Thailand Property Depression

[quiksilva]

On the subject of F/x with property its most interesting to look at the luxury residential sector throughout 1995-1999.

Neither rents nor capital values (of luxury condos) declined at all during this period. In fact many Expats at the time enjoyed US$ housing allowances, so if anything the decline in the Baht's value actually increased demand for Grade A condo's as they became more affordable.

This is one of the reasons the market boom in 2002 was so robust, prices had been suppressed for so long and there had been no new supply for something like 5 years. Now of course it looks likely that there maybe too much coming onstream, I doubt whether this will lead to crash (that will depend on whether the economy takes a major nosedive) so, rather I think we are looking at a softening in the market.

Now if you want to talk about depression or a crash look at the office market in 1999 now THAT was a total blood bath, and faced 43% oversupply at its worst point H1 1999, and rents lost 50% of their value!

The market has only just recovered from this but its likely to remain fairly stable until 2009, when the next round of supply hits the streets.

Edited April 20, 2007 by quiksilva

[lannarebirth]

I think a big factor here could be China. I am there now and it is amazing at the construction in progress. If this places melts down, like they are predicting it will, all of Asia will be hard hit. Especially if the US falls in line also...

Yes, China is "probably" in experiencing a capital investment bubble. The US experienced one not long ago and the aftermath saw interests rates slashed and property investment and land prices skyrocket. The world seems to be awash in money moving from one sector to another. When one bubble pops, another begins.

Edited April 20, 2007 by lannarebirth

[bingobongo]

ok spinmeisters.....more rainbows?

Average price of houses at four-year low

Bangkok Post: 20 April 2007

By: KANANA KATHARANGSIPORN

Developers shift to low-priced units

The average housing price in Greater Bangkok declined to 2.14 million baht a unit as of the end of the first quarter _ the lowest since 2003 _ because most developers are shifting to the lower-end market, according to the property consulting firm Agency for Real Estate Affairs (AREA).

The average housing price was 2.83 million baht in 2006 and 3.086 million in 2005, according to the company's earlier surveys.

''This situation showed an oversupply trend in the condominium market remained. If there is an economic crisis, the property market may crash.''

http://thailand-property-guide.com/?p=news...&NewsID=323

Edited April 20, 2007 by bingobongo

[quiksilva]

But will there be an economic crisis? I dont mean a slow down, I mean a CRISIS, i.e. 1997 again?

When you know the answer to that, then you'll know whether the property market will crash or merely soften.

Edited April 20, 2007 by quiksilva

[bingobongo]

But will there be an economic crisis? I dont mean a slow down, I mean a CRISIS, i.e. 1997 again?

When you know the answer to that, then you'll know whether the property market will crash.

well apparently confidence isnt very high

Four Asian nations hit by 1997-98 financial crisis face vulnerability

After a period of relative stability from 2000 to 2004, the index has started to deteriorate again in 2006 in crisis-affected countries except for Malaysia, the report showed.

Thailand now faces greater risks due to a decline in the ratio of foreign reserves to short-term debt and an increase in short-term capital inflows.

http://www.iht.com/articles/2007/04/19/news/currency.php

Edited April 20, 2007 by bingobongo

[quiksilva]

Interesting piece, good find.

No doubt we'll all be watching this closely over the coming few months.

Here's a few other links that are worth looking at:

http://www.worldbank.or.th/WBSITE/EXTERNAL...:333296,00.html

http://economistsview.typepad.com/economis..._yellen_th.html

Edited April 20, 2007 by quiksilva

[Heng]

Heng said it right. When the market is down 'they' buy; but that's just a very small portion of the buyers. The 'normal' buyers are sitting in their chairs, sitting still as you have to sit still having a (hair)-cut.

The question remains: who are the sellers ?

In my experience the sellers are those who are hurting for cash. As mentioned, those dealing with foreclosures, those overdue on interest payments on credit lines/overdrafts/business loans/mortgage payments, etc. The problem with a lot of folks 'waiting' for a crash is that they are looking at properties being sold by huge public companies like Land and House or Asia Property who are often building billion Baht projects on lots that were individually acquired for less than 100 million Baht (that's just an example... they certainly have projects built on pricier land as well)... in other words, folks who aren't hurting for cash. Or on a smaller scale, they are waiting on the price to drop on a choice lot owned by Old Man Ming or Old Man Singh, who have interest/rental income of a million Baht a month but live on maybe 80,000 Baht a month. The price of the lot isn't going to drop in that case either.

[midas]

But will there be an economic crisis? I dont mean a slow down, I mean a CRISIS, i.e. 1997 again?

When you know the answer to that, then you'll know whether the property market will crash or merely soften.

I keep thinking though after the 1997 crisis many foreigners were still free to come and go here. They either purchased or rented

condominiums long term or purchased houses through Thai company ownership. But a not insignificant

number of tenants would surely have disappeared from the scene by now ? i.e. those that could not get a long-term visa

as well as others who decided to establish their companies in other countries because of changing rules. The Japanese Chamber of Commerce has been

quoted as saying they are totally fed up with the rules changing here so often. And there definitely will not be

so many people now buying land and houses through company ownership ?

Surely with a reduction in the number of end-users of real estate - eventually this must have a negative effect on the overall

performance of the property market ?

