Is There A Condo Bubble In Bangkok?

[YoungFarangNa]

First, what are the factors of a real estate bubble? Yes, prices have risen and there has been a huge increase in demand over the last few years in Bangkok condominiums. What percent of these condo's are owned outright by the owner and what percent are financed? Does Thailand have sub-prime mortgage loans? If so, what percent are they of the total mortgages? What is the foreclosure rate in Thailand and is it increasing? Can anyone give a historical analysis of Bangkok's condo market? Where is the market headed (if you think it is going to decline, please state facts why you feel that is so and not the usual 'I can't afford it therefore it must be overpriced' stuff).

Edited October 25, 2007 by YoungFarangNa

[Irene]

I like the questions but unfortunately I have no statistics. I love to see the answers to all the question because recently I have been buying/committing on those condos in a walking distance to sky train stations along Sukhumvit. The average price is Baht130,000 per sqm (two years ago, 80,000 baht range)

The bubble is when prices are lifted up by speculators to the level that eventually no true long term investors would buy at that high price range as happened in Hong Kong and Singapore many years ago but never in Thailand. For Thailand, it was the bubble created by the builders who could not even find a speculator in bad time in 1997 and having to leave many see-through buildings unfinished. Their debts formed part of many non-performing loans. It is odd that through Thai history so far, price range of a condo has never come down. The risk for a retail investor is in paying a deposit and instalments in total of 30% range with the developers and the developers run short of money to complete. There is not much legal protection for the buyers. Another risk is when completed and due for 70% payments for final transfer, there is a prevalent default of the buyers, then the price could drop substantially. From my experience todate, I have never been aware of any project falling under this category.

Thanks for the questions and am looking forward to other inputs.

[pkrv]

I must confess I don't really operate on statistics (which are few and far between in this market anyway) I move more on what I perceive.

For me the new airport, and airport express, extensions to the skytrain and heavy investment in the CBD. For example shopping arcades, successful major developments etc for me all point to a rosy future.

Although I would not advocate for the short term, nor to over extend (things are pretty tough out there at this time) I have seen indications of price increases in the segment I am interested in, and have never seen any hint of a price fall in the Condo market.

If you are looking for instant returns I can’t comment – This does not matter to me.

[LittleEiffel]

By recent newspaper reports Bangkok is still by far the least expensive Condo market on a square meter basis in SE Asia when compared to Singapore, Hong Kong or other countries with a significant presence of Multinational Corporations. Vietnam (HCMC)has really taken off and is also now more expensive than Bangkok!

This would argue against a condo bubble in Bangkok.

[stateman]

By recent newspaper reports Bangkok is still by far the least expensive Condo market on a square meter basis in SE Asia when compared to Singapore, Hong Kong or other countries with a significant presence of Multinational Corporations. Vietnam (HCMC)has really taken off and is also now more expensive than Bangkok!

This would argue against a condo bubble in Bangkok.

I agree with everything 'LittleEiffel' said here relative to other SEA markets.

But the concern is with the hard time going in the society.

People in the lower economic rung who barely made it before, now can't make it with all the price inflation. Many more robberies which go unreported in the media and more suicides because one can't make it. This affect the small business all over.

The middle-lower class on salary is also slowly sinking toward the lower-income class.

Couple this with the current government's ignorance and lack of care to fix the problem.

What I see is the shrinking on the demand side. If this doesn't improve anytime soon, will it drag down the condo price?

Additional note is about all the talk that the government after the election will be ineffective - the result of the setup by the constitution. It is expected to have so much in-fighting and fracture as to be unable to govern effectively. It was expected that it might not even make it past 6-12 months before a parliament resolution. This should not be good for the condo market?

[bingobongo]

no need to buy now, wait as the economy shrinks further, do not buy property based on emotions, but rather on fundamentals.....i wonder if the folks who bought in the last 5 years are enjoying the negative equity.........right pkrv?

don't forget that with interest rates artificialy low, the builders will keep building thereby adding to the existing oversupply and inflation is not wealth creation but rather currency destruction

enjoy the graph.......BMR being Bangkok Metropolitan Region, the graph is for new property, so why buy an older overpriced model when you can buy a newer cheaper model

and here is another fun graph, supply increased, prices per unit declining, and total baht value falling........market is nearing saturation.....pure genius i tell you, pure genius, also notice that the baht value is FALLING whereas supply actual ROSE YOY 06/07 which is also an interesing trend

Edited November 3, 2007 by bingobongo

[think_too_mut]

By recent newspaper reports Bangkok is still by far the least expensive Condo market on a square meter basis in SE Asia when compared to Singapore, Hong Kong or other countries with a significant presence of Multinational Corporations. Vietnam (HCMC)has really taken off and is also now more expensive than Bangkok!

