Thai Concerns Over Property Boom

[george]

Thai concerns over property boom

BANGKOK: -- Thailand faces potential economic problems because its property market is growing nearly as quickly as in the run-up to the 1997 Asian financial crisis, analysts said.

The Agency for Real Estate Affairs (AREA), a private property consultant, said there were 235 new projects with a total of 30,478 units worth 103 billion baht launched in the first six months of 2004.

AREA president Sopon Pornchokchai expressed concerns that a similar number in the second half of the year could lead to economic woes.

"If the economy does not improve as expected, the launching of many projects might cause more economic problems," he said.

Sopon said banks should be careful over loans approved to clients and project owners.

New property launched in 1995, two years before the economy crashed, was worth 226 billion baht as buyers and builders piled up the debt.

Thailand provided the spark for what is now known as the Asian financial crisis when it let its currency float in July 1997 amid a balance of payments crisis.

That set off a chain reaction of collapsing currencies and soaring interest rates throughout Asia which crippled economic growth and led to massive World Bank/International Monetary Fund bailouts.

--AAP 2004-07-23

[sick buffalo]

Does this mean wait a few years and the land prices will be cheaper?

[OldAsiaHand]

Not a chance. Land prices never go down in Thailand. The holders just don't sell if they don't think they're getting more than it's really worth (which means more than the highest price they have ever heard of anyone selling for in the neighborhood). The price of real estate sold by a Thai is always the same, i.e. 10% more than whatever you're willing to pay.

[whattodo]

Not a chance. Land prices never go down in Thailand. The holders just don't sell if they don't think they're getting more than it's really worth (which means more than the highest price they have ever heard of anyone selling for in the neighborhood). The price of real estate sold by a Thai is always the same, i.e. 10% more than whatever you're willing to pay.

So True

[Wie]

Not a chance. Land prices never go down in Thailand. The holders just don't sell if they don't think they're getting more than it's really worth (which means more than the highest price they have ever heard of anyone selling for in the neighborhood). The price of real estate sold by a Thai is always the same, i.e. 10% more than whatever you're willing to pay.

So True

uh huh; an option will be checking out the banks. Many people won't be able to pay of their mortgages in the next five years, this means an abundance of cheap houses available at auctions.

Thais further are not fond of second hand houses, this means that second houses sometimes go for gooc value for money.

[maerim]

uh huh; an option will be checking out the banks. Many people won't be able to pay of their mortgages in the next five years, this means an abundance of cheap houses available at auctions.

Not quite, there are thousands upon thousands of empty houses aroung here some estates with less than 50 % occupancy some have never even been lived in or let.
In the west, distress purchases where the financial institutions have foreclosed do sell for a fraction of what was lent on the property in the first place, not here though.
The banks here want what they originally lent so they are sitting on mountains of debt you don't need a degree in economics to see this is economic madness. 
Yet building is going apace with new estates springing up everywhere, shophouses being built and about a 100 yards or so away from shophouses that have never seen anyone inside since the painters finished work on them.
So I wouldn't hold your breathe if I were you waiting for a bargain at auction.

[ASIC]

Does this mean wait a few years and the land prices will be cheaper?

What it means, is that the head waiter is on the way out.... I hope

ASIC

[ovenman]

In the west, distress purchases where the financial institutions have foreclosed do sell for a fraction of what was lent on the property in the first place, not here though.

The banks here want what they originally lent so they are sitting on mountains of debt you don't need a degree in economics to see this is economic madness.

In a way, it's the same sort of mindset that keeps the price of second-hand vehicles high in Thailand. Nobody wants to take hit on their original purchase price. I know Thai guy who has a Daihatsu Mira he wants to sell. He bought the Mira for 100K baht five years ago and is now willing to let it go for a mere 95K baht! Same mentality as the banks with their mountains of foreclosed-upon property.

[Khun Jean]

In the west, distress purchases where the financial institutions have foreclosed do sell for a fraction of what was lent on the property in the first place, not here though.

The banks here want what they originally lent so they are sitting on mountains of debt you don't need a degree in economics to see this is economic madness.

In a way, it's the same sort of mindset that keeps the price of second-hand vehicles high in Thailand. Nobody wants to take hit on their original purchase price. I know Thai guy who has a Daihatsu Mira he wants to sell. He bought the Mira for 100K baht five years ago and is now willing to let it go for a mere 95K baht! Same mentality as the banks with their mountains of foreclosed-upon property.

Banks are under pressure to make profit.

From my (limited) understanding is that when a bank keeps the property in their books at the value they lent money they dont have to report a loss.

