Yields Are Dropping Substantially, So Why Not Prices ?

[cyrilmadrid]

I am interested in buying a condo in Bangkok, which I can use when I retire and can rent in the meantime.

I observed in my recent trips to Thailand, and through Real Estate portals, that yields are down very substantially, from 7 % to 3.5-4 %.

How come have yields come down so much and prices per sqm are just very slightly down ?? I know we could argue interest rates are lower than in the past, therefore yields also come down, but at this sort of yield, money is better invested in 10 years bonds.

I know in Bangkok people seem to say that prices "never come down", well, I was not following the market in 93-94, but am sure they must have come down substantially.

Would be interested to hear your views.

[trogers]

In real estate economics, this phenomenon is called 'Sticky Prices', especially in a market where majority of the property units are purchased though cash and not mortgages.

In the developed world, majority of property purchase is financed by mortgages, and resales of many foreclosed properties at the same time will force prices down.

If you are looking for foreclosed properties in Bangkok, try the auctions by the Legal Execution Department. I acquired a 3-bedroom unit from there over a year ago.

http://www.led.go.th/

Edited February 13, 2010 by trogers

[Pakboong]

Helps explain why foreign demand is off some 90%.

http://www.globalpropertyguide.com/Asia/Th...d/Price-History

[123ace]

Helps explain why foreign demand is off some 90%.

http://www.globalpropertyguide.com/Asia/Th...d/Price-History

Foreign demand is off by approximately 90% due in part to: no mortgages for foreigners, concerns of the political situation, better options in the region where values declined sharply and foreigners can enter and exit markets easier, less desirable ownership options, UK & Europes economic woes (no longer in Asia relative to real estate). Thailand has seven (Bangkok, samui, Pattaya, Phuket etc) active real estate markets that are geograhically entirely separate - this spreads demand and actual sales thinly. No agent is active in all markets and this includes your source of 90%. It will not last forever, we look back at this juncture and lament that then was the time to buy!

[rodentwarrior]

"It will not last forever, we look back at this juncture and lament that then was the time to buy!"

Time to buy what? Now is not the time to buy anything in Thailand - don't you read the news? There is an ill wind blowing, with potential civil war in the offering.

You can buy - I wouldn't think of making any investment in LOS, at least until the succession has been successfully finalised and the political situation sorted out.

[ExpatJ]

To the OP, rental yields in Bangkok are more like 6-7%; all the units i have been looking at in the 6,000,000-8,000,000 baht range have average 6% return (after deducting maintenance payments). That's around 1,000 US$ per month in rental payments (after expenses), a very good cash return investment (if you can find a renter).

Why are prices still high? The difficulty of getting a mortgage means that most of the buyers are wealthy Thai or foreigners who pay cash upfront and who at the end of the day can afford to let their unit lay idle and wait until the right buyer/renter comes along at the right price.

Now if you want high rental returns, look to Jakarta..i am getting 9% return on my unit there (after expenses)...but there is some legal uncertainty for foreign owners so there is a higher risk factor.

[MikeyIdea]

I started wondering why prices didn't drop in 1992 the financial crisis, I have stopped wondering now but it took several years until I, not understood, but accepted... that prices do not drop as much as they should in difficult times in Thailand.

It is fact and it is not going to change this generation

[quiksilva]

The problem with BOT figures is that they include everything, but in reality different sectors and even sub sectors, of the market (eg. within residential) perform differently.

As an example the BOT lumps in condominiums with housing projects, and do not segregate by grade. Baan Ua Athorn low income housing (200k Baht for a house in fringe locations) is right there amongst grade A CBD condominiums, when quite clearly the two markets are driven by entirely different factors. Yet, the quantity of housing far outweighs the supply of condominiums and if prices drop in housing the BOT's figures for condo's will be distorted.

Unfortunately then, if you choose to believe that multinational property firms can not keep their research department's views unbiased and independent then you are left with a very dismal amount of reliable third party index of property prices. (i.e. none).

The problem as Trogers pointed out is sticky prices here. So if rents drop, yields do too, as prices remain unchanged. I think if more investors counted void periods from the time of receiving the property and projected them to account for voids between tenancies or during marketing, true net yields would be even lower.

Edited February 15, 2010 by quiksilva

[123ace]

Rents have dropped at a rate greater than capital values in the last 24 months, this is in part to a decline in expats working in Bangkok and the substantial increase in new condo supply.

