Do Condos Seem Over Priced In Bkk To Anyone Else?

[LivinLOS]

i just can't see myself spending 7 million baht for a 65m2 shoebox. Isn't this a third world country? i guess many of you are willing to do just that or the prices would be lower.

yes..very over priced..i can buy a bigger & more beautiful condo here in the usa..for less money..i would rent and see if it's an area you even like. also..we the usa..is in or going into a recession..watch the chinese yuan..since that is the only reason the thai balt is so strong..china has the highest inflation it had in the last 11 years..the yuan by most economists needs to appricate 50%..we have made china..china exports over 200 billion of their 270 billion of exports to the united states..jobs are disappearing..sub prime loans are killing us..stock market..gas prices..war in iraq & afganistian etc..less and less money to spend..on chinese goods..the 240,000 new chinese millionares we created in 2007 better save their money..because we will elect a dem. president..this year..the dem..were not able to put tarrif's on chinese products coming into the united states.. due to bush..but..look out its coming..either an apprciation of the yuan or tarriff's=more balt for the buck..

Thats your answer ?? Tarriffs ?? ha ha ha

So now your going to ADD to the price of chinese goods, driving up inflation, creating more price increases.. Within a stagnant economy (can we say stagflation children.. Yes we can) Believe me, America is not going to compete on a wage or work level..

The coming recession is not the fault of the chinese.. Blame the people who have used thier homes like ATM's, blame the people who have got in ebt they cant service even at rates of interest thats historically at the bottom of the range.. Blame the people who spent money they dont have to buy electric doodads they dont need. Blame the people who say 'real estate never comes down'..

This is gonna be a Bumpy few years.

[LivinLOS]

The basic Economic Principle of Supply and Demand determines the cost of the condos and as it does with almost everything else. If there were not buyers at the present prices then the prices would drop until the buyers started to buy.

In a market with turnover yes.. In a market that partly driven by face.. possibly no..

Remember all those shells of buildings left after the 97 crash ?? Were they dropped onto the market ?? No !! The Thai chinese and thier bankers just shifted them to non performing loans until the market caught up almost a decade later. They have a very different attitude about 'value'..

[thaibkk]

i just can't see myself spending 7 million baht for a 65m2 shoebox. Isn't this a third world country? i guess many of you are willing to do just that or the prices would be lower.

isn't there an overcapacity ?

many thais buy a condo as investment

many condo's stay unrented = bad investment + monthly fixed costs to pay ...

do you really need to live in the center of Bangkok for your job or something ?

bad pollution, noisy, traffic ...

we live further from the centre, but the standalone house with 3 bedrooms, 2 bathrooms is estimated at around 7 m baht ...

going to the centre is a drag... but we avoid to go there as much as possible anyway

[wintermute]

Buying real estate in Thailand isn't a good value. Especially when there's a big difference between the unit cost and the rental price. Would you want to buy a unit for 10 million baht with questionable appreciation, building construction quality, and longterm saleability? Why would you do that when you can just rent it at the comparably low price of 30,000-40,000 baht a month and avoid a huge number of risks. Just remember there are no real laws here to protect foreign investment and the ones that do exist can be changed due to corruption or connections.

A lot of people here are real keen on the market here but i'm guessing quite a few have their hands in the speculator cookie jar. That's fine..but don't recommend property here as a longterm investment it's pretty misleading.

[Irene]

I am a long term investor in condominium units and started in September 1981 with a four-room apartment of 250 sqm for the price of Baht 3.78 m. (Baht 15,000 sqm) and after 25 years are still earning a rental income of Baht 58,000/m now or a gross yield of 18%. Another one I bought in 1982 at the price of Baht 2.2 m. because the developer felt sorry for us in buying the first unit at the then highest price. This unit is now earning Baht 55,000/m, a gross yield of 30%. The selling price for each unit now is in the range of Baht 7.5m to Baht 10m.

I also got a few duds that I cannot find a tenant. But on the whole, I am quite pleased for diverting part of my investments from stocks to property.

I have no intention of being boastful on my records but I am weary of all these wise guys knocking down the prospect of condo investment in Thailand without having the in-depth knowledge of the market. In this forum, I was called a liar and accused of being in an estate agency to drum up the market for my benefits. I couldn't care less whether you believe me or not or buying or not buying but just like to give the fact of another side of the coin. The whole thing depends on luck and ability to pick the right location and potentials. We have made 10% error of our judgement on the management of two condos. Our investments are mainly in Rajdamri, Ploenchit, Sukhumvit 5 to 63. Oddly enough the ones that are dud are in Ploenchit and Rajdamri. Our property now are mainly near to the BTS stations. Our latest investment of a shoebox sized of two bedrooms overlooking a park and a lake and near to Emporium gives us a gross rental yield of 7% and net yield of 5%. The price we bought was really high and afraid of also making a mistake. But being a long time resident in London before, we realise the potential of being near to an underground station and just hope for this benefit to become huge eventually.