[pkrv]

Interesting piece, good find.

No doubt we'll all be watching this closely over the coming few months.

Here's a few other links that are worth looking at:

http://www.worldbank.or.th/WBSITE/EXTERNAL...:333296,00.html

http://economistsview.typepad.com/economis..._yellen_th.html

Fascinating - the USD talks itself up while falling and the Thai Baht down whilst rising ??????

[quiksilva]

The number of work permits issued last year increased to levels higher than in any single year pre '97, 50,000 ish. I guess that once you factor in retirees, visa runners, long stay tourism etc you maybe looking at 100-150,000 foreigners, (out of 12 million in Bangkok) who let's face it mostly rent. They (we) drive demand for the middle / upper residential rental market more than anything else.

Ok though look I will give you this, I am not disagreeing that the market is slowing down. Even with those stats quoted above it still equates to an over supply of high end condo's bought to rent in the popular locales of Bangkok, because the supply of these is about to increase by 50% over the next 3 years, and not all of these expats rent condos of >50K / month + on Sukhumvit / Sathorn / Silom.

So what will happen then? The rental rates of high end condos may get hit for the first time in 15/20 years if the number of new Expats coming in falls (and they might) but does this equate to a property crash?

No, it means that average yields (in this sector) will fall. How far? Well my guess is to levels similar with regional counterparts of HK and SG (i.e. probably in the region of 4-5%) which represents a softening in the market not a crash, yields today are about 6-8%.

I am not saying that the market is good, I have worked here in this industry since 1997 so believe me I know that its far from good ( thankfully I dont work in residential)

All I am saying is that the oversupply of condo's is not the end of the world, so long as the economy keeps ticking along. That is the key thing. I dont mind even if economic growth slows, so long as it stay positive.

If it does then those unsold units will eventually get picked up, especially as transfer costs and taxes are being reduced and interest rates are falling (and the spread on yields improve). So the Thais with money will buy.

If you want to make a quick buck, buy stocks. You'll get higher returns doing that but for alot more risk.

Look at the market with an Asian perspective. Take a long term approach with property, so what if the market is slowing down, good! Buy!

After all the supply of good stock, in good locations is finite.

[think_too_mut]

The number of work permits issued last year increased to levels higher than in any single year pre '97, 50,000 ish. I guess that once you factor in retirees, visa runners, long stay tourism etc you maybe looking at 100-150,000 foreigners, (out of 12 million in Bangkok) who let's face it mostly rent. They (we) drive demand for the middle / upper residential rental market more than anything else.

In 1996 there were 156,000 people in Thailand on working visas.

That's the only correction I have to say.

About the property prices, all I expect is - less arrogance (all sold, only 1 left) and some mild, not very significant, discounts. Also, I would like to see real estate cowboys being driven to the wall.

[somtaamgaiyang]

i love the way people make conclusions based on short term data. My Condo went up in price 15% the last three years, therefore it will go up 15% the next three years.

LOL!

Try and sell it

Can't agree more. The market here is nothing like the market as we westerners understand it. Valuation is often derived from what the bank is willing to mortgage against a property or land, not what the market will pay. Hence the 97 crash on the back of loans against property/land, what they lent had nothing to do with the sale value.

Buy a property expecting to sell it at a profit in Thailand is a difficult prospect. The supply of similar properties is also amazingly liquid, unlike the west where there are laws to limit development. Anyway, 15% in the last 3 years is a pretty poor investment I would think.

Buying to rent is a completely different proposition, and is quite attractive as long as you can find property in the right areas.

[Dupont]

The rise in work permits is as a result of the VOA clampdown.

Many illegal falangs saw the writing on the wall and formed companies, or got the missus who owned the bar/retaurant/pub/dive shop/bakery/ice cream shop etc to "employ" them, reluctantly paid the fees and taxes in order to allow them to stay.

A necessary clean up in my opinion, but nothing to cheer the markets. Just as many packing up and leaving... and even more, looking around local countries whilst on extended visa runs.

[VegasVic]

Most of my net worth is in commercial real estate in the different areas of the US, mostly partnerships in tall office buildings. I agree with some who are down on Thailand in that I am not pulling vast amounts of my net worth and plugging it into Thai assets at this time. However, the money I have brought over in the last six years and invested in condos, land, aircraft, and stocks has done quite well. Will it continue to do so, who knows? If nothing else these Thai investments have been a wonderful hedge against the crashing dollar. Also, I am generally optimistic on condo investing (not speculating) in Hua Hin and Bangkok, markets where I live. This is based on the feeling I get that Thailand is becoming a more attractive location to live for foreigners and looks like it will continue to progress. This has nothing to do with the daily drama of Thai politics or the housing loan situation in Lampang.

There is just a critical mass of foreigners that has arrived in the last 3 years and the ever increasing numbers make it easier to live here as the comforts of home appear here in Thailand for the masses of Scandis, Brits, and others arriving. That said, the condo market in Bangkok particularly, as well as Hua Hin, will be dominated by other Asians seeking inexpensive second homes close to their native land.

As a real estate agent I am inclined to agree. The Thai property market doesn't follow the Western model. The property owning Thais tend to hunker down and hold onto their assets whenever there is a financial crisis. Now that a large number of foreigners are in the property market this may change, but so far I haven't seen any evidence of it. A few clients have reduced their asking price, but overall prices have flattened out over the last 12 months. I don't see a downward trend. When the market picks up again prices will start rising again.

