Condo Projects Facing Oversupply

[bingobongo]

well well well, look who says it now, not I the humble bongo, but the Assoc Prof Manop Bongsadadt, president of Thailand's International Real Estate Federation.....

so go ahead have a helping of denial with that plate of som tham......

additionally, courtesy of Thai Crisis:

And it confirms 2 basics observations, on the ground, that everybody with a little common sense and who is living in Bangkok can make :

- cranes everywhere, glossy advertisings everywhere, new condos everywhere… The heat is definitely on.

- once finished, most of these new condos buildings… stay remarkably… empty. At night, with only a few lights… Now, that's strange, isn'it ?

Condo projects facing oversupply

Customers who bought units worth Bt30,000 per square metre or less last year could lose their down payments, because the developers cannot continue with the high construction costs.

http://www.nationmultimedia.com/2008/02/14...ss_30065308.php

Edited February 14, 2008 by bingobongo

[TheGameJustIs]

the global markets have been going crazy the last few years, it only makes sense that this could cause a real estate bubble in Thailand as it has in the United States and other parts of the world. I have noticed on Bangkok Bank's website that they do in fact offer sub prime loans. I would be interested in the those statistics.

[quiksilva]

Good to see some appropriate facts and figures, for once.

Of course nobody really knows to what extent people have been buying to rent vs occupation but it certainly does appear to be a problem. The thing is with regional and indeed global markets slowing down, will kill off demand to a certain degree but there is also a breed of investor out there who will look to buy into markets that are doing comparatively better, which is where Thailand stands, for now.

As suggested before I suspect that there will be a yield crunch in Thailand as all these buy-to-let investors scramble over the few tenants here, but it will not happen over night, but Im sure we will see a softening in rental rates of grade condos fall from their current levels (~THB500 psm/pm) over the next two years I suspect.

[Irene]

Without any doubt, using broad statistics for Bangkok, oversupply of the condos has been here since 1997. But if we can gauge demand for a certain sector such as Sukhumvit (Soi 5 to 63), the demand may be higher than supply. It is definitely higher for those condos next to BTS and MRT stations along that road as indicated by the recent rises in rental. It is best to read CBRichard Ellis research papers on accommodation for office and residential spaces in which they subdivide in sectors. The reports reflect the market pretty well.

[trajan]

absolutely, the market here is very imperfect (from the perspective of supply & demand)....if you look at overall market...the supply bubble is overgrowing IMHO...I definitely think projects selling for B30K psm will definitely suffer because of rising building costs (btw, are any of those amazing prices in desireable locations? just curious)

BUT if you look at specific sectors and niches (like top lux with reputable branding) and locations (like super prime CBD areas or very near BTS/MRT stations), the balance is MUCH healthier ....

Edited February 16, 2008 by trajan

[thaigene2]

absolutely, the market here is very imperfect (from the perspective of supply & demand)....if you look at overall market...the supply bubble is overgrowing IMHO...I definitely think projects selling for B30K psm will definitely suffer because of rising building costs (btw, are any of those amazing prices in desireable locations? just curious)

BUT if you look at specific sectors and niches (like top lux with reputable branding) and locations (like super prime CBD areas or very near BTS/MRT stations), the balance is MUCH healthier ....

Come on Trajan. Sure some rich people will keep paying top dollar for the top end. But rich people aren't stupid and they won't buy in an over-saturated market, especially off-plan.

These are speculators (as even quicksilva points out), and the news article is tryiong to soften the blow by suggesting that somehow the magic marker is 30,000 Baht/M/2.

No one buying anymore results in NO developer (30,000, 50,000 or 100,000 Baht/M/2) completing the building cause the cash simply dries up.

Edited February 16, 2008 by thaigene2

[trajan]

Come on Trajan. Sure some rich people will keep paying top dollar for the top end. But rich people aren't stupid and they won't buy in an over-saturated market, especially off-plan.

These are speculators (as even quicksilva points out), and the news article is tryiong to soften the blow by suggesting that somehow the magic marker is 30,000 Baht/M/2.

No one buying anymore results in NO developer (30,000, 50,000 or 100,000 Baht/M/2) completing the building cause the cash simply dries up.

thaigene, you completely miss the point...(also, no need to be so strindently negative....werent you yourself buying or trying to buy with a mortgage?)

what I am saying is that in some real estate sectors, niches & locations demand exceeds supply, notwithstanding other general sectors where supply may exceed demand....

Edited February 16, 2008 by trajan

[bingobongo]

speaking of costs......

