Yields Are Dropping Substantially, So Why Not Prices ?

[trogers]

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.

How old are the older units? Eg, Avenue 61 (in Sukhumvit 61) was launched offplan at Bt58-59k/m2 in Aug 2003 and units were transferred in Aug-Oct 2005. Advertised prices in the last few months are at Bt80+k/m2 and it is 4-5 years old.

[w11guy]

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.

You can get better returns than that in the US. There are brand new properties for sale in Florida that give a 7-10% return. They are currently selling for below rebuild costs so are bound to appreciate over next 1-10 years. And your property is safe in the US.

There is bound to be a risk that at some time over the next few years that instability will drive foreigners from Bangkok, as it will be perceived to be unsafe, even if it isn't. Companies won't want to send employees there are you may not have anyone to rent your condo to. It could even drive property prices down.

I don't think a return of 5-7% is worth the risk in such a politically unstable country. Especially when you can get higher yields in stable countries like USA, UK, etc.

[123ace]

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.

You can get better returns than that in the US. There are brand new properties for sale in Florida that give a 7-10% return. They are currently selling for below rebuild costs so are bound to appreciate over next 1-10 years. And your property is safe in the US.

There is bound to be a risk that at some time over the next few years that instability will drive foreigners from Bangkok, as it will be perceived to be unsafe, even if it isn't. Companies won't want to send employees there are you may not have anyone to rent your condo to. It could even drive property prices down.

I don't think a return of 5-7% is worth the risk in such a politically unstable country. Especially when you can get higher yields in stable countries like USA, UK, etc.

I don't disagree with your logic, but a lot of buyers called their purchase here an 'investment' as a way of legitimizing why they are doing it. Its a lifestyle choice for most, a sometimes investment and for many a home. For me all three.

[beginner]

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.

None of the three developments you name are actually finished.

The Cove is some way off.

The Sanctuary is fast approaching completion but new developments are making it much less attractive than originally presented.

Northpoint is attempting to get bookers to pay up and take possession.

Raimon Land are good at painting a rosy picture but the reality is that few bookers are actually in a hurry to pay the balance and move in. They fear rightly or wrongly that if they do it may be many many years before they could re-sell their units and get their money back.

Only when the many flippers who have paid deposits on those hundreds of units actually pay up will it be possible to say that the actual achieved Grade A price is 110-120k.

Flippers who do not have very large cash resources will be hard pressed to complete on their units. Already it is possible to buy at the original off plan prices where the flipper is happy and relieved to get their money back. So called fire sales are setting the real prices not the unrealisable fantasy prices the agents suggest.

The Cliff 'in the heart of cosy beach' is in a secondary location, off the baht bus routes, and is being sold/hyped by all the usual suspects. No doubt the developers and other insiders will profit from early re-sales but it could easily end up as another Pattaya unrealised dream.

[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.

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.

None of the three developments you name are actually finished.

The Cove is some way off.

The Sanctuary is fast approaching completion but new developments are making it much less attractive than originally presented.

Northpoint is attempting to get bookers to pay up and take possession.

Raimon Land are good at painting a rosy picture but the reality is that few bookers are actually in a hurry to pay the balance and move in. They fear rightly or wrongly that if they do it may be many many years before they could re-sell their units and get their money back.

Only when the many flippers who have paid deposits on those hundreds of units actually pay up will it be possible to say that the actual achieved Grade A price is 110-120k.

Flippers who do not have very large cash resources will be hard pressed to complete on their units. Already it is possible to buy at the original off plan prices where the flipper is happy and relieved to get their money back. So called fire sales are setting the real prices not the unrealisable fantasy prices the agents suggest.

The Cliff 'in the heart of cosy beach' is in a secondary location, off the baht bus routes, and is being sold/hyped by all the usual suspects. No doubt the developers and other insiders will profit from early re-sales but it could easily end up as another Pattaya unrealised dream.

No, but you are really way off. I accept that you are trying to position the pattaya market as a hard and an over-rated sector, which it very much is, but:

Northpoint really is virtually finished, quite a few re-sales recently - fact - you may not know but others do, and I have no vested interest. It will finish very soon and a huge number of buyers are transferring right now. If some (or many) foriegn quota bookers were to pull out this is where the 'open' market demand is (for foreign quota) - how this is a problem? as the developer keeps the substantial deposit and re-sells very easily.

The Cove - approx 40% sold (late 2009). Developer is a seriously wealthy Thai family - trust me, its not an issue.