Once again the doomsayers are predicting a property 'meltdown'. Once again they are wrong. Demand is high, and at the moment there are plenty of condos for sale. But no one is rushing in to grab them while the current political instability persists.

When things do start moving again you can expect plenty of these condos to be in high demand again. In other words, this is a good time to invest if you can wait it out.

As to the rumors that I am selling out: As usual, the rumor mongers have it only partly right.

I have the Holt WorldWide up for sale, which is the umbrella company for my IT and real estate businesses. But I am not selling out because of the property market. In fact, my property business is doing very well thank you. Instead of small home and condo buyers, however, my main clients now are big buyers; hotels, golf courses, large land plots, buildings, etc.

The main reason I am planning to move back to Australia is purely personal. My mother is 83 years old and she wants my kids around during her last years. I will continue to maintain a business here, whether I sell the company or not. I think Thailand has a great future. It has a solid manufacturing and agricultural base. Not even the men in green can destroy that without going all out.

Cooler heads are starting to make their voices heard to the government and I believe once the green morons...sorry, government is voted out of office, it will be business as usual and many of the rules they are bringing in now will be overturned for the stupid ideas that they are.

Don't give up on Thailand folks. But do keep your heads down right now. Wait and see. If you want to keep up with the latest news subscribe to my newsletter. You will get an honest and realistic assessment of the property market each month. Opt in at holt-realty.com. Hope you join!

Most intelligent post I've read in several months. If people expect a real estate price melt-down in Thailand, forget it, it won't happen. Thai's will sit on it forever and will never reduce prices.

If anything Thai's will increase their prices in the event of a slow market. It's happening now in other sectors. Poor sales in other parts of the world means sales and price reductions, but here it's an excuse to raise prices to cope with the loss of income. That's what makes Thailand unqiue.

Exactly. People can wait for a price melt-down, show all the economic data they want to inferring a melt-down and yet it will not happen in Thailand.

Stevie, Right on man a melt down can never happen in Thailand, right? People like you were saying the same thing back in 1997 and look what happened. You are obviously in denial about what is currently going on in the Thai economy, you might want to check out a very insightful associated press article in the business section of todays International Herald Tribune. The first sentence in the article is "Four asain nations hit hard by the 1997-98 financial crisis face renewed vulnerability to sudden capital outflows that could cause a currency crisis". I will let you take a wild guess as to which asian nation was first on that list. The Thai finance minister who recently resigned was very well aware of the situation, but apparently his arguments fell on deaf (or perhaps corrupt) ears in the current administration. You don't have to be able to read tea leaves, the signs are all there for anybody to see, just open up your eyes and do a little research as to what occured back in 1997 and then look at the current situation in Thailand.

Thank you for your long and rambling economic dissertation. Did anything you said effect the price of real property, land, etc., then? Real estate prices (in baht terms) didn't drop then, it only became more reasonable for foreigners to buy it because of currency de-valuation. To replicate the 1997 scenario, in 1997 real estate prices, the baht would have lose over 100 percent of it's current position. Do you really think that's likely? I mean, that is what you're suggesting.

Calm down there stevo! First of all it is impossible for the baht or any investment to lose over 100%, you can lose up to 100% but not more than that. When you wake up and smell the coffee you will realize that property prices at the time of the 97 crash were in many cases 20-25% of what they are today and then of course there was the great 2 for 1 sale after the devaluation of the baht. Back in 97-98 conditions were near perfect for the foreign investor and expat, there was lax visa enforcemnet and it was very easy to set up a thai corporation to puchase all those condos, homes and businesses at fire sale prices and the expats were pouring into the country because of the great exchange rate and low cost of real estate. Now we move to 2007 and Thailand faces yet another monetary crisis in which the baht will soon be facing a devaluation once again, however the scenario for expats and foreign investors has changed drmatically. Expats are facing a slew of tougher visa regs and the investor visa among others has gone by the wayside, along with these tougher new regs is a country run by a military hunta and ethnic instability along with random bombings. In a nutshell steve, the expats are not beating a path to Thailand anymore (in fact many are leaving and trying desperatly to sell their property) and at the same time foreign investors are finding it harder to form a thai corporation and harder to find real real estate bargains and they have many other options like cambodia , vietnam and maylaysia to chanel there investments to. The Thai economy is heading downwards and a credit crunch is imminent so the Thai people are not and will not be buying much real estate either. When you add it all up there are more and more properties coming on the market each and every day and there just aren't many buyers out there. If you are currently heavily invested in real estate in Thailand I would think you might want to rethink your portfolio, or be perpared to hold on to those properties for a very long time to come. By the way you are quite welcome for my last rambling economic dissertation as well as this one.

[Naam]

Now we move to 2007 and Thailand faces yet another monetary crisis in which the baht will soon be facing a devaluation once again.

hmmm... i had no idea that contemporay prophets exist

[craigt3365]

i love the way people make conclusions based on short term data. My Condo went up in price 15% the last three years, therefore it will go up 15% the next three years.

LOL!