High costs worry developers

http://thailand-property-guide.com/?p=news/article&NewsID=704

[samran]

Bingo,

like any good economist I welcome a market that is moving into eqilibrium. The fact of the matter remains though that spare land here remains in great supply. Other things being equal, it is simply easier, and most likely cheaper to build something new condo wise than take and renovate something older. Until this is not the case, you'll always see many cranes and many condo's going up - and wonder why it can happen.

Also the case that many developers are targeting the Thai middle class. Smaller dog boxes going up these days.

[thaibkk]

should we farang all secretly hope that the thai real estate market crashes as in the US

and that the Thai government would restart the 3 mio baht investment visa that would also apply in real estate to boost their sales ?

i know some funny real estate company's in europe, who advertise to buy houses in Thailand... they seem to forget farang can not and will apparently never own land in LOS ... so who would want to invest in LOS except you have Thai wife, and still, the chances as you see how many marriages end up in divorce... the poor farang can go back to his country leaving a house as reward to his ex-wife for a merly few years of marriage ...

why oh why do people of neighbouring country's of LOS not have to do stupid visa runs like us here on a multiple non o or b ...

[PadThaiGuy]

If the rules change and the Farang can buy a house/property, the condo market won't be lookng so desireable.

Renting in Thailand is much better.

[backflip]

"...the market here is very imperfect (from the perspective of supply & demand..."

Absolute rubbish. The law of supply and demand is working quite well here. The situation, and it's not specific to Thailand, is that every piece of property has a fair market value. The FMV may be higher than the buyer wants, and lower than the seller desires, but that's that.

[trajan]

"...the market here is very imperfect (from the perspective of supply & demand..."

Absolute rubbish. The law of supply and demand is working quite well here. The situation, and it's not specific to Thailand, is that every piece of property has a fair market value. The FMV may be higher than the buyer wants, and lower than the seller desires, but that's that.

what utter nonsense....if there is an oversupply, then the price should decrease under the law of supply and demand...that is often not the case here...with supply often just lying dormant instead of selling at a decreased price....that is not a perfect equilibrium....

[buddhafly]

there certainly are a lot of places for sale.

but a good way to look at it is, ultimately you need a place to live. esp for those of us employed here.

this is why i bought, firstly to stop throwing money away on rent.

secondly, when i am ready to leave bangkok for a quieter province, i should be able to rent it out and supplement any other incomes by the rent.

as long as you pick a decent building, from a good mgmt company, in a superior location, this is not unrealistic.

[Livinginexile]

Bongo

If this is the case then plz explain to me why I have been offered 35% more for my condo than what I payed off the plan in early 2005?

If I sold now I would make 1.8 million Bht clear profit....THIS IS A FACT.

Your doom, gloom and the "sky is falling" statements just doesn't match what's going on in the real world Bongo.

Perhaps true in the low end condo segment....but CERTAINLY not in the high end segment in Bkk.

[samtam]

If 35% more equates to a THB1.8m clear profit, I'm not sure that's what I would term "high end".

[trajan]

there certainly are a lot of places for sale.

but a good way to look at it is, ultimately you need a place to live. esp for those of us employed here.

this is why i bought, firstly to stop throwing money away on rent.

secondly, when i am ready to leave bangkok for a quieter province, i should be able to rent it out and supplement any other incomes by the rent.

as long as you pick a decent building, from a good mgmt company, in a superior location, this is not unrealistic.

absolutely, if you looking for a place to live longer term, then buying in a super location in a well managed building is the way to go in my opinion.....nothing is risk free in life, but perpetually renting is not a good idea if you are staying in a location ...of course, if you are truly a global nomad flitting from country to country every few months, this wouldnt apply to you...

[bingobongo]

given that the quality of Thai condo construction is nonexistent after 5 years (do not even mention maintenance), and the ability to buy a brand new one for less due to oversupply is possible.....why not buy pork with a better ROR?

besides everyone needs to eat, not live in an overpriced, oversupplied condo....my point is that inflation is rampant in LOS on everything from pork to bus fares.......so just because a condo goes up, relative to everything else, it means nothing when you cant sell it and oversupply is rampant......so better to sell pork with 35% return that people need as opposed to 4 walls and plaster that most folks do not

http://thaicrisis.wordpress.com/2008/02/16...-price-of-pork/

[Livinginexile]

Bongo

Once again you are quoting accross the board condo sales.

"Preuksa Real Estate director Prasert Taedullayasatit agreed with Issara, adding that this year would be a hard time for property developers of city condominiums if they did not change their concepts to meet customer demand.

"We believe the property developers that developing city condominiums by focusing on the lower to middle market may record losses rather than profits, if they do not change their condominium concept," he said."

The upper condo market segment is still very healthy.

