Is Phuket Property Market Inflated?

[snamos]

Quite a few posts of late have been going into the prices of rents, land and housing. I would like to know what the majority thinks.

I think the rents on housing is very reasonable, perhaps because there is so much competition.

The cost of land is insanely expensive. Houses (with land) for sale are in my view the same as western countries. The cost to build a house once you (pretend to) own the land is quite cheap......I believe there is no set property price as in western countries. Certain suburbs in certain cities in the west attract fairly standard rents and sales.

In Phuket it appears to be more guesswork. I would have to get specific examples but a Rai on Bangla Rd opposite the Aussie bar was selling for figures so large I needed a calculator just to write it down.....Yet 2 Suburbs away in Phuket town a Rai is relatively in- expensive. There is a great variance here. Also the laws arent here to protect Falungs bending the rules on property ownership....Ive had heaps of real estate agents trying to advise me differently....but I think a bit of common sense prevails here...if my name aint on the paper, I aint buying.

All very confusing for a Falung like me.

[LivinginKata]

I think that the prices are set by the rule of 'supply and demand'. Land in central Patong commands a high price as there is high income potential. Land with a good view also commands a high price. I too think that rental prices are reasonable if you compare with the cost of buying, and all the hassle and pitfalls that buying demands.

For the last 14 years I have been hearing the bubble is about to burst, and it never happened, but I must admit this this past year I would say that the bubble has at last burst. There is only so much property that the demand side of the curve can accommodate, and maybe it's past the tipping point.

[stevenl]

The bubble may have burst for housesales, i don't think so though, but not for land sales. I have seen many new developments lately all along the coast, quite a few of them shophouses.

[NamKangMan]

This thread was started as a result of a comment I made in another thread. That comment was about the direct correlation between what amount of rent you pay to a Thai landord, and the price of the goods and/or services your business offers to customers.

From what I am seeing, Thai landlords do not care about the political unrest, the over inflation of the baht, the lower cost of neighbouring countries, supply and demand etc etc. All they care about is raising the rent to get more money per month, per year or per lease.

I believe they do not think about the fact that if they raise the rent 5000 baht per month, the bar owner will have to charge 90 or 100 baht a beer and that his rent rise will either see the owner walk away, or slowly go broke, because other bars are selling beer at 70 or 80 baht, until their rent increases.

Collectively, if Thai landlords think it's ok to just raise the rent 10% every year because, "farang can pay" - I think they are playing a big part in making a "low high season" and "killing the goose that lays the golden egg" and all the other sayings we have seen on TV. So, in my opinion, Thai landlords have a direct effect on tourism. They have a big part to play in the price of rooms per night and the price of alcohol and entertainemnt.

I have a question for a bar owner. To keep figures round, say you charge 100 baht for a beer. Can you give us a breakdown, in percentage, roughly, where that 100 baht goes? I'm guessing the Thai landlord is seeing a big, and always increasing, slice of the pie.

Edited February 3, 2011 by NamKangMan

[borowolf]

Many (not all) Thai people do not think much about supply and demand indeed.

They think about what their costs were and how much they intended to profit.

As an example. I was looking at some land owned by a sister in law. She is a nice woman and I know her quite well.

I asked about the price for the land. The answer was ridiculously high for that piece of land at that location.

So I asked her why sheasked such a high price and if she ever expected to sell it.

No answer on the latter. She did not care. But on the first question her answer was:

"We bought the land for price x. We borrowed money from the bank and had to pay interest y.

We also want to make some profit z so..... the price simply is x + y + z"

Here in Chiang Mai many existing houses (that farangs are interested in) carry an unbelievable high price.

It is a lot cheaper to buy some land and build your own house.

These houses are not sold and fall down into ruins. But the owner prefers that to making a loss.

He does not even think about lowering the price because he would sell below the price he paid himself and

that would be ridiculous for him/her to do. Since most of these people are rich they can afford that.

[katabeachbum]

I think that the prices are set by the rule of 'supply and demand'. Land in central Patong commands a high price as there is high income potential. Land with a good view also commands a high price. I too think that rental prices are reasonable if you compare with the cost of buying, and all the hassle and pitfalls that buying demands.

For the last 14 years I have been hearing the bubble is about to burst, and it never happened, but I must admit this this past year I would say that the bubble has at last burst. There is only so much property that the demand side of the curve can accommodate, and maybe it's past the tipping point.

Supply and demand indeed

5 years ago prime BKK location was sold at 1 mill baht talangwah (400.000.000 baht/rai)

Today its more like 1,4 mill baht talangwah.