Try and sell it

Can't agree more. The market here is nothing like the market as we westerners understand it. Valuation is often derived from what the bank is willing to mortgage against a property or land, not what the market will pay. Hence the 97 crash on the back of loans against property/land, what they lent had nothing to do with the sale value.

Buy a property expecting to sell it at a profit in Thailand is a difficult prospect. The supply of similar properties is also amazingly liquid, unlike the west where there are laws to limit development. Anyway, 15% in the last 3 years is a pretty poor investment I would think.

Buying to rent is a completely different proposition, and is quite attractive as long as you can find property in the right areas.

I agree with you that the market in Thailand is nothing like the West, but....valuations are done about the same. Sure, in the US they use comps...but I bought a condo in NYC that was WAY above the comps and the bank still lent me the money. It was a growth time, properties were escalating in price dramatically, and they were lending like crazy...one reason they are in big trouble now...poor valuations.

[quiksilva]

craig is correct somtaamgaiyaang if your valuer is using such methodologies report them to the Thai Valuers Association and the Stock Exchange Commission of Thailand.

Licensed valuers use the same approaches as defined by the Royal Institution of Chartered Surveyors Red Book. If they don't, don't use them. I.e. Comparable evidence, capitalised income approach, depreciated replacement cost approach and residual valuations based on highest and best use.

The definition of open market value is the same the world over and forming an opinion on it is based on accepted mathematical formulae.

The definition is: "The estimated amount for which a property should exchange on the date of valuation, between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

If you can't afford to use a proper valuer, don't rely of the figures they give you.

Yes and there are also laws to restrict development here too, the fact that there has been so much development is because there has been a remarkable amount of vacant development sites in this capital city, which is partly due to the fact there are in fact hardly any penalties for not using the land.

Bangkok's Town Plan is remarkably strict (some might say too strict - I prefer the UK's system myself far more flexible) but it has only been in place since 1992 up until which point the Capital was the largest unplanned city in the world and it is simply not feasible / practical for a town plan to be appllied rectroactively but at least it is in effect for all new projects.

You may recall that the FAR (floor: area ratio) has been reduced in central areas from 10:1 to 6:1 and OSR open space rations have also been increased (both of which have been factors in driving up values / prices on condo's per square meter because developers can now build fewer units per sq wah.)

Edited April 21, 2007 by quiksilva

[stevieff]

Most of my net worth is in commercial real estate in the different areas of the US, mostly partnerships in tall office buildings. I agree with some who are down on Thailand in that I am not pulling vast amounts of my net worth and plugging it into Thai assets at this time. However, the money I have brought over in the last six years and invested in condos, land, aircraft, and stocks has done quite well. Will it continue to do so, who knows? If nothing else these Thai investments have been a wonderful hedge against the crashing dollar. Also, I am generally optimistic on condo investing (not speculating) in Hua Hin and Bangkok, markets where I live. This is based on the feeling I get that Thailand is becoming a more attractive location to live for foreigners and looks like it will continue to progress. This has nothing to do with the daily drama of Thai politics or the housing loan situation in Lampang.

There is just a critical mass of foreigners that has arrived in the last 3 years and the ever increasing numbers make it easier to live here as the comforts of home appear here in Thailand for the masses of Scandis, Brits, and others arriving. That said, the condo market in Bangkok particularly, as well as Hua Hin, will be dominated by other Asians seeking inexpensive second homes close to their native land.

As a real estate agent I am inclined to agree. The Thai property market doesn't follow the Western model. The property owning Thais tend to hunker down and hold onto their assets whenever there is a financial crisis. Now that a large number of foreigners are in the property market this may change, but so far I haven't seen any evidence of it. A few clients have reduced their asking price, but overall prices have flattened out over the last 12 months. I don't see a downward trend. When the market picks up again prices will start rising again.

Once again the doomsayers are predicting a property 'meltdown'. Once again they are wrong. Demand is high, and at the moment there are plenty of condos for sale. But no one is rushing in to grab them while the current political instability persists.

When things do start moving again you can expect plenty of these condos to be in high demand again. In other words, this is a good time to invest if you can wait it out.

As to the rumors that I am selling out: As usual, the rumor mongers have it only partly right.

I have the Holt WorldWide up for sale, which is the umbrella company for my IT and real estate businesses. But I am not selling out because of the property market. In fact, my property business is doing very well thank you. Instead of small home and condo buyers, however, my main clients now are big buyers; hotels, golf courses, large land plots, buildings, etc.

The main reason I am planning to move back to Australia is purely personal. My mother is 83 years old and she wants my kids around during her last years. I will continue to maintain a business here, whether I sell the company or not. I think Thailand has a great future. It has a solid manufacturing and agricultural base. Not even the men in green can destroy that without going all out.

Cooler heads are starting to make their voices heard to the government and I believe once the green morons...sorry, government is voted out of office, it will be business as usual and many of the rules they are bringing in now will be overturned for the stupid ideas that they are.

Don't give up on Thailand folks. But do keep your heads down right now. Wait and see. If you want to keep up with the latest news subscribe to my newsletter. You will get an honest and realistic assessment of the property market each month. Opt in at holt-realty.com. Hope you join!

Most intelligent post I've read in several months. If people expect a real estate price melt-down in Thailand, forget it, it won't happen. Thai's will sit on it forever and will never reduce prices.

