purchase agreement, since commercial banks are now rejecting their presales home-buyers at a rate of up to 30 per cent , said speakers at a recent seminar jointly organised by the Thai Condominium Association and the Housing Estate Association.

Thai Condominium Association president Atip Bijanonda said bank rejections of up to 30 per cent of total home-buyers have had a negative impact on the property market, because firms must resell the projects again. As a result, the property market has had more supply than demand in this year's first quarter.

http://www.nationmultimedia.com/2007/03/29...ss_30030520.php

[chownah]

I can't see how the fact that 30% of the applications for credit are denied has anything to say about the market....it just means that 30% of applicants don't have good enough credit.....am I missing something?

[think_too_mut]

I can't see how the fact that 30% of the applications for credit are denied has anything to say about the market....it just means that 30% of applicants don't have good enough credit.....am I missing something?

That much less demand...

[Mid]

I can't see how the fact that 30% of the applications for credit are denied has anything to say about the market....it just means that 30% of applicants don't have good enough credit.....am I missing something?

That much less demand...

begs the question ,

a) too many units built by developers overestimating demand

b ) too few buyers due to ........................

edit reason

b ) not

Edited March 29, 2007 by Mid

[chownah]

I can't see how the fact that 30% of the applications for credit are denied has anything to say about the market....it just means that 30% of applicants don't have good enough credit.....am I missing something?

That much less demand...

I always thought that those who were accepted were the ones who created the demand, not those who were denied.....as long as there are enough good applicants then the bad applicants have no bearing at all. It is unclear to me whether this is an increased percentage of denials compared to other times....or whether the criteria are getting stricter...or whether the applicants are getting weaker....or what? Still having a hard time finding the significance...although there probably is some....I guess. For instance, does this mean that the banks should stop denying credit?...or does it mean that more people with bad credit are applying?...is the usual rate of denial 1%, 2%, 10%,...or what?

I do see what you are saying though, and thanks for pointing it out.

Chownah

Edited March 29, 2007 by chownah

[think_too_mut]

I can't see how the fact that 30% of the applications for credit are denied has anything to say about the market....it just means that 30% of applicants don't have good enough credit.....am I missing something?

That much less demand...

I always thought that those who were accepted were the ones who created the demand, not those who were denied.....as long as there are enough good applicants then the bad applicants have no bearing at all. It is unclear to me whether this is an increased percentage of denials compared to other times....or whether the criteria are getting stricter...or whether the applicants are getting weaker....or what? Still having a hard time finding the significance...although there probably is some....I guess. For instance, does this mean that the banks should stop denying credit?...or does it mean that more people with bad credit are applying?...is the usual rate of denial 1%, 2%, 10%,...or what?

I do see what you are saying though, and thanks for pointing it out.

Chownah

Someone who is watching the matter closely may be able to confirm that 30% loan application rejection is something new.

For example, sudden increase in traffic jams in 2002. was caused by open-check book for car loans. Someone on 8000B could get a loan that required 14K monthly repayments.

A year earlier, my car was among 5-6 others in the building's carpark, about 80 car spaces. A year after, I was lucky to find a spot. All kids (students) in the building all of a sudden had their own cars.

Since the cars in Thailand are priced same as in the West, a 2 million baht 100sqm apartment in Bang Na would be only like 2 average cars (in the West it could be 20, 30 cars).

That gives a perspective of what might be happening with the loans and rejections.

[cclub75]

Property firms must inspect home-buyers' financial status before making a purchase agreement, since commercial banks are now rejecting their presales home-buyers at a rate of up to 30 per cent , said speakers at a recent seminar jointly organised by the Thai Condominium Association and the Housing Estate Association.

"now" is an important word...

It means "before", they were accepted...

It reminds me something... the sub prime issue in the US, don't you think so ?

Here is how it goes :

-people with poor credit are granted with... loans to buy real estate

-meanwhile prices of real estate going up

-some can resale, make profit, pay back the loans

-other can take more loans, with their real estate as collateral

-more demand = more building work = more GDP = more income

A perfect machinery. A rosy world.

