Human Greed Is Amazing

[farang000999]

I have been warning people about the property bubble in Thailand since 2009. All of this after the entire world watched the global economy collapse over the American property bubble. It's amazing because so many human beings have this idea in their heart that they can get something for nothing. Property market in Thailand is booming despite the global economy. Why? Is it because salaries are increasing at the same rates? No. Ok. So everyone is making 40,000 baht and this house costs 1m baht and an apple costs 10b. A year later everyone is making 40,000 baht, an apple costs 10b and the 1m baht home now costs 1.2m baht. What happened? Why are property prices rising? Because more people are buying them. And why are they buying them? Has the population grown considerably? They are buying them as an investment. How does this investment work? Well, they are going to sell these properties that they bought for 1.2m baht to someone else for 1.5m baht. Well it is very important that they get in on the property on Day 1. Why? Well, because many people are also planning to buy this property for 1.2m baht and sell it for 1.5m baht. So if salaries are not rising and the global economy is on the brink of collapse why is the Thai GDP rising at such a higher rate than the rest of the world and doing much better comparatively? Well that is because of the booming property and construction market. But where is the capital coming from to drive up these prices and fund new construction? Well that money is coming from loans from banks:

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.

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.

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.

"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. "I'm not worried about oversupply. The new government will do whatever it takes to prevent bubbles," he said.

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Does this movie sound familiar? Go to a news site and google real estate articles from 2008. All these guys expecting to parachute at the correct moment. The notion that the government can prevent bubbles from forming? Well we know what song the developers are singing, "Take the money and run. Hmm, the Thai stock market was only down 50% in 2008 when the American market collapsed and took the global economy with it. No worries though, once Italy Spain and Portugal get bailed out it will be smooth sailing.

[meom]

“What happened? Why are property prices rising? Because more people are buying them. And why are they buying them? Has the population grown considerably? They are buying them as an investment. How does this investment work? Well, they are going to sell these properties that they bought for 1.2m baht to someone else for 1.5m baht. Well it is very important that they get in on the property on Day 1. Why? Well, because many people are also planning to buy this property for 1.2m baht and sell it for 1.5m baht. “

I think your example is not really correct because most people that buy into the low end market are not buying as an investment but they are buying to just live in the place instead of renting.

If there is indeed a property bubble I would expect it to be in the higher priced properties.

[Tarric]

While I agree that Thailand has had some serious property bubble issues in the past and with the current policys of low interest rates and interest free loans there may be another bubble in the future I dont think there is enough information to make a statement that there is currently a bubble. I am well and truly open to new information if anyone has any for example median income to median housing price.

As far as land goes the growth in land prices is absolutely criminal, land owned by family on the outskirts of Bangkok is only worth the same amount of money it was 15 years ago and the value has remained the same. So in real terms (when inflation is taken into account) the value of the land has actually substantially depreciated not appreciated in value.over the last 15 years.

There may be a bubble in residential housing, but a bubble in land I know from personal experience that there isnt one.

With capital gains tax being miniscule when speculating on property in the short to medium term I am genuinely suprised Thailand isnt in the grips of full blown housing bubble fever with every man and his dog putting money into the ever increasing values of land and houses.

[LongThaimer]

i already owned a house, recently purchased 4 mil baht condo mainly for living, and maybe renting as well on mid-suk slated to complete next year,

tried to buy finished units as i will be moving work to central bkk next month, but came across owners none of whom wouldn't even reduce a few thousand baht on condos priced 4~6 mil baht, these people have money, they don't need to sell when they see prices they think are not right, market forces has no meaning to them........ at least for this bracket

[vpi78]

dam_n Farang 000999 why don't people listen you you and your clearly vast financial acumen?

You have been warning them for all these years and they ignore it just to keep making a pile of money!

Fools, don't they know that you are a foreigner and know so much more?

[F1fanatic]

As always it is a case of 'location, location, location'!

Good houses in desirable areas (generally beach front), will always be attractive to VERY wealthy foreigners.

Other houses in less desirable locations are finding it far more difficult.