[wintermute]

I am a long term investor in condominium units and started in September 1981 with a four-room apartment of 250 sqm for the price of Baht 3.78 m. (Baht 15,000 sqm) and after 25 years are still earning a rental income of Baht 58,000/m now or a gross yield of 18%. Another one I bought in 1982 at the price of Baht 2.2 m. because the developer felt sorry for us in buying the first unit at the then highest price. This unit is now earning Baht 55,000/m, a gross yield of 30%. The selling price for each unit now is in the range of Baht 7.5m to Baht 10m.

I also got a few duds that I cannot find a tenant. But on the whole, I am quite pleased for diverting part of my investments from stocks to property.

I have no intention of being boastful on my records but I am weary of all these wise guys knocking down the prospect of condo investment in Thailand without having the in-depth knowledge of the market. In this forum, I was called a liar and accused of being in an estate agency to drum up the market for my benefits. I couldn't care less whether you believe me or not or buying or not buying but just like to give the fact of another side of the coin. The whole thing depends on luck and ability to pick the right location and potentials. We have made 10% error of our judgement on the management of two condos. Our investments are mainly in Rajdamri, Ploenchit, Sukhumvit 5 to 63. Oddly enough the ones that are dud are in Ploenchit and Rajdamri. Our property now are mainly near to the BTS stations. Our latest investment of a shoebox sized of two bedrooms overlooking a park and a lake and near to Emporium gives us a gross rental yield of 7% and net yield of 5%. The price we bought was really high and afraid of also making a mistake. But being a long time resident in London before, we realise the potential of being near to an underground station and just hope for this benefit to become huge eventually.

It sounds like you bought property at a cherry time..back in the early 80's before the first property boom (and bust) and before expats were flocking to Thailand as the new retirement/holiday home haven. Congrats. You bought low and now you're selling /leasing high to others. Then again I could have bought 3.78 million baht (what you paid for that first condo) worth of microsoft stock in 81 and be a multi-millionaire right now. Of course there are cherry pickings out there but you have to wade through much much more detritus and risk. If you compare risk vs reward, Thailand is a very poor investment for new property owners.

Right now real estate valuations in Thailand are NOT realistic and I haven't seen anyone provide any data to backup that Thailand is somehow better insulated from the property bubble that the U.S. and the U.K. is experiencing. Matter of fact i'd say the potential for a massive blowout is much more of a risk in Thailand than anywhere else. Also, high end condo units are closing in on being comparable in price to parts of the U.S. Which is fairly ridiculous considering the reasons i've outlined in a previous post.

A person would still get a better return speculating on property in the U.S. (now that the bubble is deflating in the U.S.) or playing the stock market.

[wintermute]

nothing "seems" overpriced becasue they ARE in fact overpriced, if not, why are starts plummeting...........

so have a helping of denial with som tham

New condo launches likely to fall 25%

New condominium launches this year are likely to drop by 25% from 2007 due to higher competition in the market and rising construction costs, says Mayta Chanchamcharat, chief executive officer of the developer Plus Property Co. New condo units would total less than 30,000, down about 25% from last year.

http://www.bangkokpost.com/Business/16Jan2008_biz44.php som tham if it helps

I agree in addition for anyone shopping for property in ANY country they should learn from the subprime mistakes and look at the credit worthiness and economic situation in the country. Here are some more questions to ask... Is the property market overextended? Are condo projects springing up everywhere? Does supply outstrip demand and if so why are prices still going up? Also, what kind of speculation is going on and WHO is involved?

[wintermute]

The basic Economic Principle of Supply and Demand determines the cost of the condos and as it does with almost everything else. If there were not buyers at the present prices then the prices would drop until the buyers started to buy.

In a market with turnover yes.. In a market that partly driven by face.. possibly no..

Remember all those shells of buildings left after the 97 crash ?? Were they dropped onto the market ?? No !! The Thai chinese and thier bankers just shifted them to non performing loans until the market caught up almost a decade later. They have a very different attitude about 'value'..

One of the biggest concerns in Thailand is that the banking apparatus is fairly corrupt and it's tied to state interests. That means if there is behind the scenes manipulation of loans you'll never know until it's too late. It's even less transparent than U.S. banking and that is incredibly scary. Property value and loans are inextricably tied together. If lots of Thais are getting "subprime" type loans to finance their fancy condos and lifestyles then problems are on the horizon. Real wages certainly haven't gone up since '97 so the middle class Thai can afford to buy 8-20 million baht condos. Even worse is if the government is subsidizing Thai banks who give a lot of loans to fuel short term domestic consumerism.

