Bangkok Property Boom Rises Above Bubble Fears

[Lite Beer]

Bangkok property boom rises above bubble fears - Focus

by Janesara Fugal

A 77-storey skyscraper is set to become the latest,and tallest addition to Bangkok's ever-changing skyline already transformed by a construction boom that has raised fears of a property bubble.

"I just wanted something unique,something interesting" he told AFP.

MahaNakorn's unusual pixelated spiral design was created by German architect Ole Scheeren,who was behind Beijing's futuristic China Central Television headquarters.

The 19 billion baht($640 million) tower will house apartments,a shopping centre and a Ritz-Carlton hotel.

"When the economy gets better,the buildings go higher" Sorapoj said.

Thailand's economic health appears robust,growing 7.8 percent in 2010 despite street protests by the opposition "Red Shirts" that brought large areas of Bangkok to a standstill for two months.

An ever-increasing number of pristine new apartment blocks jostle for space in desirable areas vying for custom as billboards written in idiosyncratic English promise swanky lifestyles.

It is a far cry from a decade ago,when the city was littered with the skeletal remains of abandoned tower blocks,casualties of the 1997 Asian financial crisis that devastated the region.

The Bank of Thailand has described 2010 as the "golden year for real estate businesses" with strong demand for homes driven by low interest rates and increased consumer confidence causing a flurry of new building.

This resulted in a 13.6 percent increase in registrations of new homes in Bangkok to the highest level since the 1997 crisis, according to the bank's 2010 annual report.

The bank said it would be "vigilant" for signs of a bubble which it defined as a "sharp" increase in asset prices combined with strong growth in home loans.

A bubble could then burst if demand drops off and there is a glut of available properties.

Central bankers did not detect a bubble building, but raised concern over risk-taking in the sector.

As demand slowed after the June 2010 expiry of stimulus measures such as two-year interest-free home loans for first time buyers developers increasingly resorted to high-risk strategies in their fight to fill properties.

Homebuyers with "insufficient purchasing power or subprime customers" were persuaded to buy,the bank said,while lenders also boosted the number of loans at 90 percent or more of the property value.

To help "maintain economic stability" the bank responded by making some high loan-to-value lending more expensive for financial institutions.

Property research group Agency for Real Estate Affairs (AREA) said it had detected a build-up in oversupply and warned that the level would become unsustainable.

Its figures show there were more than 135,000 unsold property units in Bangkok and its suburbs as of July 2011, including projects under construction. Another 100,000 units are expected to come in to the market next year.

AREA president Sopon Pornchokchai said he could foresee an "upcoming bubble".

"If something happened to our economy or politics it could cause the bubble to burst" he said.

But Kobsidthi Silpachai,head of markets and economic research at Kasikorn Bank said Thailand's economic health meant it was in a better position than in 1997,adding that if a bubble did burst its impact would be limited.

"If it did really happen it would certainly affect industries related to real estate,like steel and cement but it would not affect other businesses" he said.

Developer Sorapoj shrugged off jitters over the health of the real estate sector,although he conceded that the Red Shirt protests had hurt interest from foreign investors.

He was confident Thailand's incoming leadership which is affiliated to the Red Shirts and won a thumping majority in the July 3 election would be able to avert any threats.

"I'm not worried about oversupply.

The new government will do whatever it takes to prevent bubbles" he said.

-- (c) Copyright AFP 2011-07-31

[Steely Dan]

The new government will do whatever it takes to prevent bubbles" he said.

[kutjebu]

It's not only in Bangkok.Here in Huahin and Cha-am the same.Many units not sold.

Edited July 31, 2011 by metisdead
Font.

[Ricardo]

The new government will do whatever it takes to prevent bubbles" he said.

I didn't realise PTP had the interests of Bangkok property-developers at heart, must have missed seeing that, during the election-campaign.