Sanctuary - Incredibly wealthy Thai developer - not a hope of financial failure (its 99% finished!!) and at over 60% sold by late last year they are over the hurdle. Dream on of you think they have problems. What has superceded this in Pattaya anyway?

The Cliff - The location, unit density and overall approach places it in a very different bracket from the others mentioned. I would not touch it or place it in the same bracket as any of the above. No offence to the developer, but we are comparing three long since launched beachfront projects with a very recently launched high hillside off plan project.

[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.

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.

I just saw this, and sorry for such a slow reply.

Do you really accept that Collers had many sales at Paragon - Hmm, seems to defy the trend that other develeoprs experienced.. 3 - 4 real bookings would have made it the best seller that week.

Location, yeah Cosy Beach, this is a seroius walk uphill to get back to The Cliff - just from the beach to the baht bus (THB 100 minimum) we are talking a huge distance. Walk it yourself before replying please. I have.

When I quote sale numbers it is based on fact, not sales lady sentiment. There are some sales in Bangkok at these levels and volumes already in 2010.

Definition of grade A - is The Cliff at the same grade as Northpoint? or the Cove? - not even close.

[beginner]

Yes. I agree with most of what you say. I think we are basically in agreement.

The Cove and The Sanctuary. Both are fine quality projects and sure to be a success. I think they already are. They both have lots of Thai buyers as well as foreign quotas. Great sites, great views, great amenities and reasonable access.

The Sanctuary Condo environs are now being heavily developed which makes it slightly less attractive. If the Sanctuary of Truth owners ever decide to build next to the condos then it will be very overlooked and hemmed in. But, who can tell? Perhaps it will remain the best undeveloped building site in the area for a long time.

We will have to agree to differ on Northpoint. I know too many people who are trying to offload to think that lots of people are clamouring to pay 110k in those buildings. But maybe I am wrong. Time will tell.

Its The Cliff I am less impressed with. The formula hype reminds me of certain other projects that never materialised.

[123ace]

Yes. I agree with most of what you say. I think we are basically in agreement.

The Cove and The Sanctuary. Both are fine quality projects and sure to be a success. I think they already are. They both have lots of Thai buyers as well as foreign quotas. Great sites, great views, great amenities and reasonable access.

The Sanctuary Condo environs are now being heavily developed which makes it slightly less attractive. If the Sanctuary of Truth owners ever decide to build next to the condos then it will be very overlooked and hemmed in. But, who can tell? Perhaps it will remain the best undeveloped building site in the area for a long time.

We will have to agree to differ on Northpoint. I know too many people who are trying to offload to think that lots of people are clamouring to pay 110k in those buildings. But maybe I am wrong. Time will tell.

Its The Cliff I am less impressed with. The formula hype reminds me of certain other projects that never materialised.

I could list as many as 7 new high rise condo's planned for the Sanctuary to Cove area encompassing Northpoint. It is quite sobering how much more over developed the area may (likely will) become and quite soon. Expect the worst.

For Northpoint, they have really sold a lot, several hundred units in fact, so processing this is quite hard / slow. It is the best grade A new condo bar none in pattaya. Yes many speculators want out, and many have no doubt shorted already. Any foreign quota unit returned though can be sold immediately as this is where the real demand is. There is only Thai quoata available from the developer.

As most other new grade A conodos have faltered since 2008, the demand in 2010 will be centered in these three buildings as Ocean Marina seems to be oberlooked (although it is very much on par).

[LivinLOS]

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.

Any capital appreciation is to be tax paid at income tax rates no ??

Of course you can try tax evasion, but hardly good advice..

[Pakboong]

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.

Any capital appreciation is to be tax paid at income tax rates no ??

Of course you can try tax evasion, but hardly good advice..

According to BOT property indicators, personal housing mortgages have doubled month on month in the last 5 years. That is a huge credit bubble. When the defaults begin due largely to stagnant salaries, and they will, watch the prices tumble. Loan numbers have tripled since 1995.

Edited March 12, 2010 by Pakboong

[thaijasmine]

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.

Any capital appreciation is to be tax paid at income tax rates no ??

Of course you can try tax evasion, but hardly good advice..

According to BOT property indicators, personal housing mortgages have doubled month on month in the last 5 years. That is a huge credit bubble. When the defaults begin due largely to stagnant salaries, and they will, watch the prices tumble. Loan numbers have tripled since 1995.

what are you trying to do Pakboong destroy the myth

that here in Wonderland Thai's only ever pay cash for condo's

and that prices only ever go in one direction

[sinam]

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.

Could you mention two or three of those amazing deals in Hua Hin? Thanks.