Actual sales

Rental prices for most properties are in Phuket very reasonable compared to the value of the property. It may seem expensive to rent a prime location bar, and a business budget may find the price unacceptable, but anyone wishing to go into business in Phuket always has the option to purchase similar property.

[snamos]

Another factor may be because the rental contracts dont hold much weight you can be priced or muscled out easy if you have a sucessfull business?

[snamos]

This thread was started as a result of a comment I made in another thread. That comment was about the direct correlation between what amount of rent you pay to a Thai landord, and the price of the goods and/or services your business offers to customers.

From what I am seeing, Thai landlords do not care about the political unrest, the over inflation of the baht, the lower cost of neighbouring countries, supply and demand etc etc. All they care about is raising the rent to get more money per month, per year or per lease.

I believe they do not think about the fact that if they raise the rent 5000 baht per month, the bar owner will have to charge 90 or 100 baht a beer and that his rent rise will either see the owner walk away, or slowly go broke, because other bars are selling beer at 70 or 80 baht, until their rent increases.

Collectively, if Thai landlords think it's ok to just raise the rent 10% every year because, "farang can pay" - I think they are playing a big part in making a "low high season" and "killing the goose that lays the golden egg" and all the other sayings we have seen on TV. So, in my opinion, Thai landlords have a direct effect on tourism. They have a big part to play in the price of rooms per night and the price of alcohol and entertainemnt.

I have a question for a bar owner. To keep figures round, say you charge 100 baht for a beer. Can you give us a breakdown, in percentage, roughly, where that 100 baht goes? I'm guessing the Thai landlord is seeing a big, and always increasing, slice of the pie.

partially started because of you...me and another member were jousting over a few other issues regarding property, land ect in the same thread.

I do like some of your points like "farang can pay" little do a lot of locals relise how hard it is to save up for a holiday in Phuket....yes Farangs earn a lot more money but it costs you a lot to live in farangland and then to save some money is even harder....for mum, dad and the kids to come out from farangland it can cost in excess of $5000 just for the air tickets....add $100 a night for high season rooms....Food, souvineers and tuk tuk rides can add up to another $100 a day for a family....then poppy wants to have a few 100 baht beers with the girls....so for a 4 week holiday you could be looking at $10000 US. Not many working class people have $10000 US in the bank. Guys I work with (offshore industry) spend up to 75% of money on living in Farangland....others that I know that have child support gouged out of there salary are left with $100 - $200 a week.

So my main point is...there is only so many people who can afford a slice of paradise,

[katabeachbum]

The new facelofted Soi Seadragon is an example of what happens when rental prices rise.

All rents are up 50%.

I know a few thai bar owners there, my first watering hole in Phuket 8 years ago. Most are still there, but the 50% increase in rent after face lift is not covered by 50% more customers or turn over. 10-12 year bar ownerships are now up for sale, as they havent made any money/profit since new opening

[NamKangMan]

The new facelofted Soi Seadragon is an example of what happens when rental prices rise.

All rents are up 50%.

I know a few thai bar owners there, my first watering hole in Phuket 8 years ago. Most are still there, but the 50% increase in rent after face lift is not covered by 50% more customers or turn over. 10-12 year bar ownerships are now up for sale, as they havent made any money/profit since new opening

If the rent has gone up by 50%, the owner would have to pass some of that increase onto his customers through higher alcohol prices. So, he now charges 100 baht a beer and just a few metres away you get the same product (beer) for 80 baht. His business is finished.

Soi Seadragon is a different case because it has been recently redeveloped, but, picture the same thing happening to your regular watering hole, for no reason other than it's time to renew the lease, and they fall over as well. Now, spread this across the whole island and you can see that the Thai landlords are pricing Phuket out of the market. not the farang bar owners, because to stay open, beer must be XXX baht and rooms must be XXX baht and tourist are just simply comparing these prices to other places in Thailand like Pattaya, or other countries like Vietnam. Or, we see what another poster has mentioned, 7/11 alcohol sale going through the roof and tourists partying on their balcony.

[snamos]

If the rent has gone up by 50%, the owner would have to pass some of that increase onto his customers through higher alcohol prices. So, he now charges 100 baht a beer and just a few metres away you get the same product (beer) for 80 baht. His business is finished.

Soi Seadragon is a different case because it has been recently redeveloped, but, picture the same thing happening to your regular watering hole, for no reason other than it's time to renew the lease, and they fall over as well. Now, spread this across the whole island and you can see that the Thai landlords are pricing Phuket out of the market. not the farang bar owners, because to stay open, beer must be XXX baht and rooms must be XXX baht and tourist are just simply comparing these prices to other places in Thailand like Pattaya, or other countries like Vietnam. Or, we see what another poster has mentioned, 7/11 alcohol sale going through the roof and tourists partying on their balcony.