If anything Thai's will increase their prices in the event of a slow market. It's happening now in other sectors. Poor sales in other parts of the world means sales and price reductions, but here it's an excuse to raise prices to cope with the loss of income. That's what makes Thailand unqiue.

Exactly. People can wait for a price melt-down, show all the economic data they want to inferring a melt-down and yet it will not happen in Thailand.

Stevie, Right on man a melt down can never happen in Thailand, right? People like you were saying the same thing back in 1997 and look what happened. You are obviously in denial about what is currently going on in the Thai economy, you might want to check out a very insightful associated press article in the business section of todays International Herald Tribune. The first sentence in the article is "Four asain nations hit hard by the 1997-98 financial crisis face renewed vulnerability to sudden capital outflows that could cause a currency crisis". I will let you take a wild guess as to which asian nation was first on that list. The Thai finance minister who recently resigned was very well aware of the situation, but apparently his arguments fell on deaf (or perhaps corrupt) ears in the current administration. You don't have to be able to read tea leaves, the signs are all there for anybody to see, just open up your eyes and do a little research as to what occured back in 1997 and then look at the current situation in Thailand.

Thank you for your long and rambling economic dissertation. Did anything you said effect the price of real property, land, etc., then? Real estate prices (in baht terms) didn't drop then, it only became more reasonable for foreigners to buy it because of currency de-valuation. To replicate the 1997 scenario, in 1997 real estate prices, the baht would have lose over 100 percent of it's current position. Do you really think that's likely? I mean, that is what you're suggesting.

Calm down there stevo! First of all it is impossible for the baht or any investment to lose over 100%, you can lose up to 100% but not more than that. When you wake up and smell the coffee you will realize that property prices at the time of the 97 crash were in many cases 20-25% of what they are today and then of course there was the great 2 for 1 sale after the devaluation of the baht. Back in 97-98 conditions were near perfect for the foreign investor and expat, there was lax visa enforcemnet and it was very easy to set up a thai corporation to puchase all those condos, homes and businesses at fire sale prices and the expats were pouring into the country because of the great exchange rate and low cost of real estate. Now we move to 2007 and Thailand faces yet another monetary crisis in which the baht will soon be facing a devaluation once again, however the scenario for expats and foreign investors has changed drmatically. Expats are facing a slew of tougher visa regs and the investor visa among others has gone by the wayside, along with these tougher new regs is a country run by a military hunta and ethnic instability along with random bombings. In a nutshell steve, the expats are not beating a path to Thailand anymore (in fact many are leaving and trying desperatly to sell their property) and at the same time foreign investors are finding it harder to form a thai corporation and harder to find real real estate bargains and they have many other options like cambodia , vietnam and maylaysia to chanel there investments to. The Thai economy is heading downwards and a credit crunch is imminent so the Thai people are not and will not be buying much real estate either. When you add it all up there are more and more properties coming on the market each and every day and there just aren't many buyers out there. If you are currently heavily invested in real estate in Thailand I would think you might want to rethink your portfolio, or be perpared to hold on to those properties for a very long time to come. By the way you are quite welcome for my last rambling economic dissertation as well as this one.

First of all, Vegas, I don't see the necessity to "calm down" as I don't believe I was irate in my last response to your comment. Secondly, it is not "impossible" for a currency to lose over 100 percent of it's value (i.e. baht today trades at 34 per USD, tomorrow trades at 70 baht per USD, you do the math, Vegas). Thirdly, nothing in your second rambling dissertation has any evidence of a real-estate price melt-down in 1997, nor any evidence of real-estate price melt-down today, which was really my only point to begin with, that Thais will never lower their prices for land, regardess of market situations. That's a point you've chosen to take exception with, which is fine with me, I only wish a reasonable counter-point and not some half-assed economic supposition.

[chownah]

A currency which loses 100% of its value is then worthless.....if you take away 100% of anything then there is none left......this rarely happens but does occasionally....usually when a gov't loses a war and the old currency becomes worthless. And to take this to the absurd level actual paper currency never becomes completely worthless because it always has a recycle value as paper. In high school on a test the teacher asked "Is it possible for currency to literally be not worth the paper it is printed on?". The teacher wanted the answer to be "yes" but I put "no" and was at first counted as wrong but when I explained to the teacher that the paper currency IS the paper it is printed on so the only way it can be worth less is for it to be destroyed physically the teacher agreed that my point was valid and gave me credit for my answer (much to the teacher's credit).

Chonwah

[stevieff]

A currency which loses 100% of its value is then worthless.....if you take away 100% of anything then there is none left......this rarely happens but does occasionally....rusually when a gov't loses a war and the old currency becomes worthless. And to take this to the absurd level actual paper currency never becomes completly worthless because it always has a recycle value as paper. In high school on a test the teacher asked "Is it possible for currency to literally be not worth the paper it is printed on?". The teacher wanted the answer to be "yes" but I put "no" and was at first counted as wrong but when I explained to the teacher that the paper currency IS the paper it is printed on so the only way it can be worth less is for it to be destroyed physically the teacher agreed that my point was valid and gave me credit for my answer (much to the teacher's credit).ic

Chonwah

Oh, please. It's just a doubling factor when it comes to currency. You can lose 100 percent of a currencies value relative to another currency or 1000 percent relative to another currency. It's simple math, baht goes from 34 to the USD to 340 baht to the USD, the baht has lost 1000 percent relative to USD currency. I'm happy you're teacher thought you were a bright student.