[Boater]

there are still alot of people making money and good returns from there properties , people dont just buy to filp, bit also to gain a yearly return...

so if you could purchase a property for say 3 Million THB, and have a yearly tenant in there paying 25 K month ( minus 5 K month in fee's ect ) you would be yeilding 8 % per annum against your property ( is there any bank in the world that offers this ? )

this is just one example, but as the other poster mentioned , its all about location and timing, i have seen some extremly good offers snapped up recently which have all proven great returns to the buyer

[zzaa09]

As always it is a case of 'location, location, location'!

Good houses in desirable areas (generally beach front), will always be attractive to VERY wealthy foreigners.

Other houses in less desirable locations are finding it far more difficult.

Realistically, in today's Thai market, arable farm land is far more valuable - and the prices currently are reflecting.

[F1fanatic]

there are still alot of people making money and good returns from there properties , people dont just buy to filp, bit also to gain a yearly return...

so if you could purchase a property for say 3 Million THB, and have a yearly tenant in there paying 25 K month ( minus 5 K month in fee's ect ) you would be yeilding 8 % per annum against your property ( is there any bank in the world that offers this ? )

this is just one example, but as the other poster mentioned , its all about location and timing, i have seen some extremly good offers snapped up recently which have all proven great returns to the buyer

A 3m baht property is not going to attract a 25k per month rental payment - in my experience obviously - and I live on Phuket!

Even on Phuket, any house realising 25k per month would need to be v attractive with a swimming pool. Or, VERY close to the beach.

[GreenSnapper]

A 3m baht property is not going to attract a 25k per month rental payment - in my experience obviously - and I live on Phuket!

Even on Phuket, any house realising 25k per month would need to be v attractive with a swimming pool. Or, VERY close to the beach.

Really? That cheap?

Reasonable houses with pool near beach in Pattaya/Hua Hin would be at least 50K/month rent.

Here in BKK, owners try to rent out trashy condos for 7-8% yearly yield. In most cases they don't succed and the property is empty for months or even years.

Bad investment.

[GreenSnapper]

I think your example is not really correct because most people that buy into the low end market are not buying as an investment but they are buying to just live in the place instead of renting.

If there is indeed a property bubble I would expect it to be in the higher priced properties.

From my observation in BKK, up to 80% of newly built condos are empty. They cannot be sold for the profit the owner expects as there are new condos built everywhere.

And they cannot be rented too, because for their inflated rents Thais would prefer to buy and farangs seldom have the money.

I agree it is a bubble. Based on greed and lack of abilities to make some simple calculations. But the bubble could go on for some more years.

Edited August 16, 2011 by GreenSnapper

[Atmos]

re the 25k/month 300k per annum on a 3m property. 10% gross?

Have yet to see any such returns here.

We lease a new house, owners gets (gross) 4.2% return.

Can only presume their bank was OK with that as they have three similar properties/returns.

[GreenSnapper]

Have yet to see any such returns here.

We lease a new house, owners gets (gross) 4.2% return.

That sounds reasonable.

But newer condos (and some older too) in BKK base their rent on 7-8% return. That's why in a single block you can easily visit 10 units, each empty for months already, but the owner will not reduce the price a single Baht.

[KeyserSoze01]

A 3m baht property is not going to attract a 25k per month rental payment - in my experience obviously - and I live on Phuket!

Even on Phuket, any house realising 25k per month would need to be v attractive with a swimming pool. Or, VERY close to the beach.

Really? That cheap?

Reasonable houses with pool near beach in Pattaya/Hua Hin would be at least 50K/month rent.

Here in BKK, owners try to rent out trashy condos for 7-8% yearly yield. In most cases they don't succed and the property is empty for months or even years.

Bad investment.

Not bad investment, but bad management.

[saakura]

there are still alot of people making money and good returns from there properties , people dont just buy to filp, bit also to gain a yearly return...

so if you could purchase a property for say 3 Million THB, and have a yearly tenant in there paying 25 K month ( minus 5 K month in fee's ect ) you would be yeilding 8 % per annum against your property ( is there any bank in the world that offers this ? )

this is just one example, but as the other poster mentioned , its all about location and timing, i have seen some extremly good offers snapped up recently which have all proven great returns to the buyer

Very doubtful a 3 million Baht property anywhere in Thailand can fetch you a 25k Baht rent per month.