You are so right! I get a slab of beer and sit at home before going out now....would never have done that a few years ago. But why pay 3 times the price and I can invite who i want there. Also I saw soi sea dragon before it really opened up...i thought it looked pretty awesome and i also thought they might do ok (except the upsatairs bars).

[KarenBravo]

The land-lords maybe pricing Phuket out of the market as a destination for tourists, but, tourists are not the land-lords market. It is people who want to rent premises that he caters to.

As long as there are people willing to pay his price, rents will keep going up.

[katabeachbum]

The land-lords maybe pricing Phuket out of the market as a destination for tourists, but, tourists are not the land-lords market. It is people who want to rent premises that he caters to.

As long as there are people willing to pay his price, rents will keep going up.

and as long as bar owners are low on cash and no LOS credit history making them unable to buy property to house their "business", landlords will charge them whatever they feel like

as long as there are business operators without funds, or able to budget a business, there will be some accepting silly rents

[LivinginKata]

and as long as bar owners are low on cash and no LOS credit history making them unable to buy property to house their "business", landlords will charge them whatever they feel like

as long as there are business operators without funds, or able to budget a business, there will be some accepting silly rents

It's a very rare bar owner or restaurant owner that actually owns their own property. Purchase price of commercial property in a good location is just way way out of reach of most people.

And there is always another budding 'entrepreneur' arriving at the airport who thinks he is going to make his fortune in a couple of years by 'buying' a bar that's making millions of baht profit every year. I see them come & go each year. And the real owner is laughing all the way to bank with the key money, and is just itching for the business to fail, then more key money, repeat, repeat. Just keeps the rental prices high.

[stevenl]

Agree with (most of) the above.

Funny how this is in stark contrast with personal rent of a house, where once rented one keeps paying the same price years on end.

[snamos]

it seems the bar "business owner" keeps getting brought up in this forum and others....do any other businesses get stung with key money or is it just bars?

[snamos]

Agree with (most of) the above.

Funny how this is in stark contrast with personal rent of a house, where once rented one keeps paying the same price years on end.

yeah thats what i mean about rents on houses being reasonable...if anything they go down...I normally pay 3-6 months in advance and get a good discount

[stevenl]

it seems the bar "business owner" keeps getting brought up in this forum and others....do any other businesses get stung with key money or is it just bars?

In all commercially attractive areas keymoney is asked for all businesses.

[NamKangMan]

and as long as bar owners are low on cash and no LOS credit history making them unable to buy property to house their "business", landlords will charge them whatever they feel like

as long as there are business operators without funds, or able to budget a business, there will be some accepting silly rents

It's a very rare bar owner or restaurant owner that actually owns their own property. Purchase price of commercial property in a good location is just way way out of reach of most people.

And there is always another budding 'entrepreneur' arriving at the airport who thinks he is going to make his fortune in a couple of years by 'buying' a bar that's making millions of baht profit every year. I see them come & go each year. And the real owner is laughing all the way to bank with the key money, and is just itching for the business to fail, then more key money, repeat, repeat. Just keeps the rental prices high.

I totally agree. It's just sad to think that one day there will be a lot of shophouses, bars, guest houses etc sitting vacant and derelict.

[katabeachbum]

and as long as bar owners are low on cash and no LOS credit history making them unable to buy property to house their "business", landlords will charge them whatever they feel like

as long as there are business operators without funds, or able to budget a business, there will be some accepting silly rents

It's a very rare bar owner or restaurant owner that actually owns their own property. Purchase price of commercial property in a good location is just way way out of reach of most people.

And there is always another budding 'entrepreneur' arriving at the airport who thinks he is going to make his fortune in a couple of years by 'buying' a bar that's making millions of baht profit every year. I see them come & go each year. And the real owner is laughing all the way to bank with the key money, and is just itching for the business to fail, then more key money, repeat, repeat. Just keeps the rental prices high.

I totally agree. It's just sad to think that one day there will be a lot of shophouses, bars, guest houses etc sitting vacant and derelict.

Most bar owners rely on their inventory, thats friends drinking, and some should reconsider payin huge amounts in rent in hot locations, and rather buy a shop house off main area. Probably keep most of the inventory, and perhaps increase profit

[LivinginKata]

Most bar owners rely on their inventory, thats friends drinking, and some should reconsider payin huge amounts in rent in hot locations, and rather buy a shop house off main area. Probably keep most of the inventory, and perhaps increase profit

I know a couple of guys that used to have bars off Bangla. They had a good repeat business with friends here on holiday. They decided to give up the expensive rent & key money and found a place off the mainstream and they are doing just fine with the exact same customer base. sensible guys.