[andytime]

The vision of a dead slug on serepax who has recently ingested valium and magic mushrooms at the same time. When the music stops many will realize that the game that they have been playing in doesn't involve any chairs. I was living/working at the Goldcoast in Australia at the time of the top of the Japanese market bubble 20 plus years ago. They bought absolutely everything and then they sold absolutely everything.. the only difference - take a 50-70% hit on whatever you had bought. In case someone hasn't told them if there are no lights on it means there is nobody home . Perhaps someone can ask the banker and developer about the 40 top floors all unoccupied in 4 towers starting with "M" in central Bangkok that have been that way for the last 2 years without looking at any of the other floors in the same building which also suffer from the same problem - an elusive tenant or occupier.

[wpcoe]

Where is this 77-storey building supposed to be built? Is it the previously-announced "tallest in Bangkok" building adjacent to the Narwatiwat BTS station?

[roamer]

" As demand slowed after the June 2010 expiry of stimulus measures such as two-year interest-free home loans for first time buyers developers increasingly resorted to high-risk strategies in their fight to fill properties.

Homebuyers with "insufficient purchasing power or subprime customers" were persuaded to buy,the bank said,while lenders also boosted the number of loans at 90 percent or more of the property value."

Now where else did I see this happening, let me think

[DP25]

Where is this 77-storey building supposed to be built? Is it the previously-announced "tallest in Bangkok" building adjacent to the Narwatiwat BTS station?

Yeah, new tallest building in the city when finished, next to Chong Nonsi BTS between Silom and Sathorn.

[lifeisthefun]

Here's the deal. I live on Rang Naam in a 2-bedroom 80 sqm. apartment with a large balcony on the 17th floor with a great city view and directly overlooking a park, within stone's throw of multiple restaurants, businesses and malls, 5 mins. from the BTS station, in an extremely well-maintained building. My rent 20,000b/mth.  

My building being for rent only, a couple of weeks ago at the behest of a rather pushy agent I went looking at condos thinking I just might find something similar at a possibly tempting price. Well, not only didn't I find anything remotely close but what I did see and the prices I was quoted caused my eyes to pop. Without going into details, after that half-day outing, I came away convinced that my apartment, if it were for sale, would retail at least at 80,000b/sqm.  

So, my Casio tells me that I am paying 3.75% of the value of my place per annum as rent. Now, is this cheap money or what? In the US I was paying more like 10% of the value of my apartment as rent, and when ultimately I did buy, ended up paying mortgage and taxes to a total of just what I used to pay to rent, at the same time building equity. Another comparison: isn't the stock market in the long run supposed to return 6-8%?  

So, what's going on? Do Thais get incredibly cheap (sub 4%) housing loans? Even so, doesn't their ROI depends on the value of the property holding up?  

Looks all bubbly to me. Or am I missing something? I don't claim to be an expert on real estate by any means, having bought and sold only once in my life. Even less do I know of the Thai market. But I would greatly appreciate to be enlightened by wiser minds.

Edited July 31, 2011 by lifeisthefun

[OzMick]

"Homebuyers with "insufficient purchasing power or subprime customers" were persuaded to buy,the bank said,while lenders also boosted the number of loans at 90 percent or more of the property value."

Uh-oh! deja vu all over again.

I read an interesting article some time back which had a very plausible theory re a common problem of major cities. The land mass on which a city is built is floating on a sea of magma, and as more and more buildings are constructed, more weight is added and the land mass starts to sink. We're talking geologic time so things happen very slowly, but over the last 150 or so years, buildings have become taller and taller, and because city land is so expensive, the amount of open space and/or smaller structures decreases. This has put more weight on the land, so it sinks further and faster.

Leaving aside global warming, as the land mass sinks, sea-side cities have increasing drainage problems (Bangkok) and eventually have sea intrusion on peak tides (Jakarta). More 77-storey towers sounds just what Bangkok needs.

[WhizBang]

That is one ugly building.  I sure hope they redesign it before they start construction.