[Irene]

My replies are in bold type:

It sounds like you bought property at a cherry time..back in the early 80's before the first property boom (and bust) and before expats were flocking to Thailand as the new retirement/holiday home haven. Congrats. You bought low and now you're selling /leasing high to others. Then again I could have bought 3.78 million baht (what you paid for that first condo) worth of microsoft stock in 81 and be a multi-millionaire right now. On hindsight, I can also pick other stocks to beat the return on microsoft stock.Of course there are cherry pickings out there but you have to wade through much much more detritus and risk. If you compare risk vs reward, Thailand is a very poor investment for new property owners. Just to disprove your theory, I bought one condo of 102 sqm in January 2005 for Baht 6.3 million (Baht62,000/sqm) and now earning rental income of Baht 65,000/m, the gross yield of 12%. Another unit I bought second-hand in December 2004 of 173 sqm for Baht 13.05m and now earning rental income of Baht 80,000/month, the gross yield of 7%. (My risk of these two investments would be when Thailand has become a closed country like Burma and no expatriates would ever enter the kingdom).

Right now real estate valuations in Thailand are NOT realistic and I haven't seen anyone provide any data to backup that Thailand is somehow better insulated from the property bubble that the U.S. and the U.K. is experiencing. You are right that there are no data to prove anything in Thailand. But even with all the data these wise guys came out in the States, you still have that unprecedented crash in the property market never experienced before in the western world. In Thailand, you go by gut feelings that have served us very well here, thank you! Matter of fact i'd say the potential for a massive blowout is much more of a risk in Thailand than anywhere else. Also, high end condo units are closing in on being comparable in price to parts of the U.S. Which is fairly ridiculous considering the reasons i've outlined in a previous post. Thailand value of property has never come down but they do have property unrealisable that are supported by financial institutions and developers. With the price I paid for my latest unit of Baht140,000/sqm, you would need at least ten times that amount to buy a unit near to the central park. You would also have hard time to find a property in the US that gives you a yield of more than 5%. I invested in San Francisco and London many years ago and withdrew from the market because of the poor yield. They then believed in the benchmark yield of more than 3% as reasonable. For me, anything lower than 5% is a miss.

A person would still get a better return speculating on property in the U.S. (now that the bubble is deflating in the U.S.) or playing the stock market. I started my investment in the US stock market and subsequently the Thai market and diverted a portion of my fund to the property whenever I see an opportunity. The recent subprime crisis in the States does prove that the Americans can be just as bad as the Thais or even worse when one reads of the ways the Americans conduct their mortgage businesses.

From my 30-year investment experiences and reading of so many books and magazines on finance, economics and investments, I have refined my approach to four bullet points. First is to pick the right type of stocks and assets to invest in. The choice is based on businesses or property that are somewhat "franchise" or "moat-like", in which competitors cannot easily break in. With that, I would pick property that can withstand bad time, such as near to mass transit, shopping area and park. Second is timing. This is the most important among the four. It is no point to be right on the choice but bad timing in buying at the height. I am quite good in selling because I follow Ben Graham's motto, "I make money by selling too soon". But I tend to buy too soon. This is the part to distinguish a boy from a man. You put your money and commitments where your mouth is. Third, I always diversify, not relying on one stock or one property. The experience of Enron's employees always stay in my mind. Fourth is education. I read asian wall street and herald tribune daily and investment magazines of all sorts such as economist, time and newsweek, smartmoney and watch cnbc and bloomberg regularly. I am good in distinguishing the sterotyped advices of those wise guys from those gem advices. I always ask myself what sort of gains these wise guys have made in their life time with their talks or write-up of certainty of the trend in the future.

[LivinLOS]

Just curious.. What was the baht/Dollar rates when you bought those condos..

I had a chat with an ex services guy who bought pattaya condos back in the 80's.. He had hardly made much when you looked at what he spent in dollars to buy them.. And that was with a multi decade run.

[ya5702]

My replies are in bold type:

It sounds like you bought property at a cherry time..back in the early 80's before the first property boom (and bust) and before expats were flocking to Thailand as the new retirement/holiday home haven. Congrats. You bought low and now you're selling /leasing high to others. Then again I could have bought 3.78 million baht (what you paid for that first condo) worth of microsoft stock in 81 and be a multi-millionaire right now. On hindsight, I can also pick other stocks to beat the return on microsoft stock.Of course there are cherry pickings out there but you have to wade through much much more detritus and risk. If you compare risk vs reward, Thailand is a very poor investment for new property owners. Just to disprove your theory, I bought one condo of 102 sqm in January 2005 for Baht 6.3 million (Baht62,000/sqm) and now earning rental income of Baht 65,000/m, the gross yield of 12%. Another unit I bought second-hand in December 2004 of 173 sqm for Baht 13.05m and now earning rental income of Baht 80,000/month, the gross yield of 7%. (My risk of these two investments would be when Thailand has become a closed country like Burma and no expatriates would ever enter the kingdom).

