The Property Market

[MJo]

Well since the Thai market is so hot , and all developers and investors want to make a lot of money why do we have second hand properties sitting on the market for months , if not years ??

Amen, and most of these units are brand new. Same furniture in each unit bought with the gift certificate received from the developer and empty since completion.

Asking prices sky high thus no demand / buyers. Owners not willing to discount, pretty much in denial.

Quite normal situation though when a market starts to slow down and go down.

But things are changing already. Few agents promoting discounted re-sale prices already in Manhattan Chidlom and Suk City Resort at soi 11 for starters. Couple of them already admitted it's due to the transfer deadline closing. Speculators can't afford to transfer the units in their own name...

Edited March 28, 2008 by MJo

[RAZZELL]

Most of the Thais I know own either a house or condo (or more) that were bought for from half a million to more than a million dollars. Most of them own a house and a few condos. At least 30 people that I know and they have kids who also own the high end condos or in the process of buying to have a place call their own.

These people don't have just one kid and the new generations don't want to live in the family compound any more. Just my observation.

Unlike in the West, most thais do stay in the family compound even after marriage but things are changing now.

You must know the vast majority of the Thai elite

RAZZ

[xbusman]

Here is the truth about the Thai property market.

Honest valuations:

A good general rule of thumb in placing a value on property is 100 times rent. Thats the value of purchasing plus all the costs to get it ready to rent, and all taxes and fees involved in the sale. The rent part refers to how much the unit will rent for given good condition and no more than three months vacancy. Thats the gross rent, there may be yearly fees and management fees, those are really not relevant to valuation.

Can you get around this, yes in some markets but not by much. Ten years ago we owned over 1000 residential properties in greater Los Angeles, when this formula was lost, we liquidated like mad, particularly over the past two years. When the crash came, we had six left. Everything was turned into commercial properties over the past five years which have a much more stable ROI.

From over sixty years in a variety of markets, anything too far away from this rule of thumb is stricktly speculative money and when the music stops, as it always does, someone will be left standing. Usually, there are far better investments than property if outside this ratio such as government securities or the stock/bond market. In other words, why take all the risk and grief with property at a 2% return when you can get no hassle government bonds at 4%.

There are lots of factors that can adjust for this, over time astute investors learn them all. Such as knowledge of mass transit expansion or other infrastructure improvements.

This is a pretty good investment and buying guide. If purchase is 60 times rent, buy all you can. If purchase is 200 times rent, as it appears to be in thailand, might be smart to rent.

Property dealers are salesman who get paid commission. Can we expect them to lie, distort cheat and steal? I would be amazed to think that any one of them would do otherwise. Why do we even print their words when we know that? Is it any different anywhere else? In the end, who cares what they say as long as the financial ratios are pretty much correct. Honestly, if anything was as good as any salesman promises, why dont they own it?

Do things sell in Thailand. First off, who cares really. It always comes back to the financial ratios. If I sell tomatoes for 1 million baht, who cares if I sell all of them, I only need to sell one and in the meantime my 80 tomatoes make me very wealthy sitting in my little wagon. You never know, I might find that idiot to buy one but I hope the music does not stop in the meanwhile.

Secondly, there is no good information on anything in Thailand. Its all pretty much distorted and created for a variety of reasons. Anyone here for more than a week should have an handle on that one. Truth is not a valued commodity here, getting along and not embarrassing anyone is. All our statistics and information follow that line of reasoning so in the end, we know nothing about what is really going on. Instead, we watch emergency economic measures being announced weekly and yet no one talks about the economic malaise.

Lastly, its important to remember that we can only talk about the condo market anyway, everything else is illegal. If we follow the rule of expats in Thailand and never invest more than we can walk away from, then in the end it doesnt really matter if it makes financial sense or not. We are talking about pocket change and mad money that is irrelevant to our life. Getting a reasonable return or even the risking of the entire amount does not really have to be considered for that kind of loose change.

In a nutshell. The market is grossly overpriced and a very bad investment other than a purely speculative play. The information on the market reality is poor at best, outright fabrication at worst, and salesman add to that delusion at every opportunity. Since we never invest more in Thailand than we can smoke before breakfast without noticing, its all pretty irrelevant anyway.

[nothingleftbutfaith]

Here is the truth about the Thai property market.

Honest valuations:

A good general rule of thumb in placing a value on property is 100 times rent. Thats the value of purchasing plus all the costs to get it ready to rent, and all taxes and fees involved in the sale. The rent part refers to how much the unit will rent for given good condition and no more than three months vacancy. Thats the gross rent, there may be yearly fees and management fees, those are really not relevant to valuation.

Can you get around this, yes in some markets but not by much. Ten years ago we owned over 1000 residential properties in greater Los Angeles, when this formula was lost, we liquidated like mad, particularly over the past two years. When the crash came, we had six left. Everything was turned into commercial properties over the past five years which have a much more stable ROI.

From over sixty years in a variety of markets, anything too far away from this rule of thumb is stricktly speculative money and when the music stops, as it always does, someone will be left standing. Usually, there are far better investments than property if outside this ratio such as government securities or the stock/bond market. In other words, why take all the risk and grief with property at a 2% return when you can get no hassle government bonds at 4%.

There are lots of factors that can adjust for this, over time astute investors learn them all. Such as knowledge of mass transit expansion or other infrastructure improvements.

This is a pretty good investment and buying guide. If purchase is 60 times rent, buy all you can. If purchase is 200 times rent, as it appears to be in thailand, might be smart to rent.

Property dealers are salesman who get paid commission. Can we expect them to lie, distort cheat and steal? I would be amazed to think that any one of them would do otherwise. Why do we even print their words when we know that? Is it any different anywhere else? In the end, who cares what they say as long as the financial ratios are pretty much correct. Honestly, if anything was as good as any salesman promises, why dont they own it?

Do things sell in Thailand. First off, who cares really. It always comes back to the financial ratios. If I sell tomatoes for 1 million baht, who cares if I sell all of them, I only need to sell one and in the meantime my 80 tomatoes make me very wealthy sitting in my little wagon. You never know, I might find that idiot to buy one but I hope the music does not stop in the meanwhile.