This would argue against a condo bubble in Bangkok.

Then, can you imagine tens of thousands of unoccupied properties in Hong Kong or Singapore?

In Sydney I can't imagine 100s dormant units.

[backflip]

"The middle-lower class on salary is also slowly sinking toward the lower-income class."

What evidence can you provide to support your assertion?

[Pattaya46]

...

enjoy the graph.......BMR being Bangkok Metropolitan Region, the graph is for new property, so why buy an older overpriced model when you can buy a newer cheaper model

Hi bingobongo,

I am sorry, but I think you misread this graph

It does not show that existing apartments become cheaper, but that new apartments are cheaper...

And that is not because prices go down, but only because new apartments are smaller !

There is no such request for 150 sqm condo like 5 years ago. They now build more 80-120 sqm.

[stevemiddie]

"The middle-lower class on salary is also slowly sinking toward the lower-income class."

What evidence can you provide to support your assertion?

It was reported in the Bangkok Post , 3 days ago i think ( Business Section ) that with rising prices and the cost of living, the incompetence of the present Junta to manage the country, the ever increasing debt that Thais are falling into.

Huge rise in credit card loans. Something has to give soon i suppose.

[pkrv]

no need to buy now, wait as the economy shrinks further, do not buy property based on emotions, but rather on fundamentals.....i wonder if the folks who bought in the last 5 years are enjoying the negative equity.........right pkrv?

I will confess that this was my first overseas purchase and I did take some sensible precautions - I didn't overextend, have virtually no mortgage on my primary UK property (now worth 5x what I paid for it), will buy outright in Bangkok (no negative equity).

Surprisingly I am seeing indications of a 50% paper profit on The Park (over 2-3 years) so up about 7.25m THB. I am considering very early retirement so do not believe over extending is a good idea, for me personally, at this time. That said the stress involved in buying off the plan is quite considerable - I would been far more stressed if I had invested in the three bedroom apartments (2x as much), but then again would possibly have been better off, but I am not a 'professional investor'.

[midas]

"The middle-lower class on salary is also slowly sinking toward the lower-income class."

What evidence can you provide to support your assertion?

It was reported in the Bangkok Post , 3 days ago i think ( Business Section ) that with rising prices and the cost of living, the incompetence of the present Junta to manage the country, the ever increasing debt that Thais are falling into.

Huge rise in credit card loans. Something has to give soon i suppose.

exactly! If there are so many credit problems out there from average Thai's

and with the ever tightening visa problems, the threat from the pending

foreign business act driving investors to other neighboring countries

- indeed something does have to give unless the condo purchasers

are mostly would be owner occupiers and there is simply no evidence to suggest

Thai's have changed their living habits to that extent because they mostly prefer to live

in family homes. The real story can be hidden for quite some time but it will come out eventually

[howtoescape]

I have been looking at condos close to Thong or and On Nut and they seem to be twice the price of the similar stage off plan condos further down Sukhumvit close to where the new sky train stations are to be around soi 66.

Now as this is only a couple of KM's away one of the areas must be under or overpriced as the only difference being is the skytrain is complete, there is no school catchment area like in the UK to boost prices, its only 5 more minutes to downtown, it has all the amenities needed for comfortable living there

However the developers dont seem to be adertising with discounts as they are in Pattaya so from that perspective things must be better for developers in Bkk then Pattaya.

[midas]

I have been looking at condos close to Thong or and On Nut and they seem to be twice the price of the similar stage off plan condos further down Sukhumvit close to where the new sky train stations are to be around soi 66.

Now as this is only a couple of KM's away one of the areas must be under or overpriced as the only difference being is the skytrain is complete, there is no school catchment area like in the UK to boost prices, its only 5 more minutes to downtown, it has all the amenities needed for comfortable living there

However the developers dont seem to be adertising with discounts as they are in Pattaya so from that perspective things must be better for developers in Bkk then Pattaya.