Right now real estate valuations in Thailand are NOT realistic and I haven't seen anyone provide any data to backup that Thailand is somehow better insulated from the property bubble that the U.S. and the U.K. is experiencing. You are right that there are no data to prove anything in Thailand. But even with all the data these wise guys came out in the States, you still have that unprecedented crash in the property market never experienced before in the western world. In Thailand, you go by gut feelings that have served us very well here, thank you! Matter of fact i'd say the potential for a massive blowout is much more of a risk in Thailand than anywhere else. Also, high end condo units are closing in on being comparable in price to parts of the U.S. Which is fairly ridiculous considering the reasons i've outlined in a previous post. Thailand value of property has never come down but they do have property unrealisable that are supported by financial institutions and developers. With the price I paid for my latest unit of Baht140,000/sqm, you would need at least ten times that amount to buy a unit near to the central park. You would also have hard time to find a property in the US that gives you a yield of more than 5%. I invested in San Francisco and London many years ago and withdrew from the market because of the poor yield. They then believed in the benchmark yield of more than 3% as reasonable. For me, anything lower than 5% is a miss.

A person would still get a better return speculating on property in the U.S. (now that the bubble is deflating in the U.S.) or playing the stock market. I started my investment in the US stock market and subsequently the Thai market and diverted a portion of my fund to the property whenever I see an opportunity. The recent subprime crisis in the States does prove that the Americans can be just as bad as the Thais or even worse when one reads of the ways the Americans conduct their mortgage businesses.

From my 30-year investment experiences and reading of so many books and magazines on finance, economics and investments, I have refined my approach to four bullet points. First is to pick the right type of stocks and assets to invest in. The choice is based on businesses or property that are somewhat "franchise" or "moat-like", in which competitors cannot easily break in. With that, I would pick property that can withstand bad time, such as near to mass transit, shopping area and park. Second is timing. This is the most important among the four. It is no point to be right on the choice but bad timing in buying at the height. I am quite good in selling because I follow Ben Graham's motto, "I make money by selling too soon". But I tend to buy too soon. This is the part to distinguish a boy from a man. You put your money and commitments where your mouth is. Third, I always diversify, not relying on one stock or one property. The experience of Enron's employees always stay in my mind. Fourth is education. I read asian wall street and herald tribune daily and investment magazines of all sorts such as economist, time and newsweek, smartmoney and watch cnbc and bloomberg regularly. I am good in distinguishing the sterotyped advices of those wise guys from those gem advices. I always ask myself what sort of gains these wise guys have made in their life time with their talks or write-up of certainty of the trend in the future.

Hi Irene

Enjoyed reading your post. I like your frank and sensible explanation, especially concerning investing in the USA where one can be bitten/beaten too. You are an astute investor who puts her/his money where the mouth is. Thanks.

[Irene]

Just curious.. What was the baht/Dollar rates when you bought those condos..

I had a chat with an ex services guy who bought pattaya condos back in the 80's.. He had hardly made much when you looked at what he spent in dollars to buy them.. And that was with a multi decade run.

Good point. In 1981 and 1982, it was in the range of Baht22-23 to a dollar. For December 2004 and January 2005, 39 to 39.5 to a dollar.

In my case, I use funds originated from my own income in Thailand and Thai bank loans (I used to pay market interest rate of 14% for my first condo).

Yes, your ex services guy must have lost hefty sum of exchange losses while having baht capital gain. He brought in dollars in 80's with Thai baht worth of only 23 and if he remits his baht value on the property, he has to convert at the rate of 33.5, he would receive lesser dollars. So from your observation.if you think baht will strengthen further from 33 to 30, then you will have the gain on exchange in future. But if you think baht will weaken from 33 to 36, then don't invest in Thailand. With the ongoing credit crunch in the States and pressure from the US government on China to strengthen the yuan, I venture to guess that the Baht is more likely to strengthen to below 33.

[Irene]

Hi Irene

Enjoyed reading your post. I like your frank and sensible explanation, especially concerning investing in the USA where one can be bitten/beaten too. You are an astute investor who puts her/his money where the mouth is. Thanks.

Hi ya5702,

Thank you for the kind words. You don't know what it means to me in this sea of cynics. I sometimes doubt my thought as well.

[LivinLOS]

Just curious.. What was the baht/Dollar rates when you bought those condos..

I had a chat with an ex services guy who bought pattaya condos back in the 80's.. He had hardly made much when you looked at what he spent in dollars to buy them.. And that was with a multi decade run.

Good point. In 1981 and 1982, it was in the range of Baht22-23 to a dollar. For December 2004 and January 2005, 39 to 39.5 to a dollar.

In my case, I use funds originated from my own income in Thailand and Thai bank loans (I used to pay market interest rate of 14% for my first condo).

Yes, your ex services guy must have lost hefty sum of exchange losses while having baht capital gain. He brought in dollars in 80's with Thai baht worth of only 23 and if he remits his baht value on the property, he has to convert at the rate of 33.5, he would receive lesser dollars. So from your observation.if you think baht will strengthen further from 33 to 30, then you will have the gain on exchange in future. But if you think baht will weaken from 33 to 36, then don't invest in Thailand. With the ongoing credit crunch in the States and pressure from the US government on China to strengthen the yuan, I venture to guess that the Baht is more likely to strengthen to below 33.