But it's enough to put a few little stones in this delicate mechanism.... and plouf. Crash. The unfortunate accident.

For instance : higher interest rates. A crash in demand. An over supply. Some laws against foreigners...

I just saw a low rise luxuary condo on Aree soi 2 (opposite "Aree Place", another condo just completed, but low class)... "Start at 20 millions" says the billboard.

I hope the owner (singaporian company) will have enough time to convert the building into... small dormitories for students !

But enough black humor... read on my lips "the market is healthy".

[backflip]

"The statistics pertained to condominium projects priced up to Bt2 million per unit. {edit must be a mistake by the paper, surely they mean over Bt2m / unit}"

Exactly right. If the paper got that simple statement wrong, you wonder if the rest of the story is correct.

[samtam]

Not sure why any of this oversupply story comes as a surprise. You'd have to be blind not to notice it. Brokers and developers have been trying to tell a different story for months, but then they always do. The condo market (prices) is in decline. Further pressure on prices will come when new developments are completed and speculators want to offload. There's probably 10-20% further decline in prices at the very least. Thereafter the market will be flat for a couple of years. It's a buyers' market, and there will be some great opportunities out there. Wish I had more appetite for Thai condo risk, but have enough exposure just now.

[gummy]

Talking about condos, anyone any experiences at all of the 3 La Raffine developments in Bangkok? They look very very good , my kind of condo, but no-where can i find the price of the various units except by contacting them direct and then you don't know if the price is for real or not . Anyone know anything?

Can't say for certain across the whole development but a few months ago a business aquaintance of mine contracted to buy one at 71.3 mill, admitedly on the higher floors. Add at least another 5 for furnishings and you have a huge asset just waiting to drop to earth. He thought lowest was around 20 mill but I don't know for certain. Anyway far far too much in my opinion.

[LoveDaBlues]

Talking about condos, anyone any experiences at all of the 3 La Raffine developments in Bangkok? They look very very good , my kind of condo, but no-where can i find the price of the various units except by contacting them direct and then you don't know if the price is for real or not . Anyone know anything?

Can't say for certain across the whole development but a few months ago a business aquaintance of mine contracted to buy one at 71.3 mill, admitedly on the higher floors. Add at least another 5 for furnishings and you have a huge asset just waiting to drop to earth. He thought lowest was around 20 mill but I don't know for certain. Anyway far far too much in my opinion.

Is this in Thailand? Sounds like San Francisco. Over 2M USD

I just got a quote to build a 304 sq. meter home with the highest quality throughout; granite interior/exterior, super-block, etc. etc. for 2.9M and I think the price is too high. This is Thailand; what are people thinking? Are they thinking?

[MarcHolt]

Not sure why any of this oversupply story comes as a surprise. You'd have to be blind not to notice it. Brokers and developers have been trying to tell a different story for months, but then they always do. The condo market (prices) is in decline. Further pressure on prices will come when new developments are completed and speculators want to offload. There's probably 10-20% further decline in prices at the very least. Thereafter the market will be flat for a couple of years. It's a buyers' market, and there will be some great opportunities out there. Wish I had more appetite for Thai condo risk, but have enough exposure just now.

Samtam, I suppose you heard this in a bar from someone who knows an expert in the field? Just who are these 'experts'? You have to wonder. Read my latest assessment of the market and then you will have a better grasp on the current realty market.

The so-called over-supply of condos has been bandied around for the last 5 years. It hasn't happened and it won't. Demand is higher than supply, and most of the new projects due to come onstream soon are already mostly sold out. All that will be available will be 'flipper' resales.

The fact is, there has been a huge demand for condos for the last 5 or 6 years, and never enough supply. However, since December condo transfers dropped severely. There are new projects coming online soon, but many of them are already sold out and all that will be available are resales.

Read my report below to get more perspective.

Questions about the Property Market

With the proposed changes to the Foreign Business Act, there has been a lot of speculation about how it will affect the property market. The obvious answer is that housing sales to foreigners will dry up, but condominium sales will increase. However, the interim government is making the changes to the law. There are no guarantees that a democratically elected government in the future will keep these laws.