Secondly, there is no good information on anything in Thailand. Its all pretty much distorted and created for a variety of reasons. Anyone here for more than a week should have an handle on that one. Truth is not a valued commodity here, getting along and not embarrassing anyone is. All our statistics and information follow that line of reasoning so in the end, we know nothing about what is really going on. Instead, we watch emergency economic measures being announced weekly and yet no one talks about the economic malaise.

Lastly, its important to remember that we can only talk about the condo market anyway, everything else is illegal. If we follow the rule of expats in Thailand and never invest more than we can walk away from, then in the end it doesnt really matter if it makes financial sense or not. We are talking about pocket change and mad money that is irrelevant to our life. Getting a reasonable return or even the risking of the entire amount does not really have to be considered for that kind of loose change.

In a nutshell. The market is grossly overpriced and a very bad investment other than a purely speculative play. The information on the market reality is poor at best, outright fabrication at worst, and salesman add to that delusion at every opportunity. Since we never invest more in Thailand than we can smoke before breakfast without noticing, its all pretty irrelevant anyway.

In other words, the Thai property market is like the country itself : deeply fuc_ked up .

[johnnyk]

Similar then to other places where the property market reflects the country as a hole?

Edited March 28, 2008 by johnnyk

[number9999]

Honest valuations:

A good general rule of thumb in placing a value on property is 100 times rent. Thats the value of purchasing plus all the costs to get it ready to rent, and all taxes and fees involved in the sale. The rent part refers to how much the unit will rent for given good condition and no more than three months vacancy. Thats the gross rent, there may be yearly fees and management fees, those are really not relevant to valuation.

Absolute nonsence - ive heard this 100 times rent argument or 120 for ages its nonsense - ive

been in property for over 40 years - great times were in 60s 70s 15% gross return bank charging

10% and high inflation great - made loads. Now In USA UK returns have been xrazy for years and ive

not bought anytihng in those places for over 7 years - here - true its not same as USA UK and

you need to know its not same but I get about 10% gross return (condos I would not touch houses)

and only buy in forang or tourist areas - priced have not gone up like in UK or USA but they have

gone up over last 7 years some id say about 3-5% a year depending on area - so with cheap

maintenance it can pay but loads of work and only buy in good forang areas and in my view only

condos forget ohuses they usually go down - no chance

True ive made much more in UK and USA ,arkets but now prices their is so high if you make a

mistake its to costly - here buy a nice condo for 2-3 million good location and downside is very small

I love those who say rent is better here - gives me more customers

As I said not same as eorope or USA but you can do OK if you dont buy overpriced new stuff

[abcd22]

Here is the truth about the Thai property market.

Ten years ago we owned over 1000 residential properties in greater Los Angeles, when this formula was lost, we liquidated like mad, particularly over the past two years. When the crash came, we had six left. Everything was turned into commercial properties over the past five years which have a much more stable ROI.

/quote]

Is this a typo? 'We owned over 1000 residential properties'.

Who does the 'we' refer to?

I'm just curious and always like to hear about and take pleasure from other people's business success.

[thaigene2]

xbusman's post was excellent - should be pinned actually..

It's a thoughtful perspective. Will get roundly trashed of course by the people who's livelihoods rely on the property markets - but like he says: who cares? To add my two-bits, I think the rental rates are even more overblown in the Sukhumvit and Silom areas than he suggests - wherever farangs and Japanese tend to live.

You can rent a nice house in the Victory Mouument - to - Sapan Kwai area for 20-30,000 baht per month! Condos/Apartments in the area with modern kitchens and bathrooms range from 15,000 (a very good deal but a bit hard to find) up to 25,000 for a one-bedroom. Modern studios a stone's throw to the Skytrain stations are 9-10,000 (walking distance to Aree Villa Market and Aree Station) though the speculators in Noble Lite are trying (in vain) to get the big inflated Sukhumvit rents. Still, the prices to buy these places are nearly the same as Sukhimvit (around 80,000 bsm).

I'll continue to rent, however for those who just can't resist buying something (and can afford it) I think the only rational purchase here is a condo - and only for those who are certian they want to retire here and will be secure (in their own minds anyway) about their future visa situations and income levels to comply with the Thai non-immigrant residency rules.

It's certainly not for everyone. Anyway as I said that was a great post.

[alive555]

A couple of points I'd like to add here:-

1. Theres absolutely nothing wrong with speculation in real estate. A lot of posters here either missed the boat on the market, don't have sufficient funds, or really hate to see others making profits on property. I don't know any stock investor who buys stock purely for dividend only. Usually they are also seeking a capital gain too.

2. Generally speaking the higher the quality of real estate asset the lower the rental yield you should expect. So just because the yield is say 3 or 4 per cent doesn't indicate a lousy investment opportunity (even if u could as an option put ur money into a risk free investment). That's because u would typically expect to see higher cap appreciation than mid or low class property.

3. Bangkok top end is strong because in many way we are playing catch up with rest of world. That reason prob more than most.

4. Scarcity. At the top end there are v few good projects. That's why 185 will go like a bomb . Ask yourself where u can replicate that project in the city. Answer you can't . What do u think it will cost in 10 years? Look at other regional cap cities where the projects are in Cbd next to 5 star hotels with largely unobstructed views. Long term its a no brainer.

5. What Is a worry is the mid /upper end in sukhumvit where u def don't have scarcity its overbuilt and with relatively few new farangs coming in to the country who is going to pay for that mortgage? At the top end the large majority don't have any prob financing 100 of equity so that's another reason to invest at the top end . Quality comes at a price.

[BEENTHEREDONETHAT]

My property purchase is for life style more than anything. If it ends up being a good investment that is a bonus.

Don't really know of anywhere (that I would want to live) that I could have even close to the same lifestyle for the same money.

[xbusman]

A couple of points I'd like to add here:-

1. Theres absolutely nothing wrong with speculation in real estate. A lot of posters here either missed the boat on the market, don't have sufficient funds, or really hate to see others making profits on property. I don't know any stock investor who buys stock purely for dividend only. Usually they are also seeking a capital gain too.

2. Generally speaking the higher the quality of real estate asset the lower the rental yield you should expect. So just because the yield is say 3 or 4 per cent doesn't indicate a lousy investment opportunity (even if u could as an option put ur money into a risk free investment). That's because u would typically expect to see higher cap appreciation than mid or low class property.