Yes thats my point.. So if you had been (like the vast majority of people discussing these threads) bringing in overseas currency to purchase these condos.. You would have been pretty badly off as an investment !! I am reading you spend mid 3mil (at 22 ish to the dollar) to 25 years later have 7 - 10 mil (lets say 8.5 ??) after all that time.. And that makes a 'good' investment ?? I would be horrified.

Thats (3.5m at 22) a cost of about 160k USD in 80's money.. For a realized gain of +-8.5m at 33 or about 260k USD 25 years later !!

What would 160k have bought you in US real estate back in the 80's ??

Instead of using overseas funds you were paying 14% mortgages (sounds like a great deal).. Again I am not sold..

Also would you not owe large chunks of capital gains tax on any sale ??

I did 35% on my assets last year, outside of thailand, and any of them can be sold on a phone call.. I like that flexibility.

Edited January 19, 2008 by LivinLOS

[Rsee]

i just can't see myself spending 7 million baht for a 65m2 shoebox. Isn't this a third world country? i guess many of you are willing to do just that or the prices would be lower.

I fully agree with OP. Bkk condos are currently poor value. BKK is a fun city for sexpats and partying, but that does justify the current valuations.

BKK prices should never be compared with HK or Singapore. Its apples and oranges.

BKK is probably much more comparable to Manilla in terms state of economic and infrastructure developement. BKK and Manilla are marginal 2nd/3rd world cities, and they will continue to be for the foreseeable future, and their property values should reflect that. It's just a matter of time before the markets recognize this again.

If you are looking for good value in an all-around well developed city in SE Asia, there is much much better value to be found in KL. Spore and HK are certainly great cities, but their property is also peaking now.

Avoid buying in the overheated BKK property market until it cools off within the next 12-18months.

Cheers!

[wintermute]

Just to disprove your theory, I bought one condo of 102 sqm in January 2005 for Baht 6.3 million (Baht62,000/sqm) and now earning rental income of Baht 65,000/m, the gross yield of 12%. Another unit I bought second-hand in December 2004 of 173 sqm for Baht 13.05m and now earning rental income of Baht 80,000/month, the gross yield of 7%. (My risk of these two investments would be when Thailand has become a closed country like Burma and no expatriates would ever enter the kingdom).

No offense but 2004/2005 was the period when the baht was like 39-42 to the dollar and also slightly before the more recent ('06-'08) period of property speculation that has led to wide spikes. I don't consider that all that recent. Once Thailand's real estate market has a dramatic pullback (credit bubble deflation) then it MIGHT be worth looking into as a buying opportunity. At current sqm it's not a wise investment. Again i'm comparing risk versus reward, historical trends, and current credit risk assessment.

You are right that there are no data to prove anything in Thailand. But even with all the data these wise guys came out in the States, you still have that unprecedented crash in the property market never experienced before in the western world. In Thailand, you go by gut feelings that have served us very well here, thank you!

Yes, that's the whole point. The bubble has already burst and now it's deflating rapidly. Which is generally a signal into buying low after Q4 2008 once the housing investory/demand matches up. In Thailand the property bubble has been inflating since '06 and it will reach a plateau and then fall. It's a trend.

Thailand value of property has never come down but they do have property unrealisable that are supported by financial institutions and developers. With the price I paid for my latest unit of Baht140,000/sqm, you would need at least ten times that amount to buy a unit near to the central park. You would also have hard time to find a property in the US that gives you a yield of more than 5%. I invested in San Francisco and London many years ago and withdrew from the market because of the poor yield. They then believed in the benchmark yield of more than 3% as reasonable. For me, anything lower than 5% is a miss.

Excuse me?! Thailand's property value went down pretty hard in the '97 era and remained stagnant for many years after that. Even if it's as you say "they do have property unrealisable that are supported by financial institutions and developers" that means there are false floors in place to prevent the bottom from dropping out. Ie. vacant high end units that are priced too high and the developers refuse to eat paper losses on it so they keep it in their inventory forever. If you think about it that's the same as lower valuation the property because it's not producing any returns so it's dead weight. That means the developer is eating significant maintenance/development costs that haven't been realized as well.

You're also comparing Bangkok with some of the most valuable prime real estate in the world. Bangkok is not even close to being comparable with San Francisco or the area around Central Park. Nor does it have the potential unless Bangkok somehow becomes the finance capital of Asia overnight. You have to take into consideration the scale of the economy and how the demand is being financed. Btw, SF and Manhattan were not effected by subprime at all. There's a term called blue chip real estate and those areas (like Malibu, Brentwood, Hollywood hills, Hamptons) are classic examples of this. Bangkok is NOT a blue chip city simply because prices are reaching parity with parts of the U.S. (middle class suburban condo units) and there is plenty of speculator driven demand. Historical loan defaults are also fairly horrible with plenty of market manipulation. This is the same scenarios you got in smaller cities in the U.S.

Look, I don't doubt that you've made some money in the Thailand real estate game but it's highly disengenuous to imply that it's a safe or profitable investment for everyone. Especially when the current trend is speculator driven demand with high sqm prices.