Sinam

[AddictedToThai]

Definition of grade A - is The Cliff at the same grade as Northpoint? or the Cove? - not even close.

Agreed, The Cliff is not Grade A. What I am trying to say: just before crisis it was impossible to buy similar property at 70,000 per sqm.

We will have to agree to differ on Northpoint. I know too many people who are trying to offload to think that lots of people are clamouring to pay 110k in those buildings. But maybe I am wrong. Time will tell.

I expected to see many attractively priced resales at Northpoint this time. There are a few good deals I am aware of, but not many. All of them in cheaper Tower B. The owners of units in more prestigious Tower A seems to have no problems with transfers.

By the way, Major just commenced construction of its Reflection condo in Jomtien. Prices >100K psqm.

[beginner]

By the way, Major just commenced construction of its Reflection condo in Jomtien. Prices >100K psqm.

Thanks for the information. It will provide us all with another project to discuss and enjoy.

If the plans are unchanged, it was described some time ago as a Six Star twin tower project of 55 and 42 stories. Its quite a project for a relatively young company.

Its tempting to be sarcastic and say that another 97 floors of condos in Jomtien is exactly what is needed. Rather like beer bars. Surely you can not have too many?

The style of the first renderings I saw of it were very like the Waterfront. Lets hope it progresses more successfully.

Edited March 12, 2010 by beginner

[Benjie]

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 the same Hua Hin where Farang property buyers are regularly beaten up and shot?

[AddictedToThai]

By the way, Major just commenced construction of its Reflection condo in Jomtien. Prices >100K psqm.

Its tempting to be sarcastic and say that another 97 floors of condos in Jomtien is exactly what is needed. Rather like beer bars. Surely you can not have too many?

I suppose Thai quota will be sold out first

[Pakboong]

If I consider only macro economic indicators provided by Thailand's central bank (BOT); I see that the 9,394 new condominium registrations for December 2009 are the highest number by a very large margin since October 1997. Consider that along with the CBRE estimate that foreign housing demand in Thailand is off by 90% and then factor in that Thai mortgage amounts of baht have doubled in the last 5 years month on month, I would have to be foolish to buy a condo at anywhere near the prices which were paid at the top of the housing bubble. I am not saying one should not buy a condo, simply that pricing is insane when considering all the bad news with no good news in sight.

Things look extremely bad from a purely Macro economic outlook. Supply is not just up, it is going way up, and demand is not just down, it is way down and can only get lower with the credit bubble due to pop. Sit very tight and look for a real bargain.

[emsfeld]

If I consider only macro economic indicators provided by Thailand's central bank (BOT); I see that the 9,394 new condominium registrations for December 2009 are the highest number by a very large margin since October 1997. Consider that along with the CBRE estimate that foreign housing demand in Thailand is off by 90% and then factor in that Thai mortgage amounts of baht have doubled in the last 5 years month on month, I would have to be foolish to buy a condo at anywhere near the prices which were paid at the top of the housing bubble. I am not saying one should not buy a condo, simply that pricing is insane when considering all the bad news with no good news in sight.

Things look extremely bad from a purely Macro economic outlook. Supply is not just up, it is going way up, and demand is not just down, it is way down and can only get lower with the credit bubble due to pop. Sit very tight and look for a real bargain.

Not doubting your figures, but rather than looking at yoy credit growth only, compare the value of land transactions (bearing in mind that land value is always understated to save on registration fee) and the change in property credit outstanding in, for instances, 2009 (making the assumption here that the year end figures refer to the "stock" of credit not increases in credit). The value of land transactions end 2009 stands at roughly 600,000 mil THB. The CHANGE in property credit outstanding from end 08 to 09 was roughly 53,000 mil THB. That means roughly 8.3% of the value of land transactions was actually financed through credit.

Also, personal housing credit has roughly doubled from 2004 to 2009. Not sure if that's what you meant.

Sources:

http://www.bot.or.th/English/Statistics/In.../Docs/tab06.pdf

http://www2.bot.or.th/statistics/Download/...009_ENG_ALL.XLS

[Pakboong]

If I consider only macro economic indicators provided by Thailand's central bank (BOT); I see that the 9,394 new condominium registrations for December 2009 are the highest number by a very large margin since October 1997. Consider that along with the CBRE estimate that foreign housing demand in Thailand is off by 90% and then factor in that Thai mortgage amounts of baht have doubled in the last 5 years month on month, I would have to be foolish to buy a condo at anywhere near the prices which were paid at the top of the housing bubble. I am not saying one should not buy a condo, simply that pricing is insane when considering all the bad news with no good news in sight.