3. Bangkok top end is strong because in many way we are playing catch up with rest of world. That reason prob more than most.

4. Scarcity. At the top end there are v few good projects. That's why 185 will go like a bomb . Ask yourself where u can replicate that project in the city. Answer you can't . What do u think it will cost in 10 years? Look at other regional cap cities where the projects are in Cbd next to 5 star hotels with largely unobstructed views. Long term its a no brainer.

5. What Is a worry is the mid /upper end in sukhumvit where u def don't have scarcity its overbuilt and with relatively few new farangs coming in to the country who is going to pay for that mortgage? At the top end the large majority don't have any prob financing 100 of equity so that's another reason to invest at the top end . Quality comes at a price.

I would like to address those points, I think they are very good ones.

1 I agree there is absolutely nothing wrong with speculation and I think that investing in any third world country outside the rule of law is speculation in the extreme. A bit like junk bonds or penny stocks which are also completely irrelevant to dividends. In my career, I was fortunate enough to work with hundred of the wealthiest people in the world and I can tell you that pretty much universally those people did not speculate. When buying a company or property or anything for that matter, they were cold and calculating on the numbers and ratios. Even in the venture capital start ups which were about as speculative as they got, they worked portfolios to reduce the speculative risk. They were very speculative adverse. Now, I dont know if this is good, bad or indifferent. I dont know if they made their initial money in some speculative deal, I kind of doubt it. I do know they did not buy lottery tickets or pay for blue sky when purchasing companies. These were mostly self made people, decidedly different from the corporate animals getting 200 million dollar salaries. Those people were much more speculative, after all in a sense it wasnt their money. I dont think Warren Buffet is a speculator, I may be wrong but I think he got to where he was by extreme attention to ratios and returns. So while there is nothing wrong with speculation, I would doubt that there were many people living in Thailand who really should be speculating in such an extremely dangerous environment.

2. That may be true that higher quality properties have a higher growth rate but I think thats a dangerous guess in markets you know, much less a third world market where we are at a disadvantage. It is by no means a universal truth as people are painfully learning in LA and Miami. The largest depreciation is happening at the high end, why? because the economics and per capita income fails the upper end far sooner than the lower end. Just a matter of math really. Will it come back, probably but not in time to help people earning 80,000 a year make mortgage payments on houses purchased for 1.5 million. Again you are justifying speculation at below market rates in an extremely dangerous market. I am not sure I understand why those lower returns and much larger risks would be preferable to a tax free muni of some sort.

3. Bangkok top end may indeed be strong, we just dont know do we and anyone offering an opinion does not know either. When you talk about the rest of the world, I think you are talking about strictly the western world. I dont know the world market but I doubt that third world countries property costs as much as first world countries. Look at the differences, just start with air quality and end with rule of law and policemen who dont shoot citizens when drunk and mad. There is a quantum leap between life in Paris and life in Bangkok and nothing we can say or do can make a comparison valid. Why would we even imagine that Bangkok property should catch up with Paris. Perhaps we are catching up to other third world countries, I could not address that as I have no idea what property in Vietnam or Uganda is doing. I dont think we will live long enough to see a quality of living or safety in investing that you get in England, France or the US.

4. Scarcity. A relative term in my book. If they were so scarce the rents would not be so cheap is our line of thinking. We could well be wrong but scarcity has always allowed any product to raise prices until the return was reasonable. Returns on property are not reasonable here so I am not entirely sure there is scarcity in relation to the demand. I might be wrong, I have no idea what that top end is renting for but I am guessing its not 1% of purchase.

5. Worry on the middle market in Sukhumvit, perhaps there might be some, we are not privy to the credit reports on the people investing. I think if we expats live by the rule of not investing more than we can walk away from, there is no worry for us at all, anywhere for any property. So we are really only talking about the Thai purchasers and speculators on Sukhumvit possibly being in for a rough time. That might be the case, we can only watch it play out. I do know that there always comes a day that the music stops and property owners have to lease out their income property and pay the bills, every month. If we live in it ourselves, then we are not really all that worried about values as long as we make this months mortgage payment. So you might be right, I would guess that you are from observation but thats not a very reliable measure.

Unfortunately I am forced to do a lot of guessing so its easy to blow big holes in any analysis. Things work differently here, and I am the first to admit that I dont understand a lot of the mechanisms that are in play here. I dont understand the foreclosure process here. Lots of properties have "problems" with the bank and are readily for sale at some odd number irrelevant to anything and have been empty for a decade with no payments made to the bank. I know exactly what happens when one of our purchases fails to pay his mortgage to us and how long it will be before that property is back on the market and sold again. As I travel around bangkok, I come across entire streets that are boarded up, empty buildings, and echoes of the 97 disaster still hiding in the wings. How big is that mess still? How much is really out there? How long can they ignore it? Forever? These are things I dont know and I really doubt if anyone does know in detail or with any assurance.

Often Asia is described as an enigma wrapped in a mystery. Why would the property market be any different than the culture.

5.

[thaigene2]

Xbusman - yet again, let me say 'well done.' This, really, should shut these guys up - but of course it won't.

Anyway, yes, we don't know the extent of so many things - including how much money the shady little middle-class-General'-CivilServant'-son/daughters have to throw around. As a friend of mine said, "hey, maybe it's burried in the garden" (or as I say 'maybe in the wheel-well of the Benz'). Whatever - as you so rightly point out AT SOME POINT THE MUSIC STOPS.

I already have my chair.

[johnnyk]

xbusman,

an intelligent and well-reasoned post that will be lost on some, i suspect.

[alive555]

just to correct you Thailands neither a third world country nor is New York or London safer than Bangkok.

[xbusman]

I think we should take a poll on that one.

[thaigene2]

Yes Thailand is actually a 'transitional' country as they like to call it (or transitional economy) - transitioning from one coup to the next as the rich insulated corrupt oligarchic families try to find a way to shut down populism and Thaksin's internationalist biz approach once and for all.

Once they've achieved that (can't you just a smell another coup developing? - I'm afraid the next one could be much nastier actually) the old-families will then 'transition' the country back to the days of serfdom - which one wonders if it ever really left..