Values have held up for vaious reasons including all foreigners are now cash buyers only and typically mature (not unrelaible first time buyer types), banks do not have over expsoure worries to the sector and the upswing in the region is having a false-positive impact by perhaps making the Bangkok market look cheap in comparison.

[calibanjr.]

I'm surprised that nobody mentions the lack of a real property tax on sale prices. When you effectively pay no property tax (the property tax here is nominal), you can hold on to the property and of course you're giving up opportunity cost, but that doesn't seem to flummox Thais. In the states, it would be too painful to hold a property for too long, giving up opportunity cost and substantial property tax.

[trogers]

Skicky prices are more prevalent in new projects than old.

I avoid new projects and invest in old ones with good locations and high occupancy rates. Good chance to find a bargain from original owners looking to sell to finance the education of their teenage children. By bargain, I do not mean a distressed sales, but rather one that is giving the original owner a return of 1-1.5% pa capital appreciation.

Eg. Just got one last Oct. Original owner bought from developer 13 years ago at 1.78m and I paid 1.95m for the 63sqm property.

[MikeyIdea]

What foreigners do and don't do has very little impact on the condo market in Bangkok, there are so very very few westerners buying condos compared to Thais. Overall that is. There are only a few areas of Bangkok where enough westerners want to live for it to matter

[Pakboong]

Helps explain why foreign demand is off some 90%.

http://www.globalpropertyguide.com/Asia/Th...d/Price-History

Foreign demand is off by approximately 90% due in part to: no mortgages for foreigners, concerns of the political situation, better options in the region where values declined sharply and foreigners can enter and exit markets easier, less desirable ownership options, UK & Europes economic woes (no longer in Asia relative to real estate). Thailand has seven (Bangkok, samui, Pattaya, Phuket etc) active real estate markets that are geograhically entirely separate - this spreads demand and actual sales thinly. No agent is active in all markets and this includes your source of 90%. It will not last forever, we look back at this juncture and lament that then was the time to buy!

Of course it is time to buy, but not a time to sell.

[sokal]

Every asset market in the world right now is a complete unpredictable cluster <deleted> thanks to QE and low interest rates.

[trogers]

Every asset market in the world right now is a complete unpredictable cluster <deleted> thanks to QE and low interest rates.

Asset class of recently completed residential property in Bangkok carries lots of speculative froth, but those over 10 years old have almost none of such froth and are the right choice for long term investors (over 5 years time frame).

[Benjie]

Surely the OP is his own answer.

We have a real estate market not doing so great, yields down but prices staying put yet he is very keen on buying, why?

[ExpatJ]

Surely the OP is his own answer.

We have a real estate market not doing so great, yields down but prices staying put yet he is very keen on buying, why?

I am also interested in buying. Why? Yields are 6-7%, 200,000 US$ cash for a new 1-2 bedroom next to a BTS, hotel quality gym/pool facilities, rent to single Japanese/Korean/farang expat business man, thats @1,000 $ per month rental income after maintenance etc. and no mortgage so its all 'profit'.

No other investment asset can give you that type of regular cash return..(Plus the principal is likely to increase as property values increase in mid-long term).

But I am waiting to see what happens re: Thaksin/red shirts this month before buying anything.

Just wanted to give you a buyers perspective.

[AddictedToThai]

Eg. Just got one last Oct. Original owner bought from developer 13 years ago at 1.78m and I paid 1.95m for the 63sqm property.

Can I guess? SV City?

[trogers]

Eg. Just got one last Oct. Original owner bought from developer 13 years ago at 1.78m and I paid 1.95m for the 63sqm property.

Can I guess? SV City?

Heaven forbids... Do not fancy shaking hands with my neighbour in the next block while standing at the balcony...

It's Waterford Park Rama 4, near BTS Prakhanong.

[manjara]

I'm surprised that nobody mentions the lack of a real property tax on sale prices. When you effectively pay no property tax (the property tax here is nominal), you can hold on to the property and of course you're giving up opportunity cost, but that doesn't seem to flummox Thais. In the states, it would be too painful to hold a property for too long, giving up opportunity cost and substantial property tax.

If you mean that you can hold on to property without any annual payment, then yes, I agree. There is no penalty for holding without using the property, so just 'sitting it out' is a reasonable option. If owners had to pay a tax amount every year, there would be a lot more movement in both property and rental costs.