Edited January 19, 2008 by wintermute

[bingobongo]

at least the brits are losing interest

"Some places are proving less popular with buyers now that the initial surge of 'gold rush' buying is over, like Bulgaria and Thailand," the survey's author's said.

http://www.novinite.com/view_news.php?id=89500

[Irene]

My replies are in bold type:

Yes thats my point.. So if you had been (like the vast majority of people discussing these threads) bringing in overseas currency to purchase these condos.. You would have been pretty badly off as an investment !! I am reading you spend mid 3mil (at 22 ish to the dollar) to 25 years later have 7 - 10 mil (lets say 8.5 ??) after all that time.. And that makes a 'good' investment ?? I would be horrified.That made a good investment if you did not use the overseas fund. But for the future, if you think the Baht would be strengthening that seems to be the case, then using overseas fund would give you the gain and not the loss as in the 80's? I like to say that the 80's to 1997 was unusual because Thailand was based on a fixed exchange rate system and it was artificially strong when economic facts then told you that the Baht should be weaker than that level. Hence we had the 1997 crisis. Now the problem is the baht is too weak and should have been stronger to a level of 30. If you invest with 33 now, you might get the dollar at 30 thereby having 10% more dollar. You know very well one should not invest on the information of the past history, it should be prospectively.

Thats (3.5m at 22) a cost of about 160k USD in 80's money.. For a realized gain of +-8.5m at 33 or about 260k USD 25 years later !!

What would 160k have bought you in US real estate back in the 80's ??

Instead of using overseas funds you were paying 14% mortgages (sounds like a great deal).. Again I am not sold.. You got my message wrongly. I should have expanded my source of finance. I only borrowed from a bank for the first condo of 3.5m and paid the then bank rate of 14% for the first three years using my income source plus rental to repay the bank. Thereafter, all my rental income were used to buy new opportunities and never borrowed again.

Also would you not owe large chunks of capital gains tax on any sale ?? Since I bought that 3.5m unit, I never sold a single unit of my condo. The tax on gain is minimal even if I have sold my unit. I have no desire to sell any units now with the rising in rental income and fantastic yield.

I did 35% on my assets last year, outside of thailand, and any of them can be sold on a phone call.. I like that flexibility. I like that very much but not in my case when I sold mine in San Fran, I had to go to the States to conclude the whole deal. I now have no interest in US or UK because I am more at home with the Thai market without having to learn more on the US or UK which would be quite time-consuming. Each individual has different comfort of investment.

[LivinLOS]

That made a good investment if you did not use the overseas fund.

Well depends on your perspective.. I think something like 100 - 120% over 25 years (and thats in baht terms) not that impressive myself.. Then if you look globally (which you have to do IMO) it shrinks even further..

Maybe I have high expectations.. However I have done >100% in 4 years so the idea of that needing 25 doesnt feel good.

Also would you not owe large chunks of capital gains tax on any sale ?? Since I bought that 3.5m unit, I never sold a single unit of my condo. The tax on gain is minimal even if I have sold my unit. I have no desire to sell any units now with the rising in rental income and fantastic yield.

Minimal ?? I thought it was +- 30% of the asset rise ?? I dont know as I dont own here.

[Irene]

My replies to your latest comments are in blue bold type:

Your other comments are only your viewpoints of the future in which it is too high-flying for me since I go by my macro-economy and gut feeling. But I take exceptions to your last comments as follow:

Thailand value of property has never come down but they do have property unrealisable that are supported by financial institutions and developers. With the price I paid for my latest unit of Baht140,000/sqm, you would need at least ten times that amount to buy a unit near to the central park. You would also have hard time to find a property in the US that gives you a yield of more than 5%. I invested in San Francisco and London many years ago and withdrew from the market because of the poor yield. They then believed in the benchmark yield of more than 3% as reasonable. For me, anything lower than 5% is a miss.

Excuse me?! Thailand's property value went down pretty hard in the '97 era and remained stagnant for many years after that. Even if it's as you say "they do have property unrealisable that are supported by financial institutions and developers" that means there are false floors in place to prevent the bottom from dropping out. Ie. vacant high end units that are priced too high and the developers refuse to eat paper losses on it so they keep it in their inventory forever. If you think about it that's the same as lower valuation the property because it's not producing any returns so it's dead weight. That means the developer is eating significant maintenance/development costs that haven't been realized as well. All the developers went bankrupt at that time and became non-performance loans of the financial institutions. For individual owners, they defaulted and also became npl for the banks. But for those individual holders without any debts, they just hung on to the ownership since most of them could afford to hold on to them instead of selling at a price lower than their cost because most of them are well to do. (In my case, our rental income had hardly come down and hardly had any vacancy). Believe me, in 1997 I was flushed with cash and looked around for cheap property, I simply could not see the cheap price as many had suggested. I even approached a few banks and they were punch-drunk to take any interest in liquidating on their npl's. Through accident, I found only a few units at Jomthien, Pataya. I have yet to see the price being dropped in the market in Thailand and I attribute to the structure of the buyers. You could be right this time there could be a bust if the speculators are not the type that can withstand the pressure if there is a crisis in Thailand. But from what I know of a few of them, they do not look like the type. If there is a crisis in property market, history will repeat itself and the financial institutions will again hold the can and wait for the rise, just like the property market in United States now.