[alive555]

no we dont need a poll cause anyone who has lived in bangkok knows that you dont get mugged, knived, shot or pushed for crack cocaine on the streets. In fact if u polled expats who have lived here any time at all id expect to get 100% agreement on that. The most dangerous things you might find at night are in fact other farangs. Drunk ones.

[number9999]

does it matter much - get on with a life invest if you want or dont but just do it

or not - ive done property all my life in USA UK here who knows I just know here

has been harder but i still make money but i always look long term 10-20 years min

[johnnyk]

Third World is a pretty loose term these days and generally connotes extreme underdevelopment and pervasive poverty. I believe the term was originally applied to mean 1W= Europe ("old world"), 2W= North America ("new world")and 3W= all the others.

If I was to think of Thailand as 3W then it would be pretty close to the top of the list: clean water, decent schools and hospitals available to the vast majority of people, very very good transportation infrastructure and distribution systems, rural electrification, internet, proper banking system, more than adequate food supply etc.

Rural Laos and Cambodia are true 3W as is much of Africa. Huge differences between them and Thailand.

[j_cheung]

A couple of points I'd like to add here:-

1. Theres absolutely nothing wrong with speculation in real estate. A lot of posters here either missed the boat on the market, don't have sufficient funds, or really hate to see others making profits on property. I don't know any stock investor who buys stock purely for dividend only. Usually they are also seeking a capital gain too.

2. Generally speaking the higher the quality of real estate asset the lower the rental yield you should expect. So just because the yield is say 3 or 4 per cent doesn't indicate a lousy investment opportunity (even if u could as an option put ur money into a risk free investment). That's because u would typically expect to see higher cap appreciation than mid or low class property.

3. Bangkok top end is strong because in many way we are playing catch up with rest of world. That reason prob more than most.

4. Scarcity. At the top end there are v few good projects. That's why 185 will go like a bomb . Ask yourself where u can replicate that project in the city. Answer you can't . What do u think it will cost in 10 years? Look at other regional cap cities where the projects are in Cbd next to 5 star hotels with largely unobstructed views. Long term its a no brainer.

5. What Is a worry is the mid /upper end in sukhumvit where u def don't have scarcity its overbuilt and with relatively few new farangs coming in to the country who is going to pay for that mortgage? At the top end the large majority don't have any prob financing 100 of equity so that's another reason to invest at the top end . Quality comes at a price.

I would like to address those points, I think they are very good ones.

1 I agree there is absolutely nothing wrong with speculation and I think that investing in any third world country outside the rule of law is speculation in the extreme. A bit like junk bonds or penny stocks which are also completely irrelevant to dividends. In my career, I was fortunate enough to work with hundred of the wealthiest people in the world and I can tell you that pretty much universally those people did not speculate. When buying a company or property or anything for that matter, they were cold and calculating on the numbers and ratios. Even in the venture capital start ups which were about as speculative as they got, they worked portfolios to reduce the speculative risk. They were very speculative adverse. Now, I dont know if this is good, bad or indifferent. I dont know if they made their initial money in some speculative deal, I kind of doubt it. I do know they did not buy lottery tickets or pay for blue sky when purchasing companies. These were mostly self made people, decidedly different from the corporate animals getting 200 million dollar salaries. Those people were much more speculative, after all in a sense it wasnt their money. I dont think Warren Buffet is a speculator, I may be wrong but I think he got to where he was by extreme attention to ratios and returns. So while there is nothing wrong with speculation, I would doubt that there were many people living in Thailand who really should be speculating in such an extremely dangerous environment.

2. That may be true that higher quality properties have a higher growth rate but I think thats a dangerous guess in markets you know, much less a third world market where we are at a disadvantage. It is by no means a universal truth as people are painfully learning in LA and Miami. The largest depreciation is happening at the high end, why? because the economics and per capita income fails the upper end far sooner than the lower end. Just a matter of math really. Will it come back, probably but not in time to help people earning 80,000 a year make mortgage payments on houses purchased for 1.5 million. Again you are justifying speculation at below market rates in an extremely dangerous market. I am not sure I understand why those lower returns and much larger risks would be preferable to a tax free muni of some sort.

3. Bangkok top end may indeed be strong, we just dont know do we and anyone offering an opinion does not know either. When you talk about the rest of the world, I think you are talking about strictly the western world. I dont know the world market but I doubt that third world countries property costs as much as first world countries. Look at the differences, just start with air quality and end with rule of law and policemen who dont shoot citizens when drunk and mad. There is a quantum leap between life in Paris and life in Bangkok and nothing we can say or do can make a comparison valid. Why would we even imagine that Bangkok property should catch up with Paris. Perhaps we are catching up to other third world countries, I could not address that as I have no idea what property in Vietnam or Uganda is doing. I dont think we will live long enough to see a quality of living or safety in investing that you get in England, France or the US.

4. Scarcity. A relative term in my book. If they were so scarce the rents would not be so cheap is our line of thinking. We could well be wrong but scarcity has always allowed any product to raise prices until the return was reasonable. Returns on property are not reasonable here so I am not entirely sure there is scarcity in relation to the demand. I might be wrong, I have no idea what that top end is renting for but I am guessing its not 1% of purchase.

5. Worry on the middle market in Sukhumvit, perhaps there might be some, we are not privy to the credit reports on the people investing. I think if we expats live by the rule of not investing more than we can walk away from, there is no worry for us at all, anywhere for any property. So we are really only talking about the Thai purchasers and speculators on Sukhumvit possibly being in for a rough time. That might be the case, we can only watch it play out. I do know that there always comes a day that the music stops and property owners have to lease out their income property and pay the bills, every month. If we live in it ourselves, then we are not really all that worried about values as long as we make this months mortgage payment. So you might be right, I would guess that you are from observation but thats not a very reliable measure.