[sharecropper]

Helps explain why foreign demand is off some 90%.

http://www.globalpropertyguide.com/Asia/Th...d/Price-History

Foreign demand is off by approximately 90% due in part to: no mortgages for foreigners, concerns of the political situation, better options in the region where values declined sharply and foreigners can enter and exit markets easier, less desirable ownership options, UK & Europes economic woes (no longer in Asia relative to real estate). Thailand has seven (Bangkok, samui, Pattaya, Phuket etc) active real estate markets that are geograhically entirely separate - this spreads demand and actual sales thinly. No agent is active in all markets and this includes your source of 90%. It will not last forever, we look back at this juncture and lament that then was the time to buy!

It will not last forever, we look back at this juncture and lament that then was the time to buy!

I was just starting to think your posts were interesting and then you go and say this.

Only a fool (advised by a tub-thumping real estate agent - no offence) would buy right now, certainly as an investment.

The market has a lot further to fall before it hits a realistic level - most significantly in Pattaya.

Edited February 16, 2010 by sharecropper

[hhgz]

" I know in Bangkok people seem to say that prices "never come down", well, I was not following the market in 93-94, but am sure they must have come down substantially.

Would be interested to hear your views."

My view is that you are wrong. Really, really, really wrong. Comically wrong.

[123ace]

Helps explain why foreign demand is off some 90%.

http://www.globalpropertyguide.com/Asia/Th...d/Price-History

Foreign demand is off by approximately 90% due in part to: no mortgages for foreigners, concerns of the political situation, better options in the region where values declined sharply and foreigners can enter and exit markets easier, less desirable ownership options, UK & Europes economic woes (no longer in Asia relative to real estate). Thailand has seven (Bangkok, samui, Pattaya, Phuket etc) active real estate markets that are geograhically entirely separate - this spreads demand and actual sales thinly. No agent is active in all markets and this includes your source of 90%. It will not last forever, we look back at this juncture and lament that then was the time to buy!

It will not last forever, we look back at this juncture and lament that then was the time to buy!

I was just starting to think your posts were interesting and then you go and say this.

Only a fool (advised by a tub-thumping real estate agent - no offence) would buy right now, certainly as an investment.

The market has a lot further to fall before it hits a realistic level - most significantly in Pattaya.

Fair commnet for Pattaya, but I was refering to Bangkok and the above 90% comment, although Phuket prices have bottomed in the premium sector. Whilst prices are not off by that much so far in Pattaya, if we ignore the total non-starters (of which there are many) we may only see prices in the well established buildings (i.e built) come off by 10 - 15% and not for the best small units perhaps, although I do not forsee much room for long term growth as newbie first time devlopers always seem to think they can beat the market in Pattaya.

There are many buildings in Bangkok and Phuket where the case is quite compelling today, and sales values are undeniably up from say 4 months ago. Hua Hin has amazing deals right now and is by far the best buying market for those taking a mid term view - Thai's are buying and this helps immensely. February has seen a lot of sales across the markets (compared with the last 6 months), although Pattaya is lagging in all areas aside from the low end.

This does not mean prices will not go down in any of the better markets if something adverse were to occur.

[123ace]

There are some new high end Bangkok developments achieveing sales and right now, and re-sales in Bangkok are actually quite active in terms of demand recovery signs. I guess if you are too close with the most severe market of Pattaya it is easy to see all the others as having the same issues, but they do differ greatly and I do not think now is the time to buy in Pattaya unless you have a distressed sale for a good foreign quota condo. Saladaeng area in Bangkok - definitely good, Hua Hin beachfront condo with huge developer discount - yes, completed apartments in high end Phuket - yes. Off plan in Pattaya...not for a long, long time.

My earlier comment misssed the critical 'may'

It will not last forever, we 'may' look back at this juncture and lament that then was the time to buy!

[AddictedToThai]

The market has a lot further to fall before it hits a realistic level - most significantly in Pattaya.

Fair commnet for Pattaya

What are the causes for further market falling in Pattaya? Those who must sell – already selling with huge discounts. There are plenty of so-called fire sales in Pattaya this time. Other sellers seems not to bother with quick sales and ready to wait for better market.

Off plan in Pattaya...not for a long, long time.