With so much uncertainty, the big question these days is just how safe is it to invest in property in Thailand? Is it worth buying off-plan using credit, and then flipping the investment when a condominium project is completed.

How will we know if the credit-crunch has arrived and speculators who bought to flip before completion (and re-payment of loan to the bank) are against the wall?

What will this mean in terms of building completions? What will this mean to those who guaranteed the loans to speculate on flipping? Is the situation different to last time in the mid-90's when Thai families used their own money to finance - rather than 'easy credit' from the banks in recent years?

Good questions, so let’s address them one at a time. First, it is a fallacy that ‘easy credit’ has been available in recent years since 1997. The truth is, easy credit was available before 1997, and Thai investors used their bank loans to speculate, not their own money. That is not happening now.

Since then, Thai banks have tightened up on loans to Thais. And despite saying they will give foreigners loans, when you apply you will find plenty of obstacles in the way. Your interest rate will be at least 2 or 3 points above the Thai rate. They will need more guarantees from you. They may even reject you out of hand for no other reason than you are a foreigner.

In fact, I know of only two foreigners who have managed to get loans from Thai banks in the last few years. They have Residence Permits, giving them almost the same rights as a Thai. The Residence Permit is difficult to get. These days no one knows how long it will take to get. One of my friends has been in limbo for over nine months already, with no idea when his application is likely to be approved. The current interim government is not making any decisions on this. It’s a pity they are not holding off on all decisions until the people vote a real government in.

You need to be very wary when considering buying off-plan. I've seen too many projects fail to recommend anything else. There are plenty of ethical, honest developers around, but you still need to check that they any developer is backed with enough funds to complete their projects.

As a real estate agent, I try hard to make sure we only represent reputable developers. However, I can only do so much checking. Although the developer is paying my commission, at the end of the day the buyer is the person will I always work to protect. A happy buyer will tell their friends and colleagues. A happy developer will smile all the way to the bank without a thought for the agents who brought in the money.

The only way to be reasonably sure of what you are buying into is to vet the project and the developer very thoroughly first. Get top-notch legal advice. It's worth paying a little extra for a very good lawyer, especially if it saves you millions as a result.

The Bank Of Thailand Numbers

Read report here: BOT Property Report

The Bank of Thailand numbers are interesting to read, as they show the trends over the last 2 years. The number of condominium registrations nationwide in 2006 remained about the same, averaging 1,625 per month throughout the year until December. Then in the last month property transfers dropped by about 75% when the government announced changes to the Foreign Business Act (FBA).

Just before that, they also tried to impose a 30% levy on any foreign currency brought into the country for anything except investing in a business, or buying a condominium. The immediate repeal of the 30% rule the next day totally confused people overseas and shook up potential investors. This is still having repercussion even today. Several people have written to me in the last month asking if the 30% rule will affect their plans to bring in money to buy property.

Further exacerbating the situation, the Thai mortgage system is not handing out loans to Thais very easily, and virtually none to foreigners, so housing sales have plummeted; so much so that big companies like Land & Houses have announced they will no longer target the high-end market. They are concentrating now on low to medium budget housing.

Taken together, it is clear recent government actions are having a negative effect on the property market and the economy.

Will things improve?

In the short term I would have to answer no. Until Thailand has a democratically elected government things will remain, shall we say, fluid? Other people in the industry all agree that we are looking at a 2 to 5 year property slump.

Given this, you are probably wondering why you would even consider investing in Thai property now.

I have lived here more than twenty-five years. In that time I have seen two of these cycles come and go. In the long term, these things always work themselves out. When times are bad, property prices stand still. Some prices may drop a few percentage points, but on the whole the owners just wait out the storm.

The good times will come again. If you are looking for a long-term investment, this is a good time to buy. Many of the new condominiums are currently coming on to the market. Buy one or a few now, and and rent them out until prices start rising again. There are still plenty of expatriates here looking for a decent place to live. Their companies subsidize the rents so they can afford good quality. When prices rise in the future, cash in and walk away with a tidy profit.