Unfortunately I am forced to do a lot of guessing so its easy to blow big holes in any analysis. Things work differently here, and I am the first to admit that I dont understand a lot of the mechanisms that are in play here. I dont understand the foreclosure process here. Lots of properties have "problems" with the bank and are readily for sale at some odd number irrelevant to anything and have been empty for a decade with no payments made to the bank. I know exactly what happens when one of our purchases fails to pay his mortgage to us and how long it will be before that property is back on the market and sold again. As I travel around bangkok, I come across entire streets that are boarded up, empty buildings, and echoes of the 97 disaster still hiding in the wings. How big is that mess still? How much is really out there? How long can they ignore it? Forever? These are things I dont know and I really doubt if anyone does know in detail or with any assurance.

Often Asia is described as an enigma wrapped in a mystery. Why would the property market be any different than the culture.

5.

Re. Xbusman's post:

1. Excellent discussion on the merits of investing as opposed to speculation.

2. High-end property prices often hold up and/or rebound faster IF & ONLY IF the on-site property management team sincerely wishes to retain their Cordon Bleu reputation and not just farmed out to the canned consultants in the long run.

3. Indeed, properties in BKK can't be compared to world class capitals such as Tokyo, London & Paris or even S'pore. You're comparing Apples to Durians here. A better comparison & debate on the various levels of quality of life and foreigners' legal protection & rights should be made against Kuala Lumpar, Shanghai, Phnom Penh & Ho Chi Minh. Undoubtedly, some may view the former two hold a slight competitive edge these days.

4. & 5. Most local big-wigs will hold out since they have substantial deep-pockets & alternative cash flow streams other than just property & stock speculation. It's just the office professional wannabes and fresh-off-the-jet foreigners that might be in for a rough ride, that's all.

I think that Churchill's quote was referring to Russia ... but that's another can of worms!

[Edit: Changed HK to S'pore for illustrative purposes]

Edited March 31, 2008 by j_cheung

[ray08]

no we dont need a poll cause anyone who has lived in bangkok knows that you dont get mugged, knived, shot or pushed for crack cocaine on the streets. In fact if u polled expats who have lived here any time at all id expect to get 100% agreement on that. The most dangerous things you might find at night are in fact other farangs. Drunk ones.

Mate agree what you say above ,but have to disagree about thailand not being 3rd world , avg factory workers get thb6500 -8500 per month, just had a military coup ( very 3rd world ) call it

"Good 3rd world" at best

[quiksilva]

A couple of points I'd like to add here:-

1. Theres absolutely nothing wrong with speculation in real estate. A lot of posters here either missed the boat on the market, don't have sufficient funds, or really hate to see others making profits on property. I don't know any stock investor who buys stock purely for dividend only. Usually they are also seeking a capital gain too.

2. Generally speaking the higher the quality of real estate asset the lower the rental yield you should expect. So just because the yield is say 3 or 4 per cent doesn't indicate a lousy investment opportunity (even if u could as an option put ur money into a risk free investment). That's because u would typically expect to see higher cap appreciation than mid or low class property.

3. Bangkok top end is strong because in many way we are playing catch up with rest of world. That reason prob more than most.

4. Scarcity. At the top end there are v few good projects. That's why 185 will go like a bomb . Ask yourself where u can replicate that project in the city. Answer you can't . What do u think it will cost in 10 years? Look at other regional cap cities where the projects are in Cbd next to 5 star hotels with largely unobstructed views. Long term its a no brainer.

5. What Is a worry is the mid /upper end in sukhumvit where u def don't have scarcity its overbuilt and with relatively few new farangs coming in to the country who is going to pay for that mortgage? At the top end the large majority don't have any prob financing 100 of equity so that's another reason to invest at the top end . Quality comes at a price.

I would like to address those points, I think they are very good ones.

1 I agree there is absolutely nothing wrong with speculation and I think that investing in any third world country outside the rule of law is speculation in the extreme. A bit like junk bonds or penny stocks which are also completely irrelevant to dividends. In my career, I was fortunate enough to work with hundred of the wealthiest people in the world and I can tell you that pretty much universally those people did not speculate. When buying a company or property or anything for that matter, they were cold and calculating on the numbers and ratios. Even in the venture capital start ups which were about as speculative as they got, they worked portfolios to reduce the speculative risk. They were very speculative adverse. Now, I dont know if this is good, bad or indifferent. I dont know if they made their initial money in some speculative deal, I kind of doubt it. I do know they did not buy lottery tickets or pay for blue sky when purchasing companies. These were mostly self made people, decidedly different from the corporate animals getting 200 million dollar salaries. Those people were much more speculative, after all in a sense it wasnt their money. I dont think Warren Buffet is a speculator, I may be wrong but I think he got to where he was by extreme attention to ratios and returns. So while there is nothing wrong with speculation, I would doubt that there were many people living in Thailand who really should be speculating in such an extremely dangerous environment.

2. That may be true that higher quality properties have a higher growth rate but I think thats a dangerous guess in markets you know, much less a third world market where we are at a disadvantage. It is by no means a universal truth as people are painfully learning in LA and Miami. The largest depreciation is happening at the high end, why? because the economics and per capita income fails the upper end far sooner than the lower end. Just a matter of math really. Will it come back, probably but not in time to help people earning 80,000 a year make mortgage payments on houses purchased for 1.5 million. Again you are justifying speculation at below market rates in an extremely dangerous market. I am not sure I understand why those lower returns and much larger risks would be preferable to a tax free muni of some sort.

3. Bangkok top end may indeed be strong, we just dont know do we and anyone offering an opinion does not know either. When you talk about the rest of the world, I think you are talking about strictly the western world. I dont know the world market but I doubt that third world countries property costs as much as first world countries. Look at the differences, just start with air quality and end with rule of law and policemen who dont shoot citizens when drunk and mad. There is a quantum leap between life in Paris and life in Bangkok and nothing we can say or do can make a comparison valid. Why would we even imagine that Bangkok property should catch up with Paris. Perhaps we are catching up to other third world countries, I could not address that as I have no idea what property in Vietnam or Uganda is doing. I dont think we will live long enough to see a quality of living or safety in investing that you get in England, France or the US.

4. Scarcity. A relative term in my book. If they were so scarce the rents would not be so cheap is our line of thinking. We could well be wrong but scarcity has always allowed any product to raise prices until the return was reasonable. Returns on property are not reasonable here so I am not entirely sure there is scarcity in relation to the demand. I might be wrong, I have no idea what that top end is renting for but I am guessing its not 1% of purchase.