I don't think that proves very much ? many developers will just sit on the end product

until they eventually get their price no matter how long it takes. not many developers will openly

advertise that they are having to discount prices

[howtoescape]

It shows Bkk developers arent as desperate as Pattaya developers just yet.

Developments are financed by banks and offplan sales, they dont have too much time to sit on property that isnt selling.

In my opinion a property market that is mainly financed by overseas investors and ex pats is never the best to invest your money in unless you were first on the bandwagon.

There needs to be an exit strategy for a good profit with so many new apartments coming on the market this will be difficult, as agents are paid higher commissions off developers then resellers.

[pkrv]

It shows Bkk developers arent as desperate as Pattaya developers just yet.

Developments are financed by banks and offplan sales, they dont have too much time to sit on property that isnt selling.

In my opinion a property market that is mainly financed by overseas investors and ex pats is never the best to invest your money in unless you were first on the bandwagon.

There needs to be an exit strategy for a good profit with so many new apartments coming on the market this will be difficult, as agents are paid higher commissions off developers then resellers.

I quite like this concept of an exit strategy - Dying with a big smile on my face after a very, very comfortable retirment comes to mind - This is after all not (IMO) a trial run at life

Edited November 4, 2007 by pkrv

[stevemiddie]

However the developers dont seem to be adertising with discounts as they are in Pattaya so from that perspective things must be better for developers in Bkk then Pattaya.

The reason being?

No offense mate but that has to be one of the most errrrrrrrrrrrrrr never mind.

[howtoescape]

However the developers dont seem to be adertising with discounts as they are in Pattaya so from that perspective things must be better for developers in Bkk then Pattaya.

The reason being?

No offense mate but that has to be one of the most errrrrrrrrrrrrrr never mind.

For a developer to offer an apartment with a discount is very bad and clearly shows they are desperate to shift an apartment in a block that isnt complete yet which shouldnt exactly fill buyers with confidence.

To not offer a discount leads you to believe it is selling, whether it is or not is a different matter.

You are from Doncaster so i can understand not getting this basic concept.

I sell property in Bucharest and can guarantee you for buying 1 apartment you will not get a discount in any developments i know of as the property sells very quickly. However if you try buying in Bansko, Bulgaria you will get a 20% discount, as there is over supply and no more buyers for semi complete developments.

Edited November 4, 2007 by howtoescape

[howtoescape]

I quite like this concept of an exit strategy - Dying with a big smile on my face after a very, very comfortable retirment comes to mind - This is after all not (IMO) a trial run at life

If you intened on dying in your property you have no worries about bubbles or booms in the property market, you seem to be one of the few that sees a property for somewhere to live and not an investment.

For those that are looking at buying for an investment selling it, let alone selling it for a large profit (IMO) will be very difficult in the short to mid term with so many apartments being constructed.

[backflip]

bingobongo,

You posted some nonsense about "negative equity". What is this? Perhaps you meant "negative amortization", but that involves a mortgage and delaying the payment of interest, and has nothing to do with the discussion at hand. Perhaps you meant when a cheaper home comes on the market, then your home is worth less. That's absolute nonsense. Cheaper condos are being developed. So what? I looked at one of these 36 sqm, one-bedroom units...the tiny WC is wedged between the shower and sink. A normal-sized farang would need a block-and-tackle to get on and off. After working for several decades, if there is one person who deserves to live in a comfortable home, it is me - and the vast majority of farangs believe they deserve the same. Essentially, bingobongo, you believe that neither you nor your boyfriend derserve to live in nice housing, and should live in the cheapest housing available. I can't argue with that.

Edited November 5, 2007 by backflip

[Irene]

If you intened on dying in your property you have no worries about bubbles or booms in the property market, you seem to be one of the few that sees a property for somewhere to live and not an investment.

For those that are looking at buying for an investment selling it, let alone selling it for a large profit (IMO) will be very difficult in the short to mid term with so many apartments being constructed.

First, there are many who buy property to live with least concern of the resalable value. Second, there are also many who have been making profits in property disposal along the areas near to the Sukhumvit Skytrain stations. Irrespective of the supplies in many areas, there is not much land left for developers to build along the distance from Nana to Ekamai junction.

[cclub75]

By recent newspaper reports Bangkok is still by far the least expensive Condo market on a square meter basis in SE Asia when compared to Singapore, Hong Kong or other countries with a significant presence of Multinational Corporations. Vietnam (HCMC)has really taken off and is also now more expensive than Bangkok!