So they not really care if they sell it or not. IT will not make a real difference on their current balance. It eventually does of course.

[dfwbkk]

Thais further are not fond of second hand houses, this means that second houses sometimes go for gooc value for money. 

Somehow I figured that expression was not really PC...honest mistake?

/// dfw

[Wie]

Thais further are not fond of second hand houses, this means that second houses sometimes go for gooc value for money. 

Somehow I figured that expression was not really PC...honest mistake?

/// dfw

meant to be 'good value'

Don't excuse me of making 'honest mistakes', I don't lie.... he he

[Wie]

In the west, distress purchases where the financial institutions have foreclosed do sell for a fraction of what was lent on the property in the first place, not here though.

The banks here want what they originally lent so they are sitting on mountains of debt you don't need a degree in economics to see this is economic madness.

In a way, it's the same sort of mindset that keeps the price of second-hand vehicles high in Thailand. Nobody wants to take hit on their original purchase price. I know Thai guy who has a Daihatsu Mira he wants to sell. He bought the Mira for 100K baht five years ago and is now willing to let it go for a mere 95K baht! Same mentality as the banks with their mountains of foreclosed-upon property.

So you're not willing to buy this car Ovenman?

Farang Kineau!

[Wie]

From my (limited) understanding is that when a bank keeps the property in their books at the value they lent money they dont have to report a loss.

So they not really care if they sell it or not. IT will not make a real difference on their current balance. It eventually does of course.

This is incorrect, 'amortization and depreciation' for instance is used as a cost post. There no use keeping something in the books at a particular value when it doesn't correspond to this value, no country allows this as far as I know.

[OldAsiaHand]

This one does.

[ovenman]

In a way, it's the same sort of mindset that keeps the price of second-hand vehicles high in Thailand.  Nobody wants to take hit on their original purchase price.  I know Thai guy who has a Daihatsu Mira he wants to sell.  He bought the Mira for 100K baht five years ago and is now willing to let it go for a mere 95K baht!  Same mentality as the banks with their mountains of foreclosed-upon property. 

So you're not willing to buy this car Ovenman?

I think I'll wait 'til he drops the price all the down to say... 94K baht!

[thaigene2]

Let me try to make sense of the Thai property/auto market..given this and some other recent posts.

There are too many condos/houses being built at prices far too high for the 90% of Thais who earn less in one year than the average cost of one month's mortgage payment, but who recently had homes seized following the last property collapse by banks that won't auction them off because they want to recover the originally inflated amount. The Thai banks stocks continue to rise despite the massive debt bubble on the books, but that's okay because actually the repossesed homes are 'assets' by Thai accounting standards.

Thais don't like to buy used homes anyway, and there are no other buyers since foreigners can't own land/houses - only condos. Foreigners who own condos in Pattaya often end up commiting suicide Thai-style (two bullets to the back of the head, two hours after swallowing a bottle of sleeping pills and then finally 'falling to their deaths' from their apartments where there was no blood on the floor, the wall safe was open, the Thai GF didn't notice anything cause she was doing downstairs doing the laundry at 3AM).

Meanwhile, Thais are buying new cars apace at prices 40-50% higher than in North America even though the monthly payments are almost as much as the average monthly salary.

But don't worry, prices are going to continue rising in all sectors according to the Thai auto manufacturer's industry and the Thai Housebuilders Assn! Wait..I'm just getting warmed up..

[ovenman]

But don't worry, prices are going to continue rising in all sectors according to the Thai auto manufacturer's industry and the Thai Housebuilders Assn! Wait..I'm just getting warmed up..

Sounds like you have a pretty good handle on the situation...

[Tornado]

Location Location Location.

I understand this report is more aimed at the Bangkok market, but in Phuket you can basically ask what you want for your "real nice" property as land here is just about sold out. Phuket continues to boom and has risen every year sice I have been here and 2 years prior to that.

I agree there is a problem selling "second hand" houses/apartments as most of the time, the foreigners buying them, double the price and put them up for resale the day after they purchased them . They do not realise buying land and building is the only way to make money - but I like that

Regarding the banks. I have from time to time gone into the banks to see what is on the books. It actually took me two years to see the real books as the good properties are kept very close to the chest of the bank manager. In my experience foreigners do not get a chance to buy the "special" properties as the bank managers family or friends are laying in wait until the price is right and then they pounce.

I was a bit late on the Bangkok scene and have missed the boat on good prices.