Things look extremely bad from a purely Macro economic outlook. Supply is not just up, it is going way up, and demand is not just down, it is way down and can only get lower with the credit bubble due to pop. Sit very tight and look for a real bargain.

Not doubting your figures, but rather than looking at yoy credit growth only, compare the value of land transactions (bearing in mind that land value is always understated to save on registration fee) and the change in property credit outstanding in, for instances, 2009 (making the assumption here that the year end figures refer to the "stock" of credit not increases in credit). The value of land transactions end 2009 stands at roughly 600,000 mil THB. The CHANGE in property credit outstanding from end 08 to 09 was roughly 53,000 mil THB. That means roughly 8.3% of the value of land transactions was actually financed through credit.

Also, personal housing credit has roughly doubled from 2004 to 2009. Not sure if that's what you meant.

Sources:

http://www.bot.or.th/English/Statistics/In.../Docs/tab06.pdf

http://www2.bot.or.th/statistics/Download/...009_ENG_ALL.XLS

My sources are the same as yours. I looked at the same BOT spread sheet. It looks bad to me and if it doesn't look so bad to you, great. I don't know if I should be happy about your optimism or not. All I see are bad signs. Juristic Act and Right registration has fallen off the table. Is that good or bad for the rest of us, I don't know but, I do know it is not a good sign for the general health of the foreign housing market in Thailand. The bad news is not bad for everybody. Depends on where you sit.

[emsfeld]

My sources are the same as yours. I looked at the same BOT spread sheet. It looks bad to me and if it doesn't look so bad to you, great. I don't know if I should be happy about your optimism or not. All I see are bad signs. Juristic Act and Right registration has fallen off the table. Is that good or bad for the rest of us, I don't know but, I do know it is not a good sign for the general health of the foreign housing market in Thailand. The bad news is not bad for everybody. Depends on where you sit.

Yes - isn't that the beauty of numbers? Same stats, yet different interpretations . However, I believe credit growth by itself doesnt tell you much. It is the proportion of debit finance relative to equity in assets acquired that matters. I understand that my figure is also just a rough proxy of that.

Anyway, I think the Juristic Act and Right registration refers to the fees the government slashed (early-mid 2009 I believe) as part of the stimulus package - hence the low Baht values? Or were you referring to the number of units registered?

[123ace]

In reply to some of the above comments:

Major Developements has built more condos than any of the other current crop pf condo developers in pattaya, including raimon land. Reflections is not huge by their standards. As a leading thai developer they have the resources to complete in excess of any others currently or recently active in Pattaya. As at 3rd quarter 2009 they had 50% pre sales, mostly to Thais, so the issues there seem to be reveresed from the local norm, Lucky them.

Regarding credit exposure comment and expection of a crash, the bulk of the debt is clearly all domestic and on the most part for owner occupied homes. The Banks do not lend freely (and not to unemployed people with no deposits - its not the US!) and there is no comparison with the US banking system pre 2008. many of these homes have several generations living in them, with older children all helping. Average property values are very low.

If you are waiting for the market to collapse you will have a long wait.

[Pakboong]

My sources are the same as yours. I looked at the same BOT spread sheet. It looks bad to me and if it doesn't look so bad to you, great. I don't know if I should be happy about your optimism or not. All I see are bad signs. Juristic Act and Right registration has fallen off the table. Is that good or bad for the rest of us, I don't know but, I do know it is not a good sign for the general health of the foreign housing market in Thailand. The bad news is not bad for everybody. Depends on where you sit.

Yes - isn't that the beauty of numbers? Same stats, yet different interpretations . However, I believe credit growth by itself doesnt tell you much. It is the proportion of debit finance relative to equity in assets acquired that matters. I understand that my figure is also just a rough proxy of that.

Anyway, I think the Juristic Act and Right registration refers to the fees the government slashed (early-mid 2009 I believe) as part of the stimulus package - hence the low Baht values? Or were you referring to the number of units registered?

I am only looking at macro trends. When a number is halved for example, it could represent a trend. I am looking at numbers before and after the 97 crisis and comparing them to the before and after the 2005-7 bubble top. It doesn't always matter what is actually counted but the trend it represents.

I think an overriding assumption has to be that banks do not like bad housing news. Loan defaults hurt badly when they exceed a certain number and the banks, for reasons of self preservation, use numbers in the best possible light.