[farang000999]

Putting money in the bank at 1% is unattractive. people look and see a sector that is booming and see that they can rent the unit out for 3-5% + the appreciation of the property which is more than the interest at a bank and conclude that it is a good investment. this is very flawed logic. this is always what happens when the gov does not allow the free market to set interest rates and keeps them arbitrary low. you have misallocation of capital and asset bubbles. quote "40% of new units are not being purchased by the owner to live on".... yikes... the big winners will of course be the developers who are rushing out units and selling them through any means possible.

[LongThaimer]

there are still alot of people making money and good returns from there properties , people dont just buy to filp, bit also to gain a yearly return...

so if you could purchase a property for say 3 Million THB, and have a yearly tenant in there paying 25 K month ( minus 5 K month in fee's ect ) you would be yeilding 8 % per annum against your property ( is there any bank in the world that offers this ? )

this is just one example, but as the other poster mentioned , its all about location and timing, i have seen some extremly good offers snapped up recently which have all proven great returns to the buyer

Very doubtful a 3 million Baht property anywhere in Thailand can fetch you a 25k Baht rent per month.

it's possible, depends on location, here are the rental rates on 10 yrs old condo off prom pong BTS considered prime suk area, where I wanted to buy a unit, the condo is fully rented/occupied and the only unit i found up for sale 100k/m2 for a 30m2 space, anyway agent couldn't contact owner on time so i ended up buying at the same area but on opposite side of suk road

30~39 m2 studio ...... 20~25K per month

40~42 1 bed ...... 32~33K

62 2 bed ...... 40~45K

70~73 2 bed ...... 50K

on outside of prime suk area price can drop to 1/2 or even 1/3, i have seen 30+m2 units for rent in the vicinity of udomsuk BTS for as low as 8500 baht/month

[GreenSnapper]

it's possible, depends on location, here are the rental rates on 10 yrs old condo off prom pong BTS considered prime suk area, where I wanted to buy a unit, the condo is fully rented/occupied and the only unit i found up for sale 100k/m2 for a 30m2 space, anyway agent couldn't contact owner on time so i ended up buying at the same area but on opposite side of suk road

30~39 m2 studio ...... 20~25K per month

40~42 1 bed ...... 32~33K

62 2 bed ...... 40~45K

70~73 2 bed ...... 50K

Ridiculous prices for such chicken cages. And I seriously doubt it is fully rented/occupied.

It is probably fully sold out, the owner cannot resell without big loss and nobody would rent for such costs.

No wonder the agent could not contact the owner. Probably empty since long and the owner has already given up.

Unless the condo building is in exceptionally good condition and maintenance. Have yet to see a 10 year old place with that attributes....

[LongThaimer]

it's possible, depends on location, here are the rental rates on 10 yrs old condo off prom pong BTS considered prime suk area, where I wanted to buy a unit, the condo is fully rented/occupied and the only unit i found up for sale 100k/m2 for a 30m2 space, anyway agent couldn't contact owner on time so i ended up buying at the same area but on opposite side of suk road

30~39 m2 studio ...... 20~25K per month

40~42 1 bed ...... 32~33K

62 2 bed ...... 40~45K

70~73 2 bed ...... 50K

Ridiculous prices for such chicken cages. And I seriously doubt it is fully rented/occupied.

It is probably fully sold out, the owner cannot resell without big loss and nobody would rent for such costs.

No wonder the agent could not contact the owner. Probably empty since long and the owner has already given up.

Unless the condo building is in exceptionally good condition and maintenance. Have yet to see a 10 year old place with that attributes....

no doubt you can still get a chicken cage for 3/4k a month on outer suk 100+ areas, if you don't mind living amongst thais as a lone farang with factory workers, drivers, security guards,drunks, eat papaya pok pok and take 3 hours bus ride work to central bkk daily..... hey if that is all you afford then that is all you can afford.........

central bkk prime areas has it's own game......that is why people have been saying location over and over......

[vpi78]

Location and target renter are important aspects to consider for any real estate investor. Another factor in Thailand is currency appreciation.

The OP (who has warned all of us greedy people about a real estate bubble since 2009!)sounds like so many bitter expats who keep waiting for their home currency to appreciate again against the Baht and/or prices to decrease. The former is unlikely any time soon and the latter is especially unlikely ever.