[Darlek]

Daihatsu Mira he wants to sell. He bought the Mira for 100K baht five years ago and is now willing to let it go for a mere 95K baht! Same mentality as the banks with their mountains of foreclosed-upon property.

the roads are full of overpriced clapped out junk cars ,that would have been trashed in the west , as being unroadworthy , but they keep patching them up and selling them on to some sucker .

[Bizz]

Very interesting.

Auctions how do you find out when and where.

From the banks from whom.

[OldAsiaHand]

Thaigene2,

You have well and accurately summarized the behavior of markets in Thailand in your post several slots above.

You are hereby awarded an oakleaf cluster in the Order of the Blind Leading the Blind to which those of us who occasionally offer advice on this forum all proudly belong.

[ASIC]

There's a guy near my house selling a really old car or no recognizable brand for 10k. CASH!

ASIC

[maerim]

What you want and what you actually get are usually two different things.

We had a look at a bungalow yesterday about 10 years old and as per usual needs a load of work doing on it but structurally sound the owner wants 1.6 million for it, about twice what's it is worth.

The reason of course is thats what was paid for it when they bought it.

The propery has been on sale for well over a year and it seems to me will be on sale for ever even though they are desperate for the money so they can move away, obviously not that desperate to lose money on the sale.

Now just down the road from this property is a new estate being built you can buy a new one for 1.2 million.

OK I know I can't buy, it but that's what the price is.

[ovenman]

There's a guy near my house selling a really old car or no recognizable brand for 10k. CASH!

What's ironic is that this guy probably thinks he's giving this vehicular gem away at that bargain price.

[ovenman]

The propery has been on sale for well over a year and it seems to me will be on sale for ever even though they are desperate for the money so they can move away, obviously not that desperate to lose money on the sale.

Another cultural difference observation is that it usually appears that no effort is put into making a particular piece of Thai property appear attractive to a potential buyer (fresh paint, simple landscaping, cleaning, etc.).

[Sarawudt]

Another cultural difference observation is that it usually appears that no effort is put into making a particular piece of Thai property appear attractive to a potential buyer (fresh paint, simple landscaping, cleaning, etc.).

Yes, true. It beats me why the Thais would not try to make the sale more atractive for buyers. I guess it's just laziness, don't have another explanation for it. Anyone else maybe?

[ovenman]

Yes, true. It beats me why the Thais would not try to make the sale more atractive for buyers. I guess it's just laziness, don't have another explanation for it. Anyone else maybe?

I think the explanation is as simple as not wanting to spend one more satang on anything than is considered absolutely necessary. Look at the manner in which many Thais maintain their vehicles, i.e. spend zero on maintenance, worry about something if and only when it's broken. The concept that one invests a few baht in something today to save many baht at some theoretical point down the road (or gain many baht in the case of a property sale) does not seem to be widely held in Thailand.

[Spellbound]

Fears rise of a new Thai property bubble

Projects launched in H1 hit 103b baht, almost back to pre-crisis levels

A SURGE in home building in Bangkok is fuelling talk that another speculative property bubble is forming less than a decade after a market crash submerged banks with bad loans and sparked an economic crisis.

From bust to boom: More than 100 unfinished buildings that have marred the Bangkok skyline since the 1997 Asian financial crisis are getting facelifts.

Although skeletal buildings abandoned in the 1997-98 Asian economic crisis still pepper the Thai capital's skyline, a handful of developers who survived that period financially, are back with offers to sell plush, new condominiums and smart, suburban estates. They were encouraged, starting a couple of years ago, by strong pent-up demand among the wealthy.

But the 'high end' market, which offers the likes of Land and Houses, Quality Houses and Golden Land with their 35 per cent profit margins, is becoming oversupplied, analysts say.

The Agency for Real Estate Affairs, a private appraisal company, released a report this month showing the value of housing projects launched in the first half of this year hit 103 billion baht (S$4.2 billion), almost pre-crisis levels.

But only 30,500 homes were started in the period, compared with about 150,000 a year during the mid-1990s peak, when developers saturated the market with cheaper but often badly planned homes, usually far from the city centre.

The agency's head, Sopon Pornchokchai, said rock-bottom interest rates have put homes that were previously too expensive within reach of some middle-class Thais. But many condominium purchases are made by speculators, who risk being burnt by market oversupply.

Most analysts blamed a lack of proper market research and data for overbuilding and speculation in the 1990s, and say information is not much better now.

'Now the worst-case scenario is if the economy doesn't go as well as expected and purchasing power falls,' Mr Sopon said. 'High-priced condos wouldn't be successful, and that can feed into non-performing loans.'