[womble]

A currency which loses 100% of its value is then worthless.....if you take away 100% of anything then there is none left......this rarely happens but does occasionally....rusually when a gov't loses a war and the old currency becomes worthless. And to take this to the absurd level actual paper currency never becomes completly worthless because it always has a recycle value as paper. In high school on a test the teacher asked "Is it possible for currency to literally be not worth the paper it is printed on?". The teacher wanted the answer to be "yes" but I put "no" and was at first counted as wrong but when I explained to the teacher that the paper currency IS the paper it is printed on so the only way it can be worth less is for it to be destroyed physically the teacher agreed that my point was valid and gave me credit for my answer (much to the teacher's credit).ic

Chonwah

Oh, please. It's just a doubling factor when it comes to currency. You can lose 100 percent of a currencies value relative to another currency or 1000 percent relative to another currency. It's simple math, baht goes from 34 to the USD to 340 baht to the USD, the baht has lost 1000 percent relative to USD currency. I'm happy you're teacher thought you were a bright student.

Nice back pedal...

[bingobongo]

it will be intersesting to see how much NPLs (non-preforming loans) increase and how the banks loan quality erodes as the economy worsens. also the impact of BOT lowering rates to weaken the baht may have a determental impact given the lower rate spreads

Business >> Saturday April 21, 2007

Bank profits mostly fall in first quarter

NPLs rise due to slowing economy

DARANA CHUDASRI

Market leader Bangkok Bank reported first-quarter consolidated profits of 4.63 billion baht yesterday, down 11% from profits of 5.18 billion the year before.

Profits for the bank alone totalled 4.66 billion baht in the first quarter, up from 4.63 billion the same period last year.

Earnings for local banks have generally fallen in the first quarter compared with last year, but have picked up from the fourth quarter on stronger interest margins and lower provisioning expenses.

Therapong Vachirapong, an analyst at Phatra Securities, said bank results overall were in line with market expectations.

''One worry is that in the first quarter, we saw non-performing loans rise across the board, reflecting the economic slowdown,'' he said. ''Non-performing loans, asset quality and the economy will be concerns through the rest of the year.''

Mr Therapong said one fear was that even with interest rates on the downturn, banks could cut back in their lending due to asset quality concerns, leading to a possible credit crunch that would worsen economic conditions.

For Bangkok Bank, net profits rose 27.5% from the previous quarter, with net interest margins of 3.15% at the end of March. The bank set aside 1.315 billion baht in provisions in the first quarter, on par with the same period last year and sharply lower than the one-time adjustment of 5.9 billion booked in the fourth quarter of last year.

Tax expenses in the first quarter also rose to 2.19 billion baht, compared with 349 million in the fourth quarter when the bank enjoyed special deductions.

Loans rose slightly to 959.24 billion baht at the end of March, with non-performing loans stable at 89.32 billion, or 9.2% of total loans. Non-interest expenses fell 8.7% year-on-year to 8.16 billion baht in the first quarter.

Krung Thai Bank, the second largest in terms of assets, reported first-quarter profits of 4.4 billion baht, down 5% from 4.64 billion the same time last year.

Net interest and dividend income fell 5.68% from the year before, while pre-provisioning net profits dropped 23.81% year-on-year to 5.5 billion baht in the first quarter. The state-owned bank set aside 1.1 billion baht in loan provisions in the first quarter, with gross non-performing loans up 5.5% for the first three months to 94.62 billion baht, or 9.82% of total loans.

Kasikornbank reported first-quarter consolidated profits of 3.87 billion baht, up 7% from 3.61 billion last year. Net interest and dividend income rose 4.77% to 8.823 billion baht, while non-interest income rose 35.53% to 4.2 billion.

The bank's net interest margin for the fourth quarter was 3.97%, down from 4.05% at the end of 2006, due to declines in deposit and lending rates. The bank had loan growth of 1.12% in the first quarter, with 1.025 billion baht worth of new provisions set aside in the quarter.

Non-performing loans rose slightly to 7.14% of total loans at the end of March compared with 6.84% at the end of 2006, reflecting the weaker economy.

Prasarn Trairatvorakul, Kasikornbank's president, said first-quarter results generally exceeded market expectations.

''When the economy slows, we must grow sensibly and pay attention to asset quality,'' he said, adding that the rise in non-performing loans reflected both the slowing economy and the bank's more prudent approach to restructuring bad debt.

''The increase mirrors prevailing market conditions in a slowing economy. This clearly justifies our cautious approach to asset expansion,'' he said.

Other banks reporting yesterday include ACL Bank, with first-quarter profits of 115.4 million baht, down 50% from 230.78 million last year. It blamed an 80-million-baht provision for litigation and added operating expenses from the bank's branch expansion.