[OzMick]

looks like a white-ant problem to me!

[DP25]

That is one ugly building.  I sure hope they redesign it before they start construction.

They just started and have already sold a bunch of apartments, so I don't think they're gonna make any big design changes

[1weatherman]

"Those who cannot remember the past are condemned to repeat it." --George Santayana Think this about sums it up.

[dcutman]

" As demand slowed after the June 2010 expiry of stimulus measures such as two-year interest-free home loans for first time buyers developers increasingly resorted to high-risk strategies in their fight to fill properties.

Homebuyers with "insufficient purchasing power or subprime customers" were persuaded to buy,the bank said,while lenders also boosted the number of loans at 90 percent or more of the property value."

Now where else did I see this happening, let me think

Yeh I think I saw this same exact thing happen a few years back. Where was that again?

But of course that could never happen here in the LOS. There is absolutly no concern there could be some abrupt changes in the system and thus the economy.

Edited July 31, 2011 by dcutman

[ya5702]

Here's the deal. I live on Rang Naam in a 2-bedroom 80 sqm. apartment with a large balcony on the 17th floor with a great city view and directly overlooking a park, within stone's throw of multiple restaurants, businesses and malls, 5 mins. from the BTS station, in an extremely well-maintained building. My rent 20,000b/mth.  

My building being for rent only, a couple of weeks ago at the behest of a rather pushy agent I went looking at condos thinking I just might find something similar at a possibly tempting price. Well, not only didn't I find anything remotely close but what I did see and the prices I was quoted caused my eyes to pop. Without going into details, after that half-day outing, I came away convinced that my apartment, if it were for sale, would retail at least at 80,000b/sqm.  

So, my Casio tells me that I am paying 3.75% of the value of my place per annum as rent. Now, is this cheap money or what? In the US I was paying more like 10% of the value of my apartment as rent, and when ultimately I did buy, ended up paying mortgage and taxes to a total of just what I used to pay to rent, at the same time building equity. Another comparison: isn't the stock market in the long run supposed to return 6-8%?  

So, what's going on? Do Thais get incredibly cheap (sub 4%) housing loans? Even so, doesn't their ROI depends on the value of the property holding up?  

Looks all bubbly to me. Or am I missing something? I don't claim to be an expert on real estate by any means, having bought and sold only once in my life. Even less do I know of the Thai market. But I would greatly appreciate to be enlightened by wiser minds.

Your Casio is working. Your power of reasoning is perfectly normal. However, consider this:

For some people who have lots of cash in hand who are averse to playing the stock market (despite the 6-8% returns) or casinos, investing in real estate is the sensible thing to do. Especially among the Chinese-Thais....with children and grandchildren who eventually have to live in the city to study, to work and to play.

What else can these local people do with the spare cash which is earning a meagre 1% interest income from Financial Institutions? A 3.75% ROI from rental income plus the potential for making Capital Gains (longterm objective) make real estate investment attractive.

[dcutman]

"Homebuyers with "insufficient purchasing power or subprime customers" were persuaded to buy,the bank said,while lenders also boosted the number of loans at 90 percent or more of the property value."

Uh-oh! deja vu all over again.

I read an interesting article some time back which had a very plausible theory re a common problem of major cities. The land mass on which a city is built is floating on a sea of magma, and as more and more buildings are constructed, more weight is added and the land mass starts to sink. We're talking geologic time so things happen very slowly, but over the last 150 or so years, buildings have become taller and taller, and because city land is so expensive, the amount of open space and/or smaller structures decreases. This has put more weight on the land, so it sinks further and faster.

Leaving aside global warming, as the land mass sinks, sea-side cities have increasing drainage problems (Bangkok) and eventually have sea intrusion on peak tides (Jakarta). More 77-storey towers sounds just what Bangkok needs.

I dont know about the magma theory, but it is fact that Bkk is pumping why more ground water than it can replentish, wich in turn cause's land compression, thus that sinking feeling. I hope they see all those apartments. Or start building boat docks instead of car parks.