Should you consider buying off-plan? My advice stands. Before you decide, do your due diligence, just as you would anywhere else in the world. Just because the price is cheaper than back home doesn't make it safer or better. Quite the reverse in fact, because there are no safeguards built into the industry here.

The guiding rule in all financial transactions in Thailand should always be: You get what you pay for and Buyer Beware!

[think_too_mut]

MarcHolt,

Somebody ordered you to zig-zag through the posts?

Your reply is just that.

[lingling]

I just got a quote to build a 304 sq. meter home with the highest quality throughout; granite interior/exterior, super-block, etc. etc. for 2.9M and I think the price is too high. This is Thailand; what are people thinking? Are they thinking?

As long as people are willing to pay overprice for low quality construction things will be priced like that. It is fairly easy to make a quick calculation of materials costs for your house, workforce costs etc. Anything "ready built" is seriously overpriced compared to if you buy materials and hire workers at day-rates. Only drawback is that you need to have someone trustworthy and with a bit of knowledge of construction on site to keep the workers in line (actually working).

[aacetase]

Middle to upper condos face oversupply this year

The middle-to-upper condominium market has shown a trend of oversupply due to a predicted low growth in demand this year and throughout next year, according to a research report by Raimon Land's Condominium Focus Thailand yesterday.

CEO Nigel J Cornick said that 5,037 condominium units in Bangkok worth over Bt37.4 billion were unsold at the end of last year. The statistics pertained to condominium projects priced up to Bt2 million per unit. {edit must be a mistake by the paper, surely they mean over Bt2m / unit, because this equates to an average of Bt7.4m / unit which absolutely screams massive over supply in the top end of the market)

Inner-city Bangkok includes the Sathorn, Sukhumvit, Central Lumpini, Silom, Riverside, Rama III and Phya Thai areas.

Sukhumvit is the main location for unsold condominium projects worth Bt13.3 billion or 35 per cent of total unsold stock worth Bt37.4 billion, followed by Silom/Sathorn worth Bt8.7 billion, Riverside (Bt6.9 billion), Central Lumpini (Bt5.6 billion) and Bt1.5 billion for the Phya Thai and Rama III areas.

Cornick said that if demand shows slight growth lower than supply - both, the existing supply of 5,037 units, and the new projects launched with construction completed of 5,460 units this year, 8,333 units in 2008 and 2,553 units in 2009 - the market for middle to upper condominiums will be at risk of oversupply this year and next year.

Meanwhile, resort condominiums at tourist destinations Pattaya, Koh Samui, Hun Hin and Phuket also risk facing oversupply in some locations.

According to the research, as of last December, unsold projects at the four tourist destination areas were recorded at 2,466 units, worth Bt29 billion.

Despite the business risks, Raimon Land is continuing three new condo projects worth Bt18.5 billion this year. The three projects are The River on the Chao Phya worth Bt10 billion, 185 Rajadamri worth Bt6 billion and Amanpuri in Phuket worth Bt2.5 billion.

The company will also invest Bt2 billion to buy land for developing new property projects next year. Half of its investment budget will come from the company's cash flow and the rest will be borrowed from banks.

"We believe that our new projects in prime locations will meet both foreign and domestic customer demand and will succeed after launching in the market this year," he said.

Somluck Srimalee

The Nation

Looks like it will be another interesting year in real estate

[think_too_mut]

In BKK, nothing should cost more than 500-600US$ per sqm. The developers know their workforce work like cattle and live and sleep like cattle.

I can see some of the dreamers selling (before they have to face the cost) their places for 2000US$ sqm. Let them dream.