Fortunately the OP was not around in 2006 when I purchased 4 small 35 - 38 sq. meter units in a new development on the outskirts of Sathorn ... not on the BTS or MRT but within a 20-minute walk to them and near several embassies, including the Australian embassy. These units cost roughly 55,000 Baht per sq. meter so roughly about 2 million Baht each. The maintenance fee is 20 Baht per sq. meter per month each so about 35,000 Baht per year for the 4 together. The Sinking Fund charge was similarly small.

They rent for between 15,000 - 18,000 Baht per month and stay rented. There are some empty units in the complex, mostly from Thai investors but previous posts that 80% of new buildings are vacant is just BS. The complex is well managed with a good mix of Thais and foreigners. All 4 of my renters work for one of the embassies in the area.

In the 5 years I have spent about 8.5 million inclusive of purchase, maintenance, sinking fund, and repairs and so far have collected about 4 million in rent. Meanwhile the Thai Baht has appreciated more than 25% against the US$ in the same period.

So, OP thanks for not providing any of your "warnings" before 2009.

[GreenSnapper]

no doubt you can still get a chicken cage for 3/4k a month on outer suk 100+ areas, if you don't mind living amongst thais as a lone farang with factory workers, drivers, security guards,drunks, eat papaya pok pok and take 3 hours bus ride work to central bkk daily..... hey if that is all you afford then that is all you can afford.........

central bkk prime areas has it's own game......that is why people have been saying location over and over......

You must be an agent I suppose....

I live in a prime hi-so area near BTS, 120m2, including maid service and pay 40K.

I'd never stay in the overpriced cages you advertise here.....

Edited August 17, 2011 by GreenSnapper

[ExpatJ]

no doubt you can still get a chicken cage for 3/4k a month on outer suk 100+ areas, if you don't mind living amongst thais as a lone farang with factory workers, drivers, security guards,drunks, eat papaya pok pok and take 3 hours bus ride work to central bkk daily..... hey if that is all you afford then that is all you can afford.........

central bkk prime areas has it's own game......that is why people have been saying location over and over......

You must be an agent I suppose....

I live in a prime hi-so area near BTS, 120m2, including maid service and pay 40K.

I'd never stay in the overpriced cages you advertise here.....

The target tenant market for these 'chicken cages' are Japanese/Korean as space is not such an issue for them. I am looking to buy one of these smaller high end 1 br condos (5-7 million) and Jap/Kor will be my prime targets- they also make much more reliable and trustworthy tenants than farangs i have to say.

[GreenSnapper]

I purchased 4 small 35 - 38 sq. meter units in a new development on the outskirts of Sathorn ... not on the BTS or MRT but within a 20-minute walk to them and near several embassies, including the Australian embassy. These units cost roughly 55,000 Baht per sq. meter so roughly about 2 million Baht each.

They rent for between 15,000 - 18,000 Baht per month and stay rented.

That is a present market rent you can ask from some single young expats or even middle class Thais.

But 55K/m2 is past price. The bubble prices of new developments are 100K and more.

If you buy a new condo, 35m2 and pay 3.5 Million, rent out for 15K/month, your yearly return will be less than 5% after maintenance fees - supposed it is rented out 12 months a year.

Not a great return if you consider that this condo is probably run down after 10 years and basically cannot be sold.

[GreenSnapper]

The target tenant market for these 'chicken cages' are Japanese/Korean as space is not such an issue for them. I am looking to buy one of these smaller high end 1 br condos (5-7 million) and Jap/Kor will be my prime targets- they also make much more reliable and trustworthy tenants than farangs i have to say.

Regarding the tenants, this makes sense. Esp. when it comes to Japanese tenants.

But you must consider: not all of these are happy with a "cage". Some of them are on well paid company salaries and go for much larger places.

The second problem is the over supply. That basically makes the bubble: with the growing number of condos in that price range, there is no growing number of potential Japanese or Korean tenants. Even now they have quite a choice if they want to rent.

This means, your condo will not be rented out 12 months a year. That will drastically reduce your yearly return, not to talk about the efforts and costs finding new tenants, paying agents etc.

I'm not sure, the current bubble will burst so soon. It can go on for some more years. In my observation, it is not only Thai investors who buy into property, but also wealthy Chinese. There is money in Asia and it looks for opportunities.

But the bubble will burst some day, this is for sure.

Edited August 17, 2011 by GreenSnapper

[Boater]

its intersting to see so many posters have not seen the market in its true value

i have had dealings in real estate for nearly 7 years, in Phuket , Pattaya , bangkok and samui.....