This would argue against a condo bubble in Bangkok.

I'm always surprised by such "inference".

-Prices are much higher in other cities in Asia, compare to BKK

-therefore, there is no bubble in Bangkok

It's a syllogism.

A short cut. An intellectual short cut, that brings nothing whatsoever to the analysis of the situation.

Instead, you should ask real questions :

-does it make sense to compare HK or Singapore with BKK (land scarcity, difference of GDP etc.) ?

-Are the higher prices in Saigon caused by an imbalance (temporary) between offer and demand ? The building boom started recently in Vietnam, compare to BKK etc.

I just want to say that the wise man should go a little bit deeper, in order to assess the situation, that this kind of McDonald way of thinking...

[pkrv]

IMO - There is a flip side to this.

I agree with Irene there are a lot of contributors to this forum who are looking for a home, our downside is that once we have one we may not contribute as much to this forum (we are all to some extent selfish)

I find myself in a paradoxical situation. I do not invest in property, yet have made all-most all my money from it. The things investors look at are the things 'that turn me off' - OK odd but has happened.

As to Thailand compared to Hong Kong and Singapore - IMO in the long run Thailand will win because it has not run out of space - why do I say that - consider the old colonial empires -expansion but I don't know

[quiksilva]

There needs to be an exit strategy for a good profit with so many new apartments coming on the market this will be difficult, as agents are paid higher commissions off developers then resellers.

Simply not true, in fact developers usually pay less than market. Agents actually prefer to market an entire project as opposed to many individual units so may even be prepared to discount fees or provided additional value added services FOC to win an appointment.

There are numerous reasons for this, not the least of which is the amount of reporting time it saves when you only need to speak to just one client for several hundred units. This is one of the reasons why we ceased providing residential services to individual owners in Bangkok a few years ago (we still provide this in Phuket however).

[thaigene2]

"The middle-lower class on salary is also slowly sinking toward the lower-income class."

What evidence can you provide to support your assertion?

It was reported in the Bangkok Post , 3 days ago i think ( Business Section ) that with rising prices and the cost of living, the incompetence of the present Junta to manage the country, the ever increasing debt that Thais are falling into.

Huge rise in credit card loans. Something has to give soon i suppose.

exactly! If there are so many credit problems out there from average Thai's

and with the ever tightening visa problems, the threat from the pending

foreign business act driving investors to other neighboring countries

- indeed something does have to give unless the condo purchasers

are mostly would be owner occupiers and there is simply no evidence to suggest

Thai's have changed their living habits to that extent because they mostly prefer to live

in family homes. The real story can be hidden for quite some time but it will come out eventually

Exactly.

Just because Thais keep "buying" these 35-60 sq mt shoeboxes "off-plan" (pre-build), that DOESN'T mean that:

a) they ever plan to live in them

or that they even plan to complete the purchase (just pay the 20-25% - over 2 years - while waiting to flip to someone that has money to complete before the developer comes knocking for the big 75% final lump-sum)

c) that they even financially QUALIFY to complete the sale when the building is finished

d) that there is a market for rentals should they indeed complete the transaction and take occupancy permits

e) that they won't walk away early and cut their losses if if starts to look bleak

I spoke to the developer at 'sold-out' Nobel Reflex (or is it 'reflux..'), and was told the Developer does not ask for any evidence that the buyer has enough cash or a pre-approved mortgage to complete the sale. Only need the deposit and monthly payments for 2 years of whatever..No one knows whether the buyer is a specultaive deadbeat until the building is nearly finished - currently aiming for 2009.

So you are absolutely right - we will see in the next year or two as these places complete. One thing is certain, you will be able to rent a nice new condo for a much better price with lots of selection very soon (in central Bangkok anyway).

Oh, and yet another Pahonyothin area lowrise is coming on the market - at 43,000 Baht s/m. So prices aren't dropping eh?

[howtoescape]

Simply not true, in fact developers usually pay less than market. Agents actually prefer to market an entire project as opposed to many individual units so may even be prepared to discount fees or provided additional value added services FOC to win an appointment.

In all the countries i sell in we are paid between 5-15% commission from developers for new builds, for resales the fee is 3%, hence why we dont get involved in them. I dont know what commission rates are in BKK do you?

Like you say it is far easier working with a developer selling 200 units and easier to do a marketing strategy for a shiny new computer generated development that no one can see as opposed to a single apartment where you are having to market your company more then the property.