The credit trend represents a statistical increase that I believe is not supportable. Does it matter how large the sample. Maybe, but if it shows peaks and valleys that are consistent with other factors, these are significant trends. Total outstanding credit for both individuals and developers has doubled in a very short period indicating a trend. If there is not a money available number to off set that change, then a problem may exist. These numbers are consistent with the housing problems in the US and UK to a large enough degree that they cannot pooh poohed off as nothing.

[emsfeld]

I am only looking at macro trends. When a number is halved for example, it could represent a trend. I am looking at numbers before and after the 97 crisis and comparing them to the before and after the 2005-7 bubble top. It doesn't always matter what is actually counted but the trend it represents.

I think an overriding assumption has to be that banks do not like bad housing news. Loan defaults hurt badly when they exceed a certain number and the banks, for reasons of self preservation, use numbers in the best possible light.

The credit trend represents a statistical increase that I believe is not supportable. Does it matter how large the sample. Maybe, but if it shows peaks and valleys that are consistent with other factors, these are significant trends. Total outstanding credit for both individuals and developers has doubled in a very short period indicating a trend. If there is not a money available number to off set that change, then a problem may exist. These numbers are consistent with the housing problems in the US and UK to a large enough degree that they cannot pooh poohed off as nothing.

Well, let's look at the US then for comparison:

First, the value of mortgages outstanding here:

http://www.federalreserve.gov/econresdata/...and/current.htm

Presumably, the value of mortgages is marked to market, eg. valued against some average mortgage yields. Also assume that these reflect the stock of mortgage credit outstanding, e.g.

Credit Outstanding(End 2009) = Credit Outstanding(End 2008) + Net Credit Growth (over 2009)

where Net Credit Growth (over 2009) arises from changes in yield, new mortgages, mortgages repaid,...

The biggest changes had occurred over the years from 2005 to 2007 - not surprisingly. 2008 Q3 to 2009 Q3 changes have been very small, in fact levels have come down a bit - presumably due to fewer mortgages extended and a drop in the average mortgage yield. Also not very surprising.

Second, consider the new housing sales:

http://www.census.gov/const/quarterly_sales_cust.xls

If we further use midpoints for the sale price brackets and assume that this is the price at which a house sold within that bracket and multiply that by the number of houses sold within that bracket, you get a total value of about USD 231 bil (products summed across the brackets) for 2007. Compare that again with the Net Credit Growth figure for 2007: it's about USD 1000 bil. That's a factor of 4.something. Furthermore, if we naively assume that average length of the mortgage is 20 years, average mortgage yield per year is 6% and use a naive formula to calculate the present value at 2007 we get a figure of roughly USD 323 bil of net (discounted) credit growth over 2007.

Obviously, the above is quite a simplification of the real state of affairs, but does give an indication of the extend to which the US housing market was leveraged! Such high leverage of consumer housing credit makes consumers and the economy as a whole very susceptible to changes in the economy as any shocks directly affect disposable income and wealth (future expected wealth, actually). My argument is that when a property market has a very low aggregate leverage but is to a high proportion equity financed (which figures suggest), then there is more price stability. Why sell if you don't have to?

Edited March 14, 2010 by emsfeld

[Pakboong]

I am only looking at macro trends. When a number is halved for example, it could represent a trend. I am looking at numbers before and after the 97 crisis and comparing them to the before and after the 2005-7 bubble top. It doesn't always matter what is actually counted but the trend it represents.

I think an overriding assumption has to be that banks do not like bad housing news. Loan defaults hurt badly when they exceed a certain number and the banks, for reasons of self preservation, use numbers in the best possible light.

The credit trend represents a statistical increase that I believe is not supportable. Does it matter how large the sample. Maybe, but if it shows peaks and valleys that are consistent with other factors, these are significant trends. Total outstanding credit for both individuals and developers has doubled in a very short period indicating a trend. If there is not a money available number to off set that change, then a problem may exist. These numbers are consistent with the housing problems in the US and UK to a large enough degree that they cannot pooh poohed off as nothing.

Well, let's look at the US then for comparison:

First, the value of mortgages outstanding here:

http://www.federalreserve.gov/econresdata/...and/current.htm

Presumably, the value of mortgages is marked to market, eg. valued against some average mortgage yields. Also assume that these reflect the stock of mortgage credit outstanding, e.g.

Credit Outstanding(End 2009) = Credit Outstanding(End 2008) + Net Credit Growth (over 2009)

where Net Credit Growth (over 2009) arises from changes in yield, new mortgages, mortgages repaid,...