5. Worry on the middle market in Sukhumvit, perhaps there might be some, we are not privy to the credit reports on the people investing. I think if we expats live by the rule of not investing more than we can walk away from, there is no worry for us at all, anywhere for any property. So we are really only talking about the Thai purchasers and speculators on Sukhumvit possibly being in for a rough time. That might be the case, we can only watch it play out. I do know that there always comes a day that the music stops and property owners have to lease out their income property and pay the bills, every month. If we live in it ourselves, then we are not really all that worried about values as long as we make this months mortgage payment. So you might be right, I would guess that you are from observation but thats not a very reliable measure.

Unfortunately I am forced to do a lot of guessing so its easy to blow big holes in any analysis. Things work differently here, and I am the first to admit that I dont understand a lot of the mechanisms that are in play here. I dont understand the foreclosure process here. Lots of properties have "problems" with the bank and are readily for sale at some odd number irrelevant to anything and have been empty for a decade with no payments made to the bank. I know exactly what happens when one of our purchases fails to pay his mortgage to us and how long it will be before that property is back on the market and sold again. As I travel around bangkok, I come across entire streets that are boarded up, empty buildings, and echoes of the 97 disaster still hiding in the wings. How big is that mess still? How much is really out there? How long can they ignore it? Forever? These are things I dont know and I really doubt if anyone does know in detail or with any assurance.

Often Asia is described as an enigma wrapped in a mystery. Why would the property market be any different than the culture.

Great post, i only have a few points I would like to raise on this

1.

2. Low yields i.e. 3-4% is acceptable for high quality prime real estate, in a mature market. Sophisticated institutional investors in Thailand will not purchase property that yields less than 6% on net annual; rental returns unless it comes with significant potential for capital appreciation, and this means a fair chunk of land in locvations like Sathorn, Ploenchit, or Wireless Roads. If you are buying condos looking at these returns your crazy, you may as well purchase 20 year government bonds, currently yielding 4.9%

3.

4. There is scarcity of good devlopments but certainly not condo's (yes I am being serious here, most of the vacant sites in prime spots of Bangkok have been sold. Eg next to Wave Place, the old site next to the Hyatt etc

5.

The only thing I will add to the worry on the 1997 hangover is that I can tell you that many of the developers who encountered difficulty then have been able to clear up their books by seeking new investment partners, selling assets etc. Look at the amount of ghost buildings that have since been completed. These ghosts represent a goopd investment today, most can be made good. The extent of the repairs required vary from property to property, but many can and indeed have been salvaged, and made good for example Q House Lumpini, Central World Tower, the two residential towers behind JC Kevin on Narathiwas etc

There are still problem portfolios but many bright people are gainfully employed working out their restructuring agreements with creditors.

[xbusman]

Thanks Quicksilva, nice post and I would agree on your points.

Regarding the "problem" portfolios. I sometimes think that the lack of any real information in the market causes us to naturally look at the big developments. If my experience in the US holds true here, I think that is a rather small segment of the market. I think the majority, the large majority, are places like town in town. Ten years old, mainly shop houses, some houses, a few small apartment buildings round it out. A lot of living units that seem almost invisible, blending in this massive city. It appears to me that alarmingly large segments of that style housing have "problems" that extend back as far as 97. The little housing complex where my office is located in Bang Khen is maybe 200 units, of which I have counted about 50 empty for at least three years and maybe at least 50 more I know of with "problems". About half of all the housing units. Could be unrepresentative, perhaps an anomaly created by a particularly bad developer. Perhaps. It just amazes me how often and pervasive it appears to be in that market, almost what I call the invisible market.

How do we know about it? There are no tax records, no title searches, no MLS style listing process. You almost have to count the signs on the poles to get a feel for whats going on. What a poor way to judge the depth and breadth of a market.

Thanks for those comments Quicksilva, I agree with them as far as I know.

Back to the OPs original question, "whats the truth about the real estate market" I can still only offer the following:

Nobody knows because there are no measurements or real data.

People that say they know are probably purposefully misleading for their own purposes, either positively or negatively.

In the end, you have to stay with financial ratios to determine if anything is an acceptable investment, unless of course you intend on living in it. Even then, know that if you purchase outside of commercially accepted ratios you stand an excellent chance of losing significant money.

Any property outside the 49% foreign ownership of a condo is for all extents and purposes illegal and should not enter into the mix without the complete understanding of how incredibly risky that route is.

I think these statements are about as close to the truth as you can get to in Thailand.

A final point. At no time did I say that violent crime was any worse or any better than London or New York. Having lived in all three cities, my personal experience aligns with those posters that feel it is more dangerous here. I do not have any statistics to back this up however and would not quite believe the Thai reporting even if they did keep accurate records. What I did say was this:

Look at the differences, just start with air quality and end with rule of law and policemen who dont shoot citizens when drunk and mad. There is a quantum leap between life in Paris and life in Bangkok and nothing we can say or do can make a comparison valid.

I am primarily talking about the rule of law. Incidents like Tak Bai dont really happen in London, at least not in the last three or four hundred years. The rule of law is a different concept than violent crime per capita which was brought up in subsequent posts. I cant address the violent crime but would be happy to discuss the rule of law here, I think its an interesting subject and a fundamental difference between third world and first. It is also something that Westerners dont quite get. Having been socialized in the West, we take the rule of law for granted. Too many of us have paid a terrible price for that naive assumption.

[alive555]

Dont confuse the issue i made regarding high end residential market with low end b or c grade rubbish . Totally incomparable.

On the low end of the market note that the Thai banks have set aside provisions for NPLs , and most of those npls are c grade real estate. The amount set aside are significant. In fact you can read up on this in many banking reports. If the banks had no npl portfoluios the share price would be sig higher.

The stuff left in the banks is 99% rubbish with very little value other than farm land etc. The discounted value has already been reflected in the banks book as required under sec regs.

The second point about lack of information is interesting because thats not always a bad thing. I mean if everyone had access to perfect information it wouldnt be much of a market . If you wanted to invest you should do your homework like the due diligence you would do on any other investment.

There are plenty of savvy investors who invest all over the world who buy here in Bangkok for a whole host of reasons you have either overlooked or misunderstood.