Dream on Bongo

[bingobongo]

now now, lets be civil, and take bias out of the argument....anyway, unless you own the property free and clear from the bank you are just a "homedebtor", paying rent to the bank, not a "homeowner"

i leave you with this livingindebt.......

One reason the housing debate gets so emotional is that many people cannot distinguish between where they live and who they are. Their home feels like their self. And how can you put a price on your self? Realtors and lenders exploit this emotion for personal profit, destroying the financial lives of millions.

Others take a more practical view, and are willing to separate their sense of self from where they live. They can and have saved huge amounts of money by renting or owning a house well within their means, and can watch the housing bubble implode with equanimity.

[ray08]

"...the market here is very imperfect (from the perspective of supply & demand..."

Absolute rubbish. The law of supply and demand is working quite well here. The situation, and it's not specific to Thailand, is that every piece of property has a fair market value. The FMV may be higher than the buyer wants, and lower than the seller desires, but that's that.

[/quote

More like supply and no demand , look at real estate ads in Bangkok post and websites ,properties unsold for 6 months or longer and they increase selling price ,true market forces would say that if a property cannot sell at a certain price ,after a period of time it means price is too high and needs to be dropped down, in Bangkok it goes up, supply and demand does not apply here

[thaigene2]

Come on Trajan. Sure some rich people will keep paying top dollar for the top end. But rich people aren't stupid and they won't buy in an over-saturated market, especially off-plan.

These are speculators (as even quicksilva points out), and the news article is tryiong to soften the blow by suggesting that somehow the magic marker is 30,000 Baht/M/2.

No one buying anymore results in NO developer (30,000, 50,000 or 100,000 Baht/M/2) completing the building cause the cash simply dries up.

thaigene, you completely miss the point...(also, no need to be so strindently negative....werent you yourself buying or trying to buy with a mortgage?)

what I am saying is that in some real estate sectors, niches & locations demand exceeds supply, notwithstanding other general sectors where supply may exceed demand....

No I'm not missing your point. Your main point is valid, and I agree there will always be a niche..What I'm saying is that even in the niche market, if the niche-players believe that not enough other players are playing, they will shy away. As I said rich people aren't stupid, and they're not going to chance big "niche" money on a place if they think they be the only one's to to be taking the risk. And that's when things go t+ts-up. The reason for shying away is because they are worried the place won;t get finished (just like anyone else).

Edited February 18, 2008 by thaigene2

[thaigene2]

there certainly are a lot of places for sale.

but a good way to look at it is, ultimately you need a place to live. esp for those of us employed here.

this is why i bought, firstly to stop throwing money away on rent.

secondly, when i am ready to leave bangkok for a quieter province, i should be able to rent it out and supplement any other incomes by the rent.

as long as you pick a decent building, from a good mgmt company, in a superior location, this is not unrealistic.

absolutely, if you looking for a place to live longer term, then buying in a super location in a well managed building is the way to go in my opinion.....nothing is risk free in life, but perpetually renting is not a good idea if you are staying in a location ...of course, if you are truly a global nomad flitting from country to country every few months, this wouldnt apply to you...

OK not singling out your posts Trajan, but most of us (foreigners here) who are working here can't predict our stauts 1 - 3 years down the road, so that's a pretty strong motivating factor to keep renting. Yes, I was willing to take the plunge before and the mortage fell through (as they closed the doors temporarily to foreigners), but even as two years on, they've eased up, the former concern seems to be more acute now than before. So what to do? It seems rent - for now. If the visa rules ease, and the access to credit remains ok, then maybe it's time to re-consider. I'm willing to keep looking at options, but at present, I'd say buddhafly is right. maybe for retirees, it's ok though..not sure about that.

[bingobongo]

well at least it is not "too much" of a bubble LOL.........thats it, keep building, add to that supply

AREA survey points to high supply

“If we look into the details, the current amount of projects waiting to be launched is a slight increase, which is not too much to be a bubble. Of course, if there are more new launch projects in the near future, they will create fierce competition in the market. But we may have to be aware of some effects due to supply over demand,” added Sopon.

http://www.property-report.com/aprarchives...amp;date=240108

[trajan]

No I'm not missing your point. Your main point is valid, and I agree there will always be a niche..What I'm saying is that even in the niche market, if the niche-players believe that not enough other players are playing, they will shy away. As I said rich people aren't stupid, and they're not going to chance big "niche" money on a place if they think they be the only one's to to be taking the risk. And that's when things go t+ts-up. The reason for shying away is because they are worried the place won;t get finished (just like anyone else).

well, when I say niche I mean niches like the very top ends like Sukhothai, River, 185 Rajadamri (when it launches a bit later)... no one's shying away....even the "rich people" as you say are not shying away (example, at the Sukhothai, smaller sub-penthouse of 435 sq.meters sold at B313,000 psm; ......larger 1189 sq.meter duplex penthouse sold at B343,000 psm, overal units averaging B220,000 psm already 50% sold before even formal launch......cranes working continuously....