The biggest changes had occurred over the years from 2005 to 2007 - not surprisingly. 2008 Q3 to 2009 Q3 changes have been very small, in fact levels have come down a bit - presumably due to fewer mortgages extended and a drop in the average mortgage yield. Also not very surprising.

Second, consider the new housing sales:

http://www.census.gov/const/quarterly_sales_cust.xls

If we further use midpoints for the sale price brackets and assume that this is the price at which a house sold within that bracket and multiply that by the number of houses sold within that bracket, you get a total value of about USD 231 bil (products summed across the brackets) for 2007. Compare that again with the Net Credit Growth figure for 2007: it's about USD 1000 bil. That's a factor of 4.something. Furthermore, if we naively assume that average length of the mortgage is 20 years, average mortgage yield per year is 6% and use a naive formula to calculate the present value at 2007 we get a figure of roughly USD 323 bil of net (discounted) credit growth over 2007.

Obviously, the above is quite a simplification of the real state of affairs, but does give an indication of the extend to which the US housing market was leveraged! Such high leverage of consumer housing credit makes consumers and the economy as a whole very susceptible to changes in the economy as any shocks directly affect disposable income and wealth (future expected wealth, actually). My argument is that when a property market has a very low aggregate leverage but is to a high proportion equity financed (which figures suggest), then there is more price stability. Why sell if you don't have to?

Good stuff and we do not disagree here. I see a miniature version of this scenario developing here. Similar considerations but on a much smaller scale. Thais will have to borrow more money to take up the slack in the Foreign drop off in demand. If Thais who are eligible to borrow money are already over leveraged, they will be unable to take up that slack. There are signs that the number of Thais who make enough money to pay taxes and be otherwise eligible to borrow is over leveraged then the problem of drop off in foreign demand has nowhere to hide. The number of condos being developed is in to full swing according to December registrations.

The numbers of mortgages by Thais will always be small because the vast majority do not pay taxes because they make less than the baht 150,000 minimum. They are esentially not eligible to borrow from a bank to buy a house or condos. So, from where will the buyers come?

This problem is always affected by the 51/49 rule. Thais will be less able to get mortgages;Foreign demand has dropped and is likely to continue to do so; and building projects continue to increase as if nothing has changed. An over supply has to result. Now the builders have to default. Doesn't matter which of the groups defaults, the result is likely to be the same.

[emsfeld]

Good stuff and we do not disagree here. I see a miniature version of this scenario developing here. Similar considerations but on a much smaller scale. Thais will have to borrow more money to take up the slack in the Foreign drop off in demand. If Thais who are eligible to borrow money are already over leveraged, they will be unable to take up that slack. There are signs that the number of Thais who make enough money to pay taxes and be otherwise eligible to borrow is over leveraged then the problem of drop off in foreign demand has nowhere to hide. The number of condos being developed is in to full swing according to December registrations.

The numbers of mortgages by Thais will always be small because the vast majority do not pay taxes because they make less than the baht 150,000 minimum. They are esentially not eligible to borrow from a bank to buy a house or condos. So, from where will the buyers come?

This problem is always affected by the 51/49 rule. Thais will be less able to get mortgages;Foreign demand has dropped and is likely to continue to do so; and building projects continue to increase as if nothing has changed. An over supply has to result. Now the builders have to default. Doesn't matter which of the groups defaults, the result is likely to be the same.

I have no idea what the proportion of foreigners is that are investing in the Thai property market. Obviously a drop of 90% in foreign demand sounds impressive, but how does that relate to total demand? My guess would be that for 8 Thai buyers there are maybe 2 foreign buyers. Is that going to have an impact? Don't think so, but then again, I don't know what the impact of foreign demand really is. Anyone have figures on that?

What I do think though is that developers erecting condos with a foreign quota take into account that the foreign quota takes longer to be filled. My guess is that filling the foreign quote will always take longer than filling the Thai quota - at least in Bangkok. I don't know the Pattaya property market at all, so I cannot really comment on that.

In regards to Thai demand - I do believe the "myth" that the vast majority of Thai buyers purchase cash rather than through credit. As I argued in my OP, the credit financing ratio is rather small providing some proof to my argument. You have a valid point though in arguing that supply might be outstripping demand - at some stage total demand will be saturated.

How condo registrations relate to supply? Not sure, I think these are rather an indication of demand, eg the condos are registered when purchased from the developer by the consumer. That's how I'd interpret that item at least. The number of land development licenses would give an indication of supply, I reckon, and that has dropped from 2008 to 2009.