For example;-

1. More buyers than sellers at the top end.

2. Very few good sites available. Example name me any site in the CBD in prime location that you could buy and build a top end high rise condo ? Scarcity does create value in the short term in the medium term and in the long term . Sorry you cant get away from that. And what im saying is that it is getting scarce. And im also saying that unlike most other big cities there are almost no options ? Infrastructure so poor that you have to be central you cant go high end in Ban Khen can you .

3. The number of buyers coming in to Thailand is increasing expotentially. ie Russians , the Chinese, Israelis, Middle East, you may not know it but believe me they are here and they are buying. They were not here 18 months ago, so this is a new development which really is driving new demand.

4. Sentiment can drive market too not just the fundamentals, both of which have driven prices up every year since 2002.

5. Quality if life. Unlike your assessment many investors i know buy here because it very safe, the food is superb, everything is affordable (apart form the top end condos !), you have world class beaches, you have lots of world class golf courses, travel is easy, hotels are relatively cheap , service is second to none etc etc. You can go on all day about the reasons. Is everything here perfect, certainly not but its a lot better over here than it is over there !

6. The most famous US Real Estate Investor will be very likely be developing here shortly. Do you really think that he strikes you as a man who takes unneccessary risks or is incapable of seeing the value in this market. Answer no.

Beem me up Scottie.

[xbusman]

That all might be true, could be rubbish. It could be brilliant deductive reasoning based on massive amounts of hard data or just another pitch by someone invested in the market. The point is, we dont really know do we? Where are the reports, the analysis, the data to back up all that speculation or is this just another press release by the Ellis group telling us that its poised to take off in a huge manner as we have been reading for three years now.

The conjecture that some investor is possibly going to be investing somewhere in Thailand sometime in the future hardly sheds brilliant light on an obscure subject.

No one discussed the quality of life, again all subjective information even though I agree with most of it, not relevant at all to the OPs question.

I dont agree or disagree with any of your points and neither can anyone else. Your speculation is probably a lot better than mine as it appears you work inside the industry.

However, this thread is about truth and nothing yet steps up to the simple fact that no one really knows. In fact, I think you agree with that premise based on your statements.

Due diligence would include working out the financial ratios, and frankly, for the past three years they dont seem to work out very well and guess what, it appears that the real estate market is on its butt. Not because of the coup, because of bird flu, because of tsunamis, or any of the lame excuses that periodically float around, but I would bet because the ratios are so bad. Why else would simple investors be so concerned about the "truth" in real estate here? Again my caveat, I dont know but obviously something stinks or investors would not be so worried as to "wait and see".

You could be right Alive555, I am unable to disagree with your conjecture and I am sure it fits in with your view of the world. For the sake of a lot of unsophisticated buyers who bought in based on wonderful sales pitches I do hope you are right because they dont really have much recourse do they?

You put forth some impelling cases for speculating in an extremely risky environment and there are lots of threads on Thai visa where that is argued to nth degree. You may note that I do not participate in those for a variety of reasons, not the least of which is they are simply a waste of time. Like political rhetoric, endless blather being broadcasted with no real hope of understanding by anyone involved. Obscure "facts" taken in isolation, personal observation, all the things used by the smart to obscure issues to manipulate the dim. I purposely avoid those conversations because at best they do nothing, at worse they mislead.

If you want the truth about the LA market, I have massive amounts of data and none of it is very pretty. That data told us to entirely revamp our entire business structure radically and quickly over the past five years which at great effort and expense we did. Now we sit back with cash and wait while the speculators are put through the juicer. Its all in the numbers, always is. Its just as simple as that. Complicating the issue for whatever reasons is disingenuous.

[ray08]

That all might be true, could be rubbish. It could be brilliant deductive reasoning based on massive amounts of hard data or just another pitch by someone invested in the market. The point is, we dont really know do we? Where are the reports, the analysis, the data to back up all that speculation or is this just another press release by the Ellis group telling us that its poised to take off in a huge manner as we have been reading for three years now.

The conjecture that some investor is possibly going to be investing somewhere in Thailand sometime in the future hardly sheds brilliant light on an obscure subject.

No one discussed the quality of life, again all subjective information even though I agree with most of it, not relevant at all to the OPs question.

I dont agree or disagree with any of your points and neither can anyone else. Your speculation is probably a lot better than mine as it appears you work inside the industry.

However, this thread is about truth and nothing yet steps up to the simple fact that no one really knows. In fact, I think you agree with that premise based on your statements.

Due diligence would include working out the financial ratios, and frankly, for the past three years they dont seem to work out very well and guess what, it appears that the real estate market is on its butt. Not because of the coup, because of bird flu, because of tsunamis, or any of the lame excuses that periodically float around, but I would bet because the ratios are so bad. Why else would simple investors be so concerned about the "truth" in real estate here? Again my caveat, I dont know but obviously something stinks or investors would not be so worried as to "wait and see".

You could be right Alive555, I am unable to disagree with your conjecture and I am sure it fits in with your view of the world. For the sake of a lot of unsophisticated buyers who bought in based on wonderful sales pitches I do hope you are right because they dont really have much recourse do they?

You put forth some impelling cases for speculating in an extremely risky environment and there are lots of threads on Thai visa where that is argued to nth degree. You may note that I do not participate in those for a variety of reasons, not the least of which is they are simply a waste of time. Like political rhetoric, endless blather being broadcasted with no real hope of understanding by anyone involved. Obscure "facts" taken in isolation, personal observation, all the things used by the smart to obscure issues to manipulate the dim. I purposely avoid those conversations because at best they do nothing, at worse they mislead.

If you want the truth about the LA market, I have massive amounts of data and none of it is very pretty. That data told us to entirely revamp our entire business structure radically and quickly over the past five years which at great effort and expense we did. Now we sit back with cash and wait while the speculators are put through the juicer. Its all in the numbers, always is. Its just as simple as that. Complicating the issue for whatever reasons is disingenuous.

If we want to be really serious about the state of the market , again no figures available that i know , we must count the second hand market , where be it LA, London ,Paris ,Sydney is a major part of the market, look at the thai websites at all the second hand property that sits for years for months , years , look at even this forum and most people would agree that secondhand is not what people want.

them speak to thai investors and ask them about secondhand , not very interested.