,

[dcutman]

It's not only in Bangkok.Here in Huahin and Cha-am the same.Many units not sold.

Pattaya/Jomtien is in the worst shape. Buildings have been finished for 4 or 5 years and still it appears only 10 to 25% occupied. You dont need to look for lights on, just look at the ones that dont have window coverings or air cons on the balconies.

But everything looks good if you look at it through rose colored glasses.

. ..

[OzMick]

Here's the deal. I live on Rang Naam in a 2-bedroom 80 sqm. apartment with a large balcony on the 17th floor with a great city view and directly overlooking a park, within stone's throw of multiple restaurants, businesses and malls, 5 mins. from the BTS station, in an extremely well-maintained building. My rent 20,000b/mth.

My building being for rent only, a couple of weeks ago at the behest of a rather pushy agent I went looking at condos thinking I just might find something similar at a possibly tempting price. Well, not only didn't I find anything remotely close but what I did see and the prices I was quoted caused my eyes to pop. Without going into details, after that half-day outing, I came away convinced that my apartment, if it were for sale, would retail at least at 80,000b/sqm.

So, my Casio tells me that I am paying 3.75% of the value of my place per annum as rent. Now, is this cheap money or what? In the US I was paying more like 10% of the value of my apartment as rent, and when ultimately I did buy, ended up paying mortgage and taxes to a total of just what I used to pay to rent, at the same time building equity. Another comparison: isn't the stock market in the long run supposed to return 6-8%?

So, what's going on? Do Thais get incredibly cheap (sub 4%) housing loans? Even so, doesn't their ROI depends on the value of the property holding up?

Looks all bubbly to me. Or am I missing something? I don't claim to be an expert on real estate by any means, having bought and sold only once in my life. Even less do I know of the Thai market. But I would greatly appreciate to be enlightened by wiser minds.

Your Casio is working. Your power of reasoning is perfectly normal. However, consider this:

For some people who have lots of cash in hand who are averse to playing the stock market (despite the 6-8% returns) or casinos, investing in real estate is the sensible thing to do. Especially among the Chinese-Thais....with children and grandchildren who eventually have to live in the city to study, to work and to play.

What else can these local people do with the spare cash which is earning a meagre 1% interest income from Financial Institutions? A 3.75% ROI from rental income plus the potential for making Capital Gains (longterm objective) make real estate investment attractive.

It is when the sought-after long term capital gains become capital losses that the big problems arise, especially in loans with low initial deposit and in the early years of the loan when percentage of capital is low. Anyone taking out a minimum deposit loan at or near their maximum payment level is taking a huge risk, and when those properties are resumed and fire-saled by the banks, the problem is passed on to more conservative investors.

[Dag]

Take a look at night time how many lights are on in those huge towers, 3 or 4 of them....at the end of soi 18.

Also at the right time and right place....you can see through the entire top dozen or so levels when the sun is behind them.....no curtains, no furniture....no nuttin.

[roamer]

Here's the deal. I live on Rang Naam in a 2-bedroom 80 sqm. apartment with a large balcony on the 17th floor with a great city view and directly overlooking a park, within stone's throw of multiple restaurants, businesses and malls, 5 mins. from the BTS station, in an extremely well-maintained building. My rent 20,000b/mth.  

My building being for rent only, a couple of weeks ago at the behest of a rather pushy agent I went looking at condos thinking I just might find something similar at a possibly tempting price. Well, not only didn't I find anything remotely close but what I did see and the prices I was quoted caused my eyes to pop. Without going into details, after that half-day outing, I came away convinced that my apartment, if it were for sale, would retail at least at 80,000b/sqm.  

So, my Casio tells me that I am paying 3.75% of the value of my place per annum as rent. Now, is this cheap money or what? In the US I was paying more like 10% of the value of my apartment as rent, and when ultimately I did buy, ended up paying mortgage and taxes to a total of just what I used to pay to rent, at the same time building equity. Another comparison: isn't the stock market in the long run supposed to return 6-8%?  