Edited March 14, 2010 by emsfeld

[123ace]

Good stuff and we do not disagree here. I see a miniature version of this scenario developing here. Similar considerations but on a much smaller scale. Thais will have to borrow more money to take up the slack in the Foreign drop off in demand. If Thais who are eligible to borrow money are already over leveraged, they will be unable to take up that slack. There are signs that the number of Thais who make enough money to pay taxes and be otherwise eligible to borrow is over leveraged then the problem of drop off in foreign demand has nowhere to hide. The number of condos being developed is in to full swing according to December registrations.

The numbers of mortgages by Thais will always be small because the vast majority do not pay taxes because they make less than the baht 150,000 minimum. They are esentially not eligible to borrow from a bank to buy a house or condos. So, from where will the buyers come?

This problem is always affected by the 51/49 rule. Thais will be less able to get mortgages;Foreign demand has dropped and is likely to continue to do so; and building projects continue to increase as if nothing has changed. An over supply has to result. Now the builders have to default. Doesn't matter which of the groups defaults, the result is likely to be the same.

I have no idea what the proportion of foreigners is that are investing in the Thai property market. Obviously a drop of 90% in foreign demand sounds impressive, but how does that relate to total demand? My guess would be that for 8 Thai buyers there are maybe 2 foreign buyers. Is that going to have an impact? Don't think so, but then again, I don't know what the impact of foreign demand really is. Anyone have figures on that?

What I do think though is that developers erecting condos with a foreign quota take into account that the foreign quota takes longer to be filled. My guess is that filling the foreign quote will always take longer than filling the Thai quota - at least in Bangkok. I don't know the Pattaya property market at all, so I cannot really comment on that.

In regards to Thai demand - I do believe the "myth" that the vast majority of Thai buyers purchase cash rather than through credit. As I argued in my OP, the credit financing ratio is rather small providing some proof to my argument. You have a valid point though in arguing that supply might be outstripping demand - at some stage total demand will be saturated.

How condo registrations relate to supply? Not sure, I think these are rather an indication of demand, eg the condos are registered when purchased from the developer by the consumer. That's how I'd interpret that item at least. The number of land development licenses would give an indication of supply, I reckon, and that has dropped from 2008 to 2009.

A few points:

Thai developers do not factor in or make any allowance for foreign buyers aside from in Pattaya, however there are virtually no professional thai developers in pattaya (like Major Group rather than like the foreign focused Raimon Land etc).

In Pattaya foreign quoata fills more easily and Thai quoata fills slow. Elsewhere this is not an issue and Thai's are not restricted to any quoata, so this is in fact not an industry problem at a national level, but more a problem for foreign developers that concieve a 'too foreign' product, in markets where there is limted Thai demand. Such as Pattaya in isolation.

Foreign demand is not down by 90%. Somebody on here has said that CBRE allegedly quoted this, but that does not mean it is, or was ever accurate and whatever the number was at that time it has improved clearly this year compared to last year. So be assured it is no longer 'off' by 90%.

No reseach is made to compare overall foreign vs Thai buying trends and as a huge proportion of foreign sales are leases these do not register on the same basis. These leases are often foreign buyer and foreign developer, and are not seen as part of the market.

Post 1997 one of the biggest problem areas in the market was office space in Bangkok. There was at one point over 44% vacant office space. Arguably the biggest vacancy decline of any developed markets. This is where the pain for the banks to real estate was felt hardest, and was followed by residential but mostly suburban low end housing. There were dozens of dilapidated half built hosuing estates all over the place and not just in Bangkok but also Pattaya, where many of these can still be seen today. Many golf courses have these remnants still in place, now owned by banks and unable to free up their cash.

We would need to see huge numbers of home owning locals becoming unemplyed in order for a credit crisis to develop. This does not seem likley at this present time.

Office space occupancy levels ar every high , so no pressure on that front in 2010.

[Pakboong]

Good stuff and we do not disagree here. I see a miniature version of this scenario developing here. Similar considerations but on a much smaller scale. Thais will have to borrow more money to take up the slack in the Foreign drop off in demand. If Thais who are eligible to borrow money are already over leveraged, they will be unable to take up that slack. There are signs that the number of Thais who make enough money to pay taxes and be otherwise eligible to borrow is over leveraged then the problem of drop off in foreign demand has nowhere to hide. The number of condos being developed is in to full swing according to December registrations.

The numbers of mortgages by Thais will always be small because the vast majority do not pay taxes because they make less than the baht 150,000 minimum. They are esentially not eligible to borrow from a bank to buy a house or condos. So, from where will the buyers come?