Standard Chartered Bank (Thai) reported first-quarter profits of 707.8 million baht, down 46% from profits of 1.31 billion last year. It attributed this to last year's one-off release of provisions and exchange revaluation gains. On a quarterly basis, first-quarter net profits rose by 34% from the fourth quarter of 2006. Total income for the first quarter rose 7% year-on-year to 3.24 billion baht.

http://www.bangkokpost.com/Business/21Apr2007_biz01.php

Edited April 21, 2007 by bingobongo

[chownah]

A currency which loses 100% of its value is then worthless.....if you take away 100% of anything then there is none left......this rarely happens but does occasionally....rusually when a gov't loses a war and the old currency becomes worthless. And to take this to the absurd level actual paper currency never becomes completly worthless because it always has a recycle value as paper. In high school on a test the teacher asked "Is it possible for currency to literally be not worth the paper it is printed on?". The teacher wanted the answer to be "yes" but I put "no" and was at first counted as wrong but when I explained to the teacher that the paper currency IS the paper it is printed on so the only way it can be worth less is for it to be destroyed physically the teacher agreed that my point was valid and gave me credit for my answer (much to the teacher's credit).ic

Chonwah

Oh, please. It's just a doubling factor when it comes to currency. You can lose 100 percent of a currencies value relative to another currency or 1000 percent relative to another currency. It's simple math, baht goes from 34 to the USD to 340 baht to the USD, the baht has lost 1000 percent relative to USD currency. I'm happy you're teacher thought you were a bright student.

It is not a doubling factor...not for currency or anything else.

When the baht is at 34 to the dollar a baht is worth $0.02941.

When the baht is at 340 to the dollar a baht is worth $0.002941.

The baht lost $.026469 of value relative to the dollar when it went from 34 to 340.

To find the percentage of its value that was lost you take the reduction in value and divide it by the original value and then multiply by 100:

(0.026469/0.0294) x 100 = 90%. The baht lost 90% of its value relative to the dollar.

I suppose you could say that the us dollar APPRECIATED 1000% against the baht and then you would be correct.

Check my calcs since I didn't,

Chownah

[VegasVic]

A currency which loses 100% of its value is then worthless.....if you take away 100% of anything then there is none left......this rarely happens but does occasionally....rusually when a gov't loses a war and the old currency becomes worthless. And to take this to the absurd level actual paper currency never becomes completly worthless because it always has a recycle value as paper. In high school on a test the teacher asked "Is it possible for currency to literally be not worth the paper it is printed on?". The teacher wanted the answer to be "yes" but I put "no" and was at first counted as wrong but when I explained to the teacher that the paper currency IS the paper it is printed on so the only way it can be worth less is for it to be destroyed physically the teacher agreed that my point was valid and gave me credit for my answer (much to the teacher's credit).ic

Chonwah

Oh, please. It's just a doubling factor when it comes to currency. You can lose 100 percent of a currencies value relative to another currency or 1000 percent relative to another currency. It's simple math, baht goes from 34 to the USD to 340 baht to the USD, the baht has lost 1000 percent relative to USD currency. I'm happy you're teacher thought you were a bright student.

It is not a doubling factor...not for currency or anything else.

When the baht is at 34 to the dollar a baht is worth $0.02941.

When the baht is at 340 to the dollar a baht is worth $0.002941.

The baht lost $.026469 of value relative to the dollar when it went from 34 to 340.

To find the percentage of its value that was lost you take the reduction in value and divide it by the original value and then multiply by 100:

(0.026469/0.0294) x 100 = 90%. The baht lost 90% of its value relative to the dollar.

I suppose you could say that the us dollar APPRECIATED 1000% against the baht and then you would be correct.

Check my calcs since I didn't,

Chownah

Chonwah, I see that you simplified it for steve, yet I have a feeling that logical thought may not be one of his strong suits so I imagine that he will still contend that a currency can indeed lose more than 100% of its value. The hard figures on the thai economy are coming in every day and the situation is not looking very good. I think that before years end steve will come out of his denial phase and realize that outside of some insulated places like Phuket and PiPi, that the Thai real estate market is indeed in dire straights and will continue to be so for some time to come. Steve, since you can't be reasoned with logically I think I will just leave you with your Thai real estate investments to figure it out for yourself, good luck!

[bingobongo]

if everything was peachy, why do they need "7 measures" (see below),i shudder to think what the other 6 measures will be

flooding the market with liquidity will only increase inflation and do nothing except make the general population poorer

GHB to reduce interest rates to stimulate home purchases

KANANA KATHARANGSIPORN

The Government Housing Bank (GHB) will reduce interest rates by between 0.25 and 0.5 percentage points by the end of April to stimulate the property market, president Khan Prachuabmoh said yesterday. The decreases would apply to both deposit accounts and housing loans as the government wants financial institutions to reduce interest rates to stimulate the country's lagging economy, he said.

''We're waiting for government policy to support soft loans of about 30 billion baht by offering three-year fixed rates for homebuyers,'' he said yesterday.

The support would be one of seven measures that real estate associations proposed to the government to stimulate the property market and help homebuyers.

''I told the Finance Minister that if the government is to launch any measures to support the property market, it should hurry up or the measures would not be fully effective,'' said Mr Khan.

He said the government's announcement of property measures would be good news following the reduction in interest rates, which are likely to fall further in the coming months.

The Bank of Thailand last week reduced its benchmark rate by a half-point to 4%.

The property market has slowed as consumer confidence drops in light of many negative factors. As a result, competition in the housing market has increased.