Bad loans, many for failed property projects, almost destroyed Thailand's financial system in the late 1990s, putting dozens of finance firms out of business and forcing the government to bail out banks.

Strong economic growth - 6.8 per cent in 2003 and a forecast 7 per cent this year - and low interest rates have helped debt restructuring, but investors are still nervous.

Krung Thai Bank shares have slumped about 20 per cent in the last week and a half since it reported a 45 billion baht jump in bad loans in three months due to stricter central bank rules.

But the general consensus is the central bank has learned the lessons of the 1990s. It has cut the upper limit on mortgages for homes of more than 10 million baht to 70 per cent of the selling price from 90 per cent.

Bangkok's relatively young population and strong economic growth mean property sector fundamentals are strong, with some saying 100,000 homes are needed annually, analysts say. But with an average civil servant earning US$300 a month, developers will have to contemplate building fewer US$150,000 houses and accept the lower margins on lower-priced homes. - Reuters

http://business-times.asia1.com.sg/story/0...,124249,00.html

[Darlek]

BoT should act to prevent property speculation bubble

Business Day Editorial

5. August 2004

The Bank of Thailand's (BoT) recent warning that a real estate

speculation bubble may be taking place is well-intentioned and

probably accurate, but, if the danger is real, there is much more that

the central bank needs to do that expresses its concerns.

There are clear indications that the problem lies in the upper end of

the market for homes and condominiums, rather than in properties in

the medium and lower price range.

So, if the central bank wants to nip the problem in the bud, all it

has to do is make loans for high-priced properties harder to get.

Obviously, the BoT's latest move to require a higher down payment on

properties costing in the tens of millions of baht has had only a

limited effect, so, at the very least, the loan limit should be

dropped even further.

Aside from making sure that buyers of expensive homes and condominiums

are not overly leveraged, the central bank should also look at

conditions of real estate purchase contracts of properties that are

under construction or about to be built.

In fact, most of the top-of-the-line condominiums in prime areas fall

into this category, and, in many cases, the projects won't be ready

for occupancy for two years or more.

Typically, the buyers of projects that are not yet finished only have

to put down a relatively small initial deposit of around 10% of the

purchase price, followed by monthly payments to be made until the time

for transfer of ownership of the property takes place.

Many buyers are, in fact, speculators betting that the price of the

property they are buying will rise appreciably from now until the time

that they have to either qualify for a loan or come up with enough

cash to meet the terms of the contract.

A lot can happen over the next two years, so the speculators are

essentially betting not only that the economy will continue to improve

but also that they will get loans with interest rates and payments

that they can afford.

This is risk taking, pure and simple, and the downside risks are high

for the speculators as well as the developers.

The central bank could take some air out of this part of the

speculation bubble by requiring a more stringent payment schedule,

and, to protect buyers against unscrupulous developers or those who

simply can't complete the projects, an escrow system should be

established so that the paid-in money is held by a neutral third party

until buyers and sellers fulfill all the conditions of their

agreements.

Using an escrow protects the buyers and prevents developers from using

the paid-in money to increase their leverage, which means that

developers would also act less speculatively.

Another area in which the central bank can exert control and prevent

excessive speculation is in the matter of property valuation and

appraisal.

Here, valuable lessons can be drawn from the 1997 economic and

financial crisis during which the value of real property used as loan

collateral dropped sharply, leaving lenders with non-performing loans

backed by collateral of little value.

The BoT should require banks and other lending institutions to perform

objective appraisals of the fair market value of the properties used

as loan collateral, and, for new and expensive homes and condominiums,

their selling prices should not be assumed to be the market values on

which the amounts of the loan are calculated.

Indeed, the higher the prices, the more conservative the appraisal

values should be, for it is a thin market with relatively few truly

qualified buyers.

Even if the BoT prefers not to impose more stringent regulations on

real estate lending at this time, it should make clear that tougher

rules will come into play if the bubble continues to grow.

In this regard, the BoT should be specific on how it evaluates levels

of speculation and what the new rules would be.

Most importantly, the central bank must not be caught bluffing – it

must follow up its words of warning with action.

---

Source: http://www.bday.net

****************

now we know why there are very few inhabitants in these BKK condos

[plachon]

I don't see any indications from these past two reports that any of the lessons of the 97 crash have been learned. It's not a case of IF, but WHEN will this bubble burst?

Interestingly in this thread, there have been no arguments for the defence i.e. that everything's fine and it's just silly farang faithlessness in the strengths of the Thai economy saying that a crash is inevitable. Very different from a year ago, when the lines were split about 50/50 between believers/doubters.