I don't see many new off plan projects in Pattaya now. Look at the The Cliff from Nova Group which was launched last year. The project of this concept, quality and location would have been selling for at least 90,000 baht per sqm 1.5-2 years ago. Now the prices start at 50,000 in Thai quota, and 60,000 – in foreign. In my opinion this difference represents actual price fall which is 20-30%. It's already happened.

[AddictedToThai]

There are some new high end Bangkok developments achieveing sales and right now

I dont believe those developers achieving sales figures they claim they do. New high end condo sold out in one month? No way. How people would buy something that will be completed in 3 years and pay much higher price than for a condo of the same quality from the same developer which is just finished? I bet many "sold out" units will be quietly put on the market as the project progresses.

[123ace]

Regarding The Cliff, this would never have been worth anything close to THB 90k psm, this perception in Pattaya is where the problem starts. The location is secondary (nowhere near the beach) and it is very, very high density. These two points alone establish it as B grade. At THB 90k (an A grade value) the Thai market would have totally shunned it, even 3 years ago, so a few foreign buyers would have bought the good one bed units, but 51% would have been an impossible hurdle requiring 100's of Thai buyers. At the 50 - 60k psm it is working I am led to believe.

For Bangkok sales, I can confirm that in the high end nothing sells out quickly, I am refering to a few deals in most developments in the last few weeks. This contrasts with almost or actually nothing during the last few months. One example had 2 last weekend and another had 4. Its single digits..baby steps, a drop in the ocean..but a positive start.

[trogers]

Regarding The Cliff, this would never have been worth anything close to THB 90k psm, this perception in Pattaya is where the problem starts. The location is secondary (nowhere near the beach) and it is very, very high density. These two points alone establish it as B grade. At THB 90k (an A grade value) the Thai market would have totally shunned it, even 3 years ago, so a few foreign buyers would have bought the good one bed units, but 51% would have been an impossible hurdle requiring 100's of Thai buyers. At the 50 - 60k psm it is working I am led to believe.

For Bangkok sales, I can confirm that in the high end nothing sells out quickly, I am refering to a few deals in most developments in the last few weeks. This contrasts with almost or actually nothing during the last few months. One example had 2 last weekend and another had 4. Its single digits..baby steps, a drop in the ocean..but a positive start.

Not too bad with a sales rate of 1 unit a month. A project with 80 units should sell out within 5 years...

[AddictedToThai]

Regarding The Cliff, this would never have been worth anything close to THB 90k psm, this perception in Pattaya is where the problem starts. The location is secondary (nowhere near the beach) and it is very, very high density.

Well, it is 250 meters to very nice Cosy beach between Pattaya and Jomtien, close to everything. As for density – this project will be built on 3.5 Rai of landscaped land with the ample parking space underground. I've heard Colliers has been doing well selling The Cliff to thais at Siam Paragon and now at Queen Sirikit.

These two points alone establish it as B grade. At THB 90k (an A grade value)...

I would say 110-120K up is current Grade A for Pattaya. It includes The Cove, Northpoint, Sanctuary.

For Bangkok sales, I can confirm that in the high end nothing sells out quickly, I am refering to a few deals in most developments in the last few weeks. This contrasts with almost or actually nothing during the last few months. One example had 2 last weekend and another had 4. Its single digits..baby steps, a drop in the ocean..but a positive start.

Yeah, this sounds close to reality. But in bangkok you never know how many units are actually sold as the salesgirls never give price-lists/availability to the clients. Whenever you ask them it always "only 2 units of this type left". You buy and the next day another one mysteriously become available.

[cyfanaz]

Property prices have came down and even thai owners are becoming more pragmatic in their pricing. I am a realty broker-www.homespacethailand.com. We work with both thai and farang buyers/sellers. Prices of new units are pretty stable. older units have come down about 20%, rental prices have come down 20 to 30 percent. We have seen a good demand for the newer units and several properties have sold out very quickly. The old addage of location, location, location still stands. IF its near the BTS stops it will sell or rent and demand a higher price. Because there are less people and more supply the units away from the BTS or that have something missing are definately under pressure to lower their prices.

" I know in Bangkok people seem to say that prices "never come down", well, I was not following the market in 93-94, but am sure they must have come down substantially.

Would be interested to hear your views."

My view is that you are wrong. Really, really, really wrong. Comically wrong.