You're also comparing Bangkok with some of the most valuable prime real estate in the world. Bangkok is not even close to being comparable with San Francisco or the area around Central Park. Nor does it have the potential unless Bangkok somehow becomes the finance capital of Asia overnight. You have to take into consideration the scale of the economy and how the demand is being financed. Btw, SF and Manhattan were not effected by subprime at all. There's a term called blue chip real estate and those areas (like Malibu, Brentwood, Hollywood hills, Hamptons) are classic examples of this. Bangkok is NOT a blue chip city simply because prices are reaching parity with parts of the U.S. (middle class suburban condo units) and there is plenty of speculator driven demand. Historical loan defaults are also fairly horrible with plenty of market manipulation. This is the same scenarios you got in smaller cities in the U.S. Wow, it is not disputable at all that Bangkok belongs to the Third World. However, there are expatriates who have to come to Thailand to earn profits for their bosses and have to live in Thailand. To induce them to come to work in Thailand, housing allowances have to be large to get them to agree to come here. Unfortunately, the supply to meet this demand is not sufficient, hence the rental value is relatively high for a third world country like Thailand. In China and Indonesia, the rental there are far higher than Bangkok and in China, in some area it is comparable to New York. I recent know of one individual investing exclusively in high-quality houses with private swimming pools etc. for a cost per house of Baht50m-Baht100m and earning rental income per month of Baht250,000-500,000. They are all occupied.

Look, I don't doubt that you've made some money in the Thailand real estate game but it's highly disengenuous to imply that it's a safe or profitable investment for everyone. Especially when the current trend is speculator driven demand with high sqm prices. If you read through my input in this forum, at no time I ever suggested anyone to invest in Thailand. The reason I participated in the discussions is to share my experience as being otherwise than many wise guys' viewpoints. Why do I share my experiences and knowledge? It is simply to learn from others as well on their reactions to my thought and adjusted accordingly when warranted. I have been trained to believe that discussion is not to find a winner or a loser but to progress in your thought and improve on your knowledge. With this mentality, it has put me in good stead wealth-wise and knowledge-wise. I do not stand still and hang on to my belief and I don't need to cajole anyone to the Thailand property market.

[Irene]

My comments are in bold type:

Well depends on your perspective.. I think something like 100 - 120% over 25 years (and thats in baht terms) not that impressive myself.. Then if you look globally (which you have to do IMO) it shrinks even further..

Maybe I have high expectations.. However I have done >100% in 4 years so the idea of that needing 25 doesnt feel good. But you have ignored my current rental return at 18% and 30%. Warren Buffett has consistently accumulated his wealth at an annual return of 22%.

Also would you not owe large chunks of capital gains tax on any sale ?? Since I bought that 3.5m unit, I never sold a single unit of my condo. The tax on gain is minimal even if I have sold my unit. I have no desire to sell any units now with the rising in rental income and fantastic yield.

Minimal ?? I thought it was +- 30% of the asset rise ?? I dont know as I dont own here. No, the tax is paid at the land department. It is minimal if the property has been owned for at least five years. The tax is calculated under a formula based on a number of years of ownership. It is in the range of a few hundred thousand baht depending on the proceeds.

[LivinLOS]

I must be totally wrong.. I was told that if you sold a property there was not only the sales tax (which just got hellishly more expensive down here on Phuket, but thats a province thing) but that the capital gains on the rise was taxed as Thai income.. As thai incomes dont often end up in the multi million range, this was in the upper bands for most of it.

Is that information totally false ??

[Irene]

I must be totally wrong.. I was told that if you sold a property there was not only the sales tax (which just got hellishly more expensive down here on Phuket, but thats a province thing) but that the capital gains on the rise was taxed as Thai income.. As thai incomes dont often end up in the multi million range, this was in the upper bands for most of it.

Is that information totally false ??

You are slightly correct but mostly mistaken on Thai tax structure on property sale. You are right that there is a sales tax, (officially named as specific business tax). However, this tax at 3.3% is applicable only when the property has been held by an individual for less than five years or by any corporation. But if held by five or more than five years by an individual, then no sale tax is applicable but instead you have to pay 0.5% stamp duty.