[petercallen]

I totally agree. It's just sad to think that one day there will be a lot of shophouses, bars, guest houses etc sitting vacant and derelict.

There are plenty of shop houses and bars( especially in the low season) sitting vacant now.

You do not need to travel very far to find vacant shop houses and some have been that way for a long time.

But they still keep building more.

[petercallen]

Rents if you shop around are very reasonable here.

Most houses are very overpriced, people who were making there living from bars, restaurants, diving etc

are now into building and selling houses to farangs.

most of the farang buyers have gone due to the economic situation in the world.

There are some value for money houses around its a matter of finding one that suites you

There will be more good buys in the future, checking around there are thousands of properties for sale on the island.

Some people are happy to wait until the property market improves but there are a lot who cannot afford to.

Personally i am in no hurry, if i cannot find the houses i want at the price i prepared to pay i will build myself and cut the

middleman out, 100 to 500% markup on cost is not a fair profit as far as i am concerned

People keep telling me there is a shortage of land to build on here, there is not just take a look around for yuorself

[thaiwanderer]

From what I am seeing, Thai landlords do not care about the political unrest, the over inflation of the baht, the lower cost of neighbouring countries, supply and demand etc etc. All they care about is raising the rent to get more money per month, per year or per lease.

And how exactly does that differ from non-Thai landlords?

[NamKangMan]

From what I am seeing, Thai landlords do not care about the political unrest, the over inflation of the baht, the lower cost of neighbouring countries, supply and demand etc etc. All they care about is raising the rent to get more money per month, per year or per lease.

And how exactly does that differ from non-Thai landlords?

In the west, commercial lease increases are usually linked to the CPI and "key money" does not exist.

Rents in the west are not increased based on the landlord's suspicion of what he thinks the tenant is able to pay.

[dafyduck]

the bubble has burst in bangkok since a long time now, complete buyers market,. to sell a middle class condo 65 mt approx good standards you have to try at 20 % below purchase price of over 3.2 mil baht and still you wont find a customer easily,too much construction in recent years the cause.Also cost of a mortagage is very high 7 % per anum.In reality i dont see how anyone can break even when he sells his property if he used the banks in the short and medium term.

[stevenl]

That is one of the unique aspects of phuket property market: in the non commercial real estate there is hardly any financing, one of the reasons sellers don't have to sell and simply sit on their properties at their price.

[NamKangMan]

That is one of the unique aspects of phuket property market: in the non commercial real estate there is hardly any financing, one of the reasons sellers don't have to sell and simply sit on their properties at their price.

But the longer they "sit on their property at their price" - the years are ticking over on their 30 year land lease, and as we have discussed on TV before, who knows what the Thai landowner will do upon the residential land 30 year lease renewal.

So, who will buy a 20 year old, poorly constructed house, with 10 years left to run on a 30 year land lease with the unknown factor of what the Thai landowner will do after that 30 year lease expires????

These Thai owners, of residential land, will probably do the same as the commercial Thai landlords and raise the rent by a considerable amount.

A check on the internet of some of the bigger real estate agents on Phuket show there are currently hundreds and hundreds of properties on the market. It appears these vendors are "holding out" for the price they want but I'm thinking the longer they hold out, the less their property will be worth.

Basically, for both commercial and residential, farang can not own land in Thailand. We all know that. So, there is always that "unknown factor" of what the Thai landlord will do at the expiry of your lease, and, in my opinion, they play a BIG part in the market whilst having very little education, knowledge or care of market forces.

I also believe, in the next few years, when some of these 30 year leases start to expire, we will see many farang just walk away from their house, just as bar owners are walking away from their bars, due to unrealistic rent demands from Thai landlords.

Edited February 3, 2011 by NamKangMan

[snamos]

i think Spain had some similar laws regarding land ownership and leasing....i was talking to one old-timer from the UK and he said a lot of people got fleeced there after the Spanish government changed the law. This could happen in Thailand. There are some very influential and soon to be very influential leaders in Thailand who are rumoured to not like Falangs. This is because they probably arent receiving a direct kickback from any foreigners

[steelepulse]

>>So, who will buy a 20 year old, poorly constructed house, with 10 years left to run on a 30 year land lease

What do you think the percentage of houses for sale are that are on 30 year leases? I'd say most were either on the " Thai company" route or were owned by a Thai spouse with the land in the spouses name. I look from time to time at websites and I hardly ever see houses available that are on leaseholds. Maybe they are omitting this fact, or maybe they aren't.

You're right NKM, no one would buy a house with 10 years left on the lease and the house being in a terrible condition.