I have been contacted by agents in Pattaya and Hua Hin in the last year offering to pay me 10% commission to sell their off plan property so it shows they must be making 12-15% from the developer.

DEVELOPERS DONT PAY THIS KIND OF COMMISSION IF PROPERTY IS SELLING.

[quiksilva]

Thaigene: How is the sizing and quality? The fact that new projects are targeted at a lower income bracket does not imply that the market is going into a tailspin. What it infers is that developers are monitoring demand and supplying projects to suit. That's a good thing.

Howtoescape: Yes I do know, I have been working in the industry here since 1997. I agree developers don't pay this kind of commission, under any circumstances. We would all dearly love to receive 15% fees, and if you have anything to sell at this level let me know!!! Seriously.

I suspect that what the agent offered you was the standard introduction fee which is 10% of what they receive. Developers pay less than 3% on the mainland but up to 5% in resort areas like Phuket.

Edited November 5, 2007 by quiksilva

[pkrv]

I looked at one of these 36 sqm, one-bedroom units...the tiny WC is wedged between the shower and sink. A normal-sized farang would need a block-and-tackle to get on and off. After working for several decades, if there is one person who deserves to live in a comfortable home, it is me - and the vast majority of farangs believe they deserve the same.

A tough and true reponse - I quite liked the block-and-tackle comment

Edited November 5, 2007 by pkrv

[stateman]

However the developers dont seem to be adertising with discounts as they are in Pattaya so from that perspective things must be better for developers in Bkk then Pattaya.

The reason being?

No offense mate but that has to be one of the most errrrrrrrrrrrrrr never mind.

Local paper I read said there has been a significant oversupply of condo construction in Pattaya. So significant discount in Pattaya doesn't surprise me.

[LittleEiffel]

By recent newspaper reports Bangkok is still by far the least expensive Condo market on a square meter basis in SE Asia when compared to Singapore, Hong Kong or other countries with a significant presence of Multinational Corporations. Vietnam (HCMC)has really taken off and is also now more expensive than Bangkok!

This would argue against a condo bubble in Bangkok.

I'm always surprised by such "inference".

-Prices are much higher in other cities in Asia, compare to BKK

-therefore, there is no bubble in Bangkok

It's a syllogism.

A short cut. An intellectual short cut, that brings nothing whatsoever to the analysis of the situation.

Instead, you should ask real questions :

-does it make sense to compare HK or Singapore with BKK (land scarcity, difference of GDP etc.) ?

-Are the higher prices in Saigon caused by an imbalance (temporary) between offer and demand ? The building boom started recently in Vietnam, compare to BKK etc.

I just want to say that the wise man should go a little bit deeper, in order to assess the situation, that this kind of McDonald way of thinking...

The only thing you have done above is try to invalidate my observations - you have not even addressed the issue of is there a bubble in the Thai condo market?

I would argue a BUBBLE is when prices continue to rise to the point that the everyman can no longer afford the commodity involved and so eventually there are only sellers left with no buyers and prices drop precipetously. Savvy buyers will look for value elsewhere once costs become prohibitive. So do you REALLY think that absolute cost doesn't matter in a global marketplace?

My point is that MACRO Economic forces will begin to come into play here - and Thailand will become relatively more attractive to Multinational Companies who will come to Bangkok and set up shop here as it becomes prohibitively expensive in the "hubs" of Singapore and Hong Kong. The managers of these comanies don't give a dam_n about per Capital GDP - they want to cut costs.This is PRECISELY what happened to the Medical tourism market. Singapore and Hong Kong have already priced themselves out and Bangkok is now the hub of Medical tourism in the world. To ignore macroeconomics in the equation is the REAL McDonald thinking. Singapore and Hong Kong and Vietnam meet the criteria for a "bubble" much more so that Bangkok in terms of REgional valuation.

The countries of SE Asia do not exist in isolated bubbles - there will be a flow of capital and workforce to areas of relative value. If you think an inflow multinational companies couldn't have this effect - ask yourself why Hong Kong, Singpore, and Vietnam are in the current situation (and Shanghai now as well - no lack of land in the surrounds of that city) REcall the fact that Foreigners can ONLY own Condos in Bangkok (unless they want to use a now risky corporate structure) and review the requirements in terms of how many locals must be hired per expat employee - all those professionals (local and expat) competing for a reasonable commute.

Next time try contributing instead of trying to belittle others