[bingobongo]

regardless of the positions on this board, there is obvious bias for the purchase of condos (probably by folks who need to sell to make ends meet (realtors, building marketing folks, mortgage officers, keep the profit, etc.) or are seeing there equity fall (investors, homedebtors, homeowners) and there is obvious bias for not purchasing condos by those who are hesitant to buy and do not want to be separated from their hard earned interest bearing cash safely tucked away in an offshore account as supply increases and the economy slows

as for me, i will sit in cash, gold, and silver as when the BOT lowers rates, the BOT will print more money and unleash inflation to prop up this slowing economy

on another note can anyone confirm the massive layoffs at CitiGroup Thailand? It was announced 15,000 were cut globally, of which 1,000 were rumored in thailand, thanks BONGO

http://biz.yahoo.com/ap/070326/citigroup_job_cuts.html?.v=12

[bingobongo]

on another note,

salaries cannot and willnot support bloated real estate prices.......

PAY INCREASES

Thais slip behind rest of Southeast Asia

Salaries of region's professionals growing faster than in Europe and N America

However, Thai professionals are expected to lag behind. Pay rises after inflation will range from 1.9-2 per cent, lower than the Philippines' 1.5-2.5 per cent and Hong Kong's 2.2-2.5 per cent.

http://www.nationmultimedia.com/2007/03/16...al_30029439.php

[lingling]

on another note,

salaries cannot and willnot support bloated real estate prices.......

Of course it is a bubble. And with most loans around here having a variable interest rate and people often not even understanding that the money the borrowed from the bank has to be paid back, a lot of people are in for a surprise when the rates go up. Maybe there will be a mass migration to Laos...?

[palm]

In BKK, nothing should cost more than 500-600US$ per sqm. The developers know their workforce work like cattle and live and sleep like cattle.

I can see some of the dreamers selling (before they have to face the cost) their places for 2000US$ sqm. Let them dream.

Sheesh - since WHEN did the cost of building a property have ANYTHING to do with its real estate price in a modern major city?

Do you think the sky-high-price developments in Shanghai are built by workers earning $600 a day?

[thaihome]

Is this in Thailand? Sounds like San Francisco. Over 2M USD

I just got a quote to build a 304 sq. meter home with the highest quality throughout; granite interior/exterior, super-block, etc. etc. for 2.9M and I think the price is too high. This is Thailand; what are people thinking? Are they thinking?

So you can get a top quality home for less than 10K baht per sqm? where is this?

TH

[gummy]

Talking about condos, anyone any experiences at all of the 3 La Raffine developments in Bangkok? They look very very good , my kind of condo, but no-where can i find the price of the various units except by contacting them direct and then you don't know if the price is for real or not . Anyone know anything?

Can't say for certain across the whole development but a few months ago a business aquaintance of mine contracted to buy one at 71.3 mill, admitedly on the higher floors. Add at least another 5 for furnishings and you have a huge asset just waiting to drop to earth. He thought lowest was around 20 mill but I don't know for certain. Anyway far far too much in my opinion.

Is this in Thailand? Sounds like San Francisco. Over 2M USD

I just got a quote to build a 304 sq. meter home with the highest quality throughout; granite interior/exterior, super-block, etc. etc. for 2.9M and I think the price is too high. This is Thailand; what are people thinking? Are they thinking?

Yes certainly is a lot of money but there again in BKK Condos and houses can be exceptionally priced as any other major city. Build something like that in Central London, 500 + sq mtrs + own swimming pool etc would probably cost upwards of 6 to 7 million pounds currently. so on that basis BKK is a bargain - If you can afford it that is.

[thaihome]

In BKK, nothing should cost more than 500-600US$ per sqm. The developers know their workforce work like cattle and live and sleep like cattle.

I can see some of the dreamers selling (before they have to face the cost) their places for 2000US$ sqm. Let them dream.

TTM,

We have known each other on various forums for a long time, but I don't think you get to set market prices. Do you really think you the price is set by the developers based on cost? Besides, I can’t really see that today that a developers cost is less then the 20,000 baht a sqm you quote. Funny thing about most of SEA, labor is not the biggest cost, concrete, steel, and everything else has taken a huge increase in the last 2 years. Blame the Chinese; they use something like 25% of the entire world’s production of concrete. As you know, I work in construction and costs have risen by over 50% over the last 2 years, with no end in sight.

TH