So, what's going on? Do Thais get incredibly cheap (sub 4%) housing loans? Even so, doesn't their ROI depends on the value of the property holding up?  

Looks all bubbly to me. Or am I missing something? I don't claim to be an expert on real estate by any means, having bought and sold only once in my life. Even less do I know of the Thai market. But I would greatly appreciate to be enlightened by wiser minds.

Your Casio is working. Your power of reasoning is perfectly normal. However, consider this:

For some people who have lots of cash in hand who are averse to playing the stock market (despite the 6-8% returns) or casinos, investing in real estate is the sensible thing to do. Especially among the Chinese-Thais....with children and grandchildren who eventually have to live in the city to study, to work and to play.

What else can these local people do with the spare cash which is earning a meagre 1% interest income from Financial Institutions? A 3.75% ROI from rental income plus the potential for making Capital Gains (longterm objective) make real estate investment attractive.

Take a look at night time how many lights are on in those huge towers, 3 or 4 of them....at the end of soi 18.

Also at the right time and right place....you can see through the entire top dozen or so levels when the sun is behind them.....no curtains, no furniture....no nuttin.

Well the lack of lights would seem to indicate that the 3.75% ROI is not going exactly to plan. That leaves the long term objective of capital gains. Thai Chinese have a reputation for being particularly astute, if they are buying into these developments they would have to be near clairvoyant.

[steveromagnino]

The building with the M initial can be compared to the development Domus in the same soi; Domus is fully sold, fully occupied most of the time, with owner occupiers and some renters; decent building, decent developer, decent facilities...and capital gains pushing 100% for some purchasers.

The M initial building was a foreign developer; was never popular due to design; pricing; location and marketing....so should not be held up as 'well that building is empty...so there must be a property bubble"

A rental yield of 3.75% is not bad when you consider earnings in the bank can be far less; plus the people who are wealthy to be buying to rent out often are completely cash rich and want to diversify; they already have squillions in the bank; squillions in gold; and also want some property.

In Hong Kong, IIRC the borrowing rate is something like 2-2.5%....and THailand is one of the most visited destinations so it isn't surprising they invest here.

I would doubt ANY building is fully occupied with all lights on at night; in a best case mine has lights on at any given night of maximum perhaps 20% of the windows, and maybe 30% of the units...fully sold, fully occupied...but lots of people simply aren't in the building all at the same time. So this way of gauging is a bit pointless.

On the other hand, I don't doubt there is a big supply in Pattaya....however again looking at lights on, is an even more pointless method in a beach town; friends who own condos there many go once or twice a year; doesn't mean they are unhappy, doesn't mean they want to sell or reflects anything about bubbles...it is simply that is how often a cash rich person with several holiday properties might choose to visit.

In Bangkok there will ALWAYS be a difficult picture to follow for supply and demand...properties right on the mass transit routes are more likely to be full even when there are other equally nice buildings (by some measure) 200m away that are empty.

For the highest end of the market, there is right now Sukhothai, St Regis and now MahaNakhon. I doubt very much buyers in these developments who intend to live there would even consider a lower end development in the same way people who stay at The Ritz-Carlton will probably not consider to stay at the Holiday Inn....despite the fact that the two offerings are essentially the same (a room, a bathroom, a bed, a maid, endless supplies of soap and other foul smelling slop in tiny plastic bottles). Given that put together that's about 500 units, it would be hard to talk about oversupply here.

On the other hand, the level of M initial buildings and the like.....certainly a stronger case there for worrying. However, there was a buyer for a huge number of units in the M initial building; a fund I think who bought an entire tower; the other towers by today's standards are not expensive....but as in any development deep in a soi away from public transit...it's a harder sell than ones right up the fronts of the sois (like Domus).