When i state properties at 3 million THB, these properties are BMV properties with owners that need to sell !, so the prices are roughly half of true value...

If you do your correct research, deal with the correct agents, there ARE properties on the market for around the 3 million THB WITH clients in there paying that amount, and that is why i used that price as an example...

There are still people getting very rich off real estate here, it just seems the people who arnt making the money, or got dragged into buying something on false impressions will kick up and start a thread like this

[farang000999]

So, OP thanks for not providing any of your "warnings" before 2009.

Me: It is raining today

You: It was sunny last month

I guess you refuted me pretty good there.

Thailand began showing signs of a bubble in 2009 when the US stimulus took effect and low interest rates and fear of a dollar depreciation sent money flying into emerging markets. it got worse in 2010. in 2011 we are clearly in an asset bubble. in 2012 we will enter what i call lolbubbleomgareyouraycharlesblindtomissthisbubble zone.

[LongThaimer]

no doubt you can still get a chicken cage for 3/4k a month on outer suk 100+ areas, if you don't mind living amongst thais as a lone farang with factory workers, drivers, security guards,drunks, eat papaya pok pok and take 3 hours bus ride work to central bkk daily..... hey if that is all you afford then that is all you can afford.........

central bkk prime areas has it's own game......that is why people have been saying location over and over......

You must be an agent I suppose....

I live in a prime hi-so area near BTS, 120m2, including maid service and pay 40K.

I'd never stay in the overpriced cages you advertise here.....

555, i ain't agent,

40k rent for 120m2 ain't hi-so to me, not in my book, near BTS don't mean 15 mins motorbike ride, it's got to be within 150~200m radius from BTS not turning yourself into stinking ball of sweat walking in thai weather

[JeffreyMcCollum]

One thing no one seems to mention is taxes. In America the cost, as well as the property taxes to keep a property.

My home in Hawaii the property taxes are 60,000 Bt a month ($2000) if it sits empty it is a killer on my budget.

My fathers condo in Maui has $ 8000 a month in maintenance fees. So again it needs to be rented most of the time.

Here in Thailand, there is little cost to have something sit. I have been buying and fixing and renting untill it sells. The buyers have changed over the past few years. In past mostly expats, now mostly Thai's followed by Asians, All paying in cash.

I do get 25,000 Bt on one well placed home I got for 1.5M bt nicely done with a pool it is full 80% of the time. The new building development next door where homes start at 18m - 34m Bt helps alot

That said, I do have a few homes that don't do well and are only 40% of the time rented. But as I said, with little expense, I can let it sit.

[vpi78]

I purchased 4 small 35 - 38 sq. meter units in a new development on the outskirts of Sathorn ... not on the BTS or MRT but within a 20-minute walk to them and near several embassies, including the Australian embassy. These units cost roughly 55,000 Baht per sq. meter so roughly about 2 million Baht each.

They rent for between 15,000 - 18,000 Baht per month and stay rented.

That is a present market rent you can ask from some single young expats or even middle class Thais.

But 55K/m2 is past price. The bubble prices of new developments are 100K and more.

If you buy a new condo, 35m2 and pay 3.5 Million, rent out for 15K/month, your yearly return will be less than 5% after maintenance fees - supposed it is rented out 12 months a year.

Not a great return if you consider that this condo is probably run down after 10 years and basically cannot be sold.

A specious argument at best. What's wrong did you not buy earlier when you had the chance? Don't dally too long because those buying now seem to be mostly Indian, Japanese and Chinese. They tend to pay cash like the Thais and they don't seem short of it or shy about spending it.

Yeah, that is the current rent;i.e., 15 - 18,000 Baht/month, lower than the current market in the area for equivalent accommodation because I prefer long term, stable tenants; and the rent will only go up.

The current price on similar units, pristine condition but never occupied by their usually Thai investor owners, in the same building is about 65,000 Baht per sq. meter. But I do wish your learned estimate of prices like 100,000 Baht per sq. meter was so. If you insist in paying 100,000 for a unit I am sure someone will sell you one for that price.

I think 65 - 75,000 is a fair price and I would buy more, but decided to buy similar units in Pattaya instead.

Maintenance is as good if not better than similar Western properties in places like Florida where the sky really did fall, the bubble did burst, and the economy is in the dumps.