(also, prime prime central locations like near skytrain stations (which are becoming rarer and rarer) with very good reputational developers) seem to have very heavy demand... much higher than supply.....

if you are talking about the overall market in any 'ole location with any 'ole developer, then yes be very careful because things are over heating and building costs are getting higher.... those can easily go "t+ts up" as you say....

BUT for the niches and super prime locations with very good developers, the risks IMO are much lower (and are good opportunities IF you can even grab a desireable unit).....

[PadThaiGuy]

A friend bought a place in Jomtien a few years ago. The Land Office was packed with people doing business.

Recently, he went there and it was empty, like a ghost town.

I think there are serious problems in the local real estate market.

[quiksilva]

It is best to read CBRichard Ellis research papers on accommodation for office and residential spaces in which they subdivide in sectors. The reports reflect the market pretty well.

Hehe I'd argue with that, no firm holds a monopoly on interpretation of market data. We also produce independent research papers on the condominium, serviced apartments, hotels, and office property markets. They are free too. You should read as many different opinions as you can.

However I should mention that I only produce the office market research papers, so the opinions I offer here on TV on the residential market are entirely my own, albeit based on the various research reports I have read.

I have no reason to doubt that Livinginexile's was offered more than what he paid for his condo, and I don't doubt that others are experiencing this too (at all grades).

I think this is a reflection of where we currently are. This market is outperforming more mature markets in terms of rental returns, (for many units) however (and that should be in bold) I think that this situation is likely to change as more buy-to-let units come online, and compete for tenancies.

I agree with Irene, that certain areas will fare better than others, but I think the demands of tenants will increase given that there are so many options to choose from.

Take the "must be close to the BTS" philosophy. This is true for now but it will change. The market will demand more. After all why catch the BTS? At rush hour its crowded, cramped and really very unpleasant, and it will get worse too once they extend the lines to residential destinations further afield. Do you want to buy a condo in Thonburi? They will have BTS too.

So when we look to areas that will perform well in the future, we must look at more than just mass transit, I predict that soon tenants will demand to be within walking distance to their office. Representing the long awaited evolution of prime locations in Bangkok.

Sure locations with an easy walk to a BTS station will outperform areas that are not either close to commercial centers or a BTS, but it is the established commercial centers that we should look to going forward. These prime locations will keep on getting better.

(edited for clarity)

Edited February 19, 2008 by quiksilva

[backflip]

"what utter nonsense....if there is an oversupply, then the price should decrease under the law of supply and demand...that is often not the case here...with supply often just lying dormant instead of selling at a decreased price....that is not a perfect equilibrium...."

The problem is that you do not inderstand basic economic mechanisms, including either the supply curves(s) or the demand curve(s).

You posted "if there is an oversupply..." What makes you think there is an "oversupply"? Just because bingobongo says there is, it doesn't make it true. You think that the Law is true only if everything sells immediately, and that's a hilarious misunderstanding on yuor part. Does Tesco Lotus, for example, sell out of everything everyday? Of couse not. The fact that there are 5,000 unsold condos in a metropolis of 9,000,000 people, you think that there's a problem with the Law. Your imperfect understanding of the Law is the problem. If there were NO unsold condominiums availalbe (and you're afraid of forming a company to purchase a home), you could not afford to live in BKK. Those seeking homes would be forced to rent, causing rents to skyrocket.

As I posted before, every property has a fair market value. There is nothing that forces someone to buy or to sell at the FMV. You think that means Thailand's economy is in shambles, and you're wrong. There is no law anywhere that forces people to trade real estate at its FMV, despite what you think.

Edited February 19, 2008 by backflip

[ray08]

Supply and demand means that there is a market to meet that supply , if i am overstocked in product that means i have no demand for my product ,i can do 2 things ,

Thai Way : Hold on to my stock and wait for demand to meet my supply

Western Way : Discount old stock in order to get rid of inventory , where there is no demand at my current price if i discount enougth there will come a price where someone will see a bargain at that price and hence a demand

And please when we talk about the Bangkok market ,lets not forget the secondhand market can someone show me the supply and demand there ?

[think_too_mut]

And please when we talk about the Bangkok market ,lets not forget the secondhand market can someone show me the supply and demand there ?

Tens and tens of thousands for sale, some sitting for several years, that you can find advertised in English. Can't even guess how many in Thai only.