According to the Real Estate Information Centre (REIC), total spending for TV commercials by property developers in the first quarter of the year almost doubled from last year, from 55 million baht to 90 million baht.

Print ad spending dropped to 215 million baht in the first quarter from 314 million in the same period last year.

In 2006, property firms spent 1.2 billion baht on both print and TV ads, accounting for 0.8% of the total advertising market worth around 94 billion baht. It's expected to rise to 100 billion baht this year. .

http://www.bangkokpost.com/190407_Business...r2007_biz40.php

[stevejones123]

The confusing thing is that if the baht drops from 34 baht to 68 baht to the dollar, the dollar has revalued 100% to the baht but the baht has depreciated 50% to the dollar.

[stevehaigh]

wow, you guys have way too much free time!

land sales here in ko phangan are suprizingly strong given that it's low tourist season, hotter than hel_l, no water and the gov't is trying to scare away farangs. i know of 3 big land sales closed in the last 3 weeks. there has been no drop in land price but i think the pace of increase has slowed.

steve

[calibanjr.]

It is not a doubling factor...not for currency or anything else.

When the baht is at 34 to the dollar a baht is worth $0.02941.

When the baht is at 340 to the dollar a baht is worth $0.002941.

The baht lost $.026469 of value relative to the dollar when it went from 34 to 340.

To find the percentage of its value that was lost you take the reduction in value and divide it by the original value and then multiply by 100:

(0.026469/0.0294) x 100 = 90%. The baht lost 90% of its value relative to the dollar.

I suppose you could say that the us dollar APPRECIATED 1000% against the baht and then you would be correct.

Check my calcs since I didn't,

Chownah

Thanks for helping the kiddies out Chownah!

On another point, I do agree (and have seen quite a few examples) that regardless of a bad market with bad underlying technicals/numbers, Thais will keep their prices where they want them and not "bow to the market". However, if you can't sell it at that price, then that's not really the market, is it? I'm of the school that says the market price is what someone is willing to pay for it.

If you own a house that you are willing to hold onto indefinitely (like many Thais, UNLIKE many farangs/developers) then if the running bid is abysmally low, you don't care. If, however, you NEED to move a property as part of your life/business model, and everybody is holding onto an price of say 10 million baht, but there are no bids pending over 3 million, then having a bunch of stubborn Thais holding out ain't helping the farang in his quest to actually sell his property at a profit, or at all.

To me there's always the possibility of a "synthetic" or "effective" crash for farangs that doesn't hurt Thais nearly as much. Throw in the indigenous peoples ability to "navigate" the paperwork/tax jungle, and let's just say I'm staying out of that competition. Good luck to others.

[chownah]

I suppose you could say that the us dollar APPRECIATED 1000% against the baht and then you would be correct.

Actually I made a mistake here I think....in this case the dollar appreciated 900%.....the difference (340-34) divided by the original value (34) times 100 gives 900%.............I'm sure noone cares by now but I always like to admit my mistakes and correct them if possible.

Chownah

[stevieff]

A currency which loses 100% of its value is then worthless.....if you take away 100% of anything then there is none left......this rarely happens but does occasionally....rusually when a gov't loses a war and the old currency becomes worthless. And to take this to the absurd level actual paper currency never becomes completly worthless because it always has a recycle value as paper. In high school on a test the teacher asked "Is it possible for currency to literally be not worth the paper it is printed on?". The teacher wanted the answer to be "yes" but I put "no" and was at first counted as wrong but when I explained to the teacher that the paper currency IS the paper it is printed on so the only way it can be worth less is for it to be destroyed physically the teacher agreed that my point was valid and gave me credit for my answer (much to the teacher's credit).ic

Chonwah

Oh, please. It's just a doubling factor when it comes to currency. You can lose 100 percent of a currencies value relative to another currency or 1000 percent relative to another currency. It's simple math, baht goes from 34 to the USD to 340 baht to the USD, the baht has lost 1000 percent relative to USD currency. I'm happy you're teacher thought you were a bright student.

It is not a doubling factor...not for currency or anything else.

When the baht is at 34 to the dollar a baht is worth $0.02941.

When the baht is at 340 to the dollar a baht is worth $0.002941.

The baht lost $.026469 of value relative to the dollar when it went from 34 to 340.

To find the percentage of its value that was lost you take the reduction in value and divide it by the original value and then multiply by 100:

(0.026469/0.0294) x 100 = 90%. The baht lost 90% of its value relative to the dollar.

I suppose you could say that the us dollar APPRECIATED 1000% against the baht and then you would be correct.

Check my calcs since I didn't,

Chownah

Chonwah, I see that you simplified it for steve, yet I have a feeling that logical thought may not be one of his strong suits so I imagine that he will still contend that a currency can indeed lose more than 100% of its value. The hard figures on the thai economy are coming in every day and the situation is not looking very good. I think that before years end steve will come out of his denial phase and realize that outside of some insulated places like Phuket and PiPi, that the Thai real estate market is indeed in dire straights and will continue to be so for some time to come. Steve, since you can't be reasoned with logically I think I will just leave you with your Thai real estate investments to figure it out for yourself, good luck!

When Thailand land prices actually drop in baht terms, you can tell us all about it, sweet-pea.