So all this talk about real estate is only about saying how a few new developments have yellow dots on a building plan saying it is sold , that does not mae a real view of the market ,only a view of the new development market ,

To be exact we must count all sales not just new ones, and them remember that if we have a weak second hand market , well you have a very weak market overall because once you buy a new unit , it becomes secondhand

[donx]

To be exact we must count all sales not just new ones, and them remember that if we have a weak second hand market , well you have a very weak market overall because once you buy a new unit , it becomes secondhand

This got me to think... perhaps the reason so many newly purchased condo units remain unoccupied is because, from a Thai perspective, if no one has ever lived in the place then it is not considered second hand. Just a thought.

[quiksilva]

Dont confuse the issue i made regarding high end residential market with low end b or c grade rubbish . Totally incomparable.

On the low end of the market note that the Thai banks have set aside provisions for NPLs , and most of those npls are c grade real estate. The amount set aside are significant. In fact you can read up on this in many banking reports. If the banks had no npl portfoluios the share price would be sig higher.

The stuff left in the banks is 99% rubbish with very little value other than farm land etc. The discounted value has already been reflected in the banks book as required under sec regs.

Agreed.

The second point about lack of information is interesting because thats not always a bad thing. I mean if everyone had access to perfect information it wouldnt be much of a market . If you wanted to invest you should do your homework like the due diligence you would do on any other investment.

Agreed

There are plenty of savvy investors who invest all over the world who buy here in Bangkok for a whole host of reasons you have either overlooked or misunderstood.

For example;-

1. More buyers than sellers at the top end.

2. Very few good sites available. Example name me any site in the CBD in prime location that you could buy and build a top end high rise condo ? Scarcity does create value in the short term in the medium term and in the long term . Sorry you cant get away from that. And what im saying is that it is getting scarce. And im also saying that unlike most other big cities there are almost no options ? Infrastructure so poor that you have to be central you cant go high end in Ban Khen can you .

Agreed there is a scarcity of good development sites, but only because so many sites in the CBD have been developed recently. Yes, this will mean in the long term that good locations will appreciate, but by how much and over what time period is something that NOBODY can accurately predict, and yes that includes all of my esteemed colleagues in the industry, the best they could offer would be a guess.

3. The number of buyers coming in to Thailand is increasing expotentially. ie Russians , the Chinese, Israelis, Middle East, you may not know it but believe me they are here and they are buying. They were not here 18 months ago, so this is a new development which really is driving new demand.

Sorry but this is not new, they have always been around.

4. Sentiment can drive market too not just the fundamentals, both of which have driven prices up every year since 2002.

Sure but ignoring market fundamentals is very risky, sentiment can change on a newspaper headline.

5. Quality of life. Unlike your assessment many investors i know buy here because it very safe, the food is superb, everything is affordable (apart form the top end condos !), you have world class beaches, you have lots of world class golf courses, travel is easy, hotels are relatively cheap , service is second to none etc etc. You can go on all day about the reasons. Is everything here perfect, certainly not but its a lot better over here than it is over there !

Now this I agree with 100%

6. The most famous US Real Estate Investor will be very likely be developing here shortly. Do you really think that he strikes you as a man who takes unneccessary risks or is incapable of seeing the value in this market. Answer no.

Many of world's leading investors have been sniffing around this market for as long as I can remember, most look but few do anything, usually because they have very high expectations for ROI which this market is not capable of delivering, unless you develop. If say, Trump did want to develop here, how would he own the land? Can you see him developing a condominium on leasehold land (thus only leasehold units for sale)? I can't either, remember the other factor is that investors usually have a minimum lot size of 10 million dollars (that would equate to a lot of leasehold units). I also can't see him entering into a JV with a Thai partner, to go the freehold route, can you?

Beem me up Scottie.

Edited April 1, 2008 by quiksilva

[thaigene2]

Yes - it's so refreshing to see someone put the peg in its hole for a change (xbusman). I'm so sick of the excuses and conjecture on this site (and others) about why Thailand is a different (TIT), and how we have to factor all these others things in like culture, mai pen rai, blah, blah, bla - whetehr talking about the property market the or business culture, life in general, etc, etc..

Too many people have lived here for too long - or not long enough - and have lost their grip on common sense and reality. I guess it's denial or selective rationale - whatever.

This is the wild west. There is no rule of law and so you have no protection. Thais are nice people - no doubt -but as foreigners, particularly Westerners, we are over-exposed to rip-offs and temptations that we simply wouldn't encounter in our own homelands.

Sure you can buy an overpriced condo - but maybe you can live in it and maybe you can't. The visa rules keep changing. All the sales pitches and infiniti pools in the world can't change that.

Our stay here is temporary - the only thing at issue is 'how' temporary. I also agree that most people are over-confident in how safe Bangkok and Thailand in general is. Again - exposed and in denial.

Lotus-landers..

[farangmal]

i must ask the question then, how long do homes and condos stay on the market in US or europe?

I have sold three properties in the Uk in the last two years.

First one a flat took 2 Months.

Second a house took 1 Month

Third a flat took 3 Months.

That's my experience of the UK property market!

I did alright in the UK market too - though the market there has always been goofy due to the 'chain' as it's called. If one person can't get financing or even feels a bit 'faint' they can bail out, and screw up everyone else waiting for the sale to proceed so they too can buy/sell.

But the real problem in UK is a legal weakness in the way the sales are handled - it's stupid - plain and simple with no one getting any security, and everyone being able to offer, offer, without sticking their neck out.

The best system IMHO is Canada. When you want to buy - you put your money (and your signature) where your mouth is. You can add 'subjects' to the contract that let you out if the buyer can't secure financing within 2 weeks etc, or the place gets a bum-rap from the evaluator, ete. also within a couple of weeks. But there's none of this waiting for months and months to close the deal like there is in England/Wales (Scotland has a better system). Others should copy this example IMHO. It works efficiently and protects both the buyer and seller equally without the silliness that goes in Eng/Wales.

yes England's goofy but I buy and sell my properties in Scotland where a legally binding contract is in place quickly.