This problem is always affected by the 51/49 rule. Thais will be less able to get mortgages;Foreign demand has dropped and is likely to continue to do so; and building projects continue to increase as if nothing has changed. An over supply has to result. Now the builders have to default. Doesn't matter which of the groups defaults, the result is likely to be the same.

I have no idea what the proportion of foreigners is that are investing in the Thai property market. Obviously a drop of 90% in foreign demand sounds impressive, but how does that relate to total demand? My guess would be that for 8 Thai buyers there are maybe 2 foreign buyers. Is that going to have an impact? Don't think so, but then again, I don't know what the impact of foreign demand really is. Anyone have figures on that?

What I do think though is that developers erecting condos with a foreign quota take into account that the foreign quota takes longer to be filled. My guess is that filling the foreign quote will always take longer than filling the Thai quota - at least in Bangkok. I don't know the Pattaya property market at all, so I cannot really comment on that.

In regards to Thai demand - I do believe the "myth" that the vast majority of Thai buyers purchase cash rather than through credit. As I argued in my OP, the credit financing ratio is rather small providing some proof to my argument. You have a valid point though in arguing that supply might be outstripping demand - at some stage total demand will be saturated.

How condo registrations relate to supply? Not sure, I think these are rather an indication of demand, eg the condos are registered when purchased from the developer by the consumer. That's how I'd interpret that item at least. The number of land development licenses would give an indication of supply, I reckon, and that has dropped from 2008 to 2009.

A few points:

Thai developers do not factor in or make any allowance for foreign buyers aside from in Pattaya, however there are virtually no professional thai developers in pattaya (like Major Group rather than like the foreign focused Raimon Land etc).

In Pattaya foreign quoata fills more easily and Thai quoata fills slow. Elsewhere this is not an issue and Thai's are not restricted to any quoata, so this is in fact not an industry problem at a national level, but more a problem for foreign developers that concieve a 'too foreign' product, in markets where there is limted Thai demand. Such as Pattaya in isolation.

Foreign demand is not down by 90%. Somebody on here has said that CBRE allegedly quoted this, but that does not mean it is, or was ever accurate and whatever the number was at that time it has improved clearly this year compared to last year. So be assured it is no longer 'off' by 90%.

No reseach is made to compare overall foreign vs Thai buying trends and as a huge proportion of foreign sales are leases these do not register on the same basis. These leases are often foreign buyer and foreign developer, and are not seen as part of the market.

Post 1997 one of the biggest problem areas in the market was office space in Bangkok. There was at one point over 44% vacant office space. Arguably the biggest vacancy decline of any developed markets. This is where the pain for the banks to real estate was felt hardest, and was followed by residential but mostly suburban low end housing. There were dozens of dilapidated half built hosuing estates all over the place and not just in Bangkok but also Pattaya, where many of these can still be seen today. Many golf courses have these remnants still in place, now owned by banks and unable to free up their cash.

We would need to see huge numbers of home owning locals becoming unemplyed in order for a credit crisis to develop. This does not seem likley at this present time.

Office space occupancy levels ar every high , so no pressure on that front in 2010.

The political turmoil is discouraging buyers

"Political turmoil has made Thailand significantly less attractive to buyers, especially to foreign buyers. CBRE reported that foreign demand for residential properties had dropped by up to 90% by June 2009. Real house prices in Thailand were 34.2% below their 1992 peak, as of Q2 2009."

A quote taken from the below reference:

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

I don't even know who CBRE actually is, I can only assume the last two letters of the Acronym are for Real Estate and a publication called the global property guide chose to use them as a source. There is no reason to believe they would collaborate to deceive the buying public when their publication speaks to all of Asia and appears quite well researched.

So you are saying demand is not off by 90% so who are we to believe and why?

I don't know what it looks like when you step outside your house but, when I step outside of mine, it looks like demand is off 90%.

Edited March 14, 2010 by Pakboong

[AddictedToThai]

CBRE reported that foreign demand for residential properties had dropped by up to 90% by June 2009.

June 2009 is far behind.

[AddictedToThai]

My guess would be that for 8 Thai buyers there are maybe 2 foreign buyers.

It is rather 2 foreign buyers to 98 thai buyers if we take into account all Thailand.

[emsfeld]

My guess would be that for 8 Thai buyers there are maybe 2 foreign buyers.

It is rather 2 foreign buyers to 98 thai buyers if we take into account all Thailand.

I figured that the relations might be like that but do not have any facts to support this. Even if there is a 90% drop in foreign demand - that drop does not seem to have a big impact on overall demand at all.