You are right that there is Thai income tax on this sale. But it is not calculated on capital gains on the rise. It is calculated on an assumed basis of the gain. The assumption is based on the amount of the proceeds less allowances for the deductions. The percentage deduction is based on the years of ownership. The net sum shall be taxed under income tax rates ranging from 5% to 37%. But instead of calculating on the total net sum, the net sum shall be divided by the number of years of ownership (i.e. annualised). That annualised sum shall be subject to the calculation of that multi-rates of 5 to 37%, the result of which shall be multiplied by the number of years. The sum shall then be regarded as income tax payable on that sale. In short, they allow you to use the multi-rates many times depending on the number of years of possession. Hence the tax amount is not that prohibitive. Furthermore , the beauty of it is the income shall not form part of the seller's other income thereby subject to tax calculation again. For most people this could start with the 30% to 37% range. They allow you to elect whether you wish to declare so at the end of the year or not or just take the withholding income tax as paid at the land department as a final tax on that sale. There are a few who would prefer to declare at the end year if there is a likelihood of tax refund. This is normally applicable to those who have no other income or with income but subject to lower tax ranges.

[palm]

Hi Irene

Enjoyed reading your post. I like your frank and sensible explanation, especially concerning investing in the USA where one can be bitten/beaten too. You are an astute investor who puts her/his money where the mouth is. Thanks.

Hi ya5702,

Thank you for the kind words. You don't know what it means to me in this sea of cynics. I sometimes doubt my thought as well.

Irene, you are doing very well here.

The cynics can't even afford to buy even one condo here, let alone multiples like you. Hence their bitterness.

[Irene]

Hi Irene

Enjoyed reading your post. I like your frank and sensible explanation, especially concerning investing in the USA where one can be bitten/beaten too. You are an astute investor who puts her/his money where the mouth is. Thanks.

Hi ya5702,

Thank you for the kind words. You don't know what it means to me in this sea of cynics. I sometimes doubt my thought as well.

Irene, you are doing very well here.

The cynics can't even afford to buy even one condo here, let alone multiples like you. Hence their bitterness.

palm,

Thank you, I appreciate the encouragement.

[quiksilva]

I would just like to lend my support to Irene's comments on condo investment here. Irene mentioned 1997 and the difficulties that was encountered when bargain hunting.

As a property manager at the time, I lost count of the number of investors who came into my office looking for condo's at firesale prices, it simply did not happen. There were none.

Investing in anything has inherent risks, the fact that some here are denouncing cherry picking as bad is frankly unbelievable. There will always be winners and losers in the investment game, however, if you take your time and do your homework it is possible to identify some good opportunities.

This is sad, but its a fact that emotions get mixed up in the decision making process for residential property. So some take short cuts and often misunderstand the simplest of things, themselves.

Many fail to understand even their own foremost reason for buying. Never asking themselves "Is this to live in or make money from?"

Just asking that question of yourself can save a lot of pain and heartache later on, and can put you on the right track towards making better real estate related decisions.

Edited January 21, 2008 by quiksilva

[pkrv]

I too like Irene's posts they are always full of sensible and accurate information/thoughts.

On the FX issues because Irene is Thai invested FX movement is actually irrelevant and indeed places him/her in a superior position to say a pensioner drawing a US/UK based pension. Irene possibly shouldn't/couldn't care less what happens with currency movements.

Of course Irene's Thai based assets could be used to buy an ever increasing amount of US/UK denominated assets (more $/£ for your baht) but somehow I don't think that is going to happen.

Irene - Just one question - I got the impression you are not bringing in foreign currency for your condo purchases, is that correct?

For someone entering the buy to let market, rates are not looking so favourable GBP has fallen from 75 to 64 THB (today) over a 3 year period, but this is not just a Thai issue it is more global.

The core lesson here is if you make a permanent move to a new country try to minimise your FX risk (though this is not possible with pensions). Generating a local rental income is good news, though if you are in the fortunate position of being able to globally diversify (like PALM) that is possibly the best position to be in.

As far as I can see (feehold, foreign quota) Condos remain a fairly safe longterm bet as a home or investment, possibly the main reason for the resilient market which I think is maturing and offers a product for every pocket.

Edited January 22, 2008 by pkrv

[LivinLOS]

FX risk is ALWAYS part of my equation.. I dont mentally value my net worth in any one currency but in a basket of currencies and even include commodities..

Then again I would also not ever tie myself into Thailand in a way it would be hard to escape from, its fun andc all but its the 3rd world country it is.. I want to be able to have an exit plan to leave for other places should the shine dull beyond certain thresholds.. Hence assets must be actually shiftable.

[pkrv]

FX risk is ALWAYS part of my equation.. I dont mentally value my net worth in any one currency but in a basket of currencies and even include commodities..

Then again I would also not ever tie myself into Thailand in a way it would be hard to escape from, its fun andc all but its the 3rd world country it is.. I want to be able to have an exit plan to leave for other places should the shine dull beyond certain thresholds.. Hence assets must be actually shiftable.

Hazarding a guess - you don't own a Bangkok Condo do you? Interesting you mention the potential for the negative side, oddly I see a large upside potential for Bangkok. I am now the proud owner of a Bangkok condo.

It will be interesting to revisit this subject in say 10 years?

[LivinLOS]

I would hope it improves, but will it improve as fast as others in the region ?? I just see a much higher risk of downside than upside.. Kings health, pretty poor standards of democracy... I tend to see the last 15 years as being the best they have had not as a norm. I also think Thai property is highly illiquid I like freedoms.