Building 'Bubble' In Chiang Mai!

[TommoPhysicist]

My wife and I spend part of our time fixing up homes to sell or rent. So I was excited when I noticed this post and went to look for myself..

First one I thought with 1000 homes would be huge, in that area almost 25% of the town, Had trouble finding it, Finally a postal carrier took us out to see it. Not 1000 homes, more like 200 and about 20% sold. Built under a government program for low income that you must qualify. Depsot of 1000 B is not the closing cost or down if you meet the income guidlines. Home size is about 30 sq.m No real land size to do anything more than park a motorbike, No room for a car or yard to grow things and childrem play. These kinds of Housing projects are full in areas like Pattaya and Rayong where there is lots of factories But this one out in the sticks with nothing around and no job, services, or even a town make it a hard sell.

I just counted them from the Sat photo ....... just over 750 houses, all 2 bedroom (I've been inside).

About 1 in 20 or less has people living inside, you can see for yourself using google streetview.

@Electrified

You have no idea what real Thai people earn, I suggest you don't live among them.

http://thailand-busi...my#.T9n_7lKQh4k

Average (mean) income published 14 June 2012 is 10,500bht/month (World Bank stats)

(I've seen an alternative Thai government survey stating 12,500bht/month)

I would also suggest that not all Thais have a foreign employer willing to pay double the going rate for everything.

Edited June 14, 2012 by TommoPhysicist

[elektrified]

@Electrified

You have no idea what real Thai people earn, I suggest you don't live among them.

http://thailand-busi...my#.T9n_7lKQh4k

Average (mean) income published 14 June 2012 is 10,500bht/month (World Bank stats)

(I've seen an alternative Thai government survey stating 12,500bht/month)

I would also suggest that not all Thais have a foreign employer willing to pay double the going rate for everything.

I live among many Thais. Most of them make (on average) 30K/month. Most make much more.

[TommoPhysicist]

I live among many Thais. Most of them make (on average) 30K/month. Most make much more.

Does Ban Wiang Doi mean anything to you?

[Thailand]

hate to break this to you tommow, but 10k a month is a relatively low wage in CM. Even lamphun office workers in the factories make more than that.

Factory workers usually earn a high wage compared to other workers.

But then they have to work quite hard for long shifts, which doesn't suit many Thais.

Many of the Thais that I know, that aren't farmers live 2/3/4 families in one house and all contribute to the mortgage payments. It's still sub-prime lending.

67% of Thailand are rural workers, less than 10k

15% of city workers are slum dwellers, less than 10k

That makes 82% using Thai government stats.

I stand by my 80% of Thais earning less than 10k a month.

You trust government stats?

I think your numbers may have been true back in the 1980's-1990's or thereabouts. Thais make more than 10K/month. I would say 12K/month on the absolute low end of the spectrum. Even Thais who earn low salaries make up for it by selling Allianz or something in their spare time. There was a study done on this subject in 2000 by the U.N. and The World Bank. I seem to remember reading the 80% figure of the people living below the poverty line and whom worked in the agricultural sector was in the 1980's-1990's. Thailand has slowly shifted from an agrarian economy to an industrialized economy and wages are higher now. It is fairly common for self-employed laborers here in C.M. to earn 25-40K per month. In Bangkok more. My friend in BKK pays his electrical technicians 1500 per day. They have no problem getting it. The two most uneducated people I know here; my housekeeper and my my gardener, earn 18K and 40K/month respectively.

[elektrified]

@Electrified

I would also suggest that not all Thais have a foreign employer willing to pay double the going rate for everything.

Actually my gardener is Burmese and he told me that I am the only farang whose garden he takes care of. (And he only gets 700 THB/month from me so many Thais are paying him to work for them).

Interesting discussion but really irrelevant to the building bubble discussion.

Edited June 15, 2012 by elektrified

[xylophone]

As with all stats like these, it is very difficult to pinpoint the actual average although I would say that the World Bank stats at around 10,500 baht per month would be close to the mark. As in all economies, the average will be skewed by the extremely poor farming community and the wealthy folk at opposite ends of the scale.

From experience of living here for 6 years, in the area in which I live which is a very popular tourist venue, I know of no one who is earning over 10,000 baht per month..............my ex, an accountant, working in a hotel as a back-office accountant was earning 8,000 baht per month; her brother is a maintenance electrician at a local hotel and earns 10,000 baht per month; sister works as a cleaner with a basic of 6,000 baht per month; best friend works as a maintenance administrator at a hotel and earns 9,000 baht per month; ladies at a friend's restaurant/bar earn 8,000 baht per month. It should be noted that all of these receive what is generally regarded as part of the "service charge" which appears to be the equivalent of tips.

From this experience, it would appear that only the very lucky or the brave, or even larger working families can afford to buy property. Which in part gets back to the original point.................. it is my belief that the building "boom" is mainly being driven by demand from the wealthier folk buying up properties in order to rent out, and of course the amount of farangs who decide to buy here.

[elektrified]

As with all stats like these, it is very difficult to pinpoint the actual average although I would say that the World Bank stats at around 10,500 baht per month would be close to the mark. As in all economies, the average will be skewed by the extremely poor farming community and the wealthy folk at opposite ends of the scale.

From experience of living here for 6 years, in the area in which I live which is a very popular tourist venue, I know of no one who is earning over 10,000 baht per month..............my ex, an accountant, working in a hotel as a back-office accountant was earning 8,000 baht per month; her brother is a maintenance electrician at a local hotel and earns 10,000 baht per month; sister works as a cleaner with a basic of 6,000 baht per month; best friend works as a maintenance administrator at a hotel and earns 9,000 baht per month; ladies at a friend's restaurant/bar earn 8,000 baht per month. It should be noted that all of these receive what is generally regarded as part of the "service charge" which appears to be the equivalent of tips.

From this experience, it would appear that only the very lucky or the brave, or even larger working families can afford to buy property. Which in part gets back to the original point.................. it is my belief that the building "boom" is mainly being driven by demand from the wealthier folk buying up properties in order to rent out, and of course the amount of farangs who decide to buy here.

O.K. fair enough but I would say that the farangs buying are a very tiny percentage compared to the Thais doing the buying.

People I know here and in Bangkok are all well-educated and tend to make considerably higher wages than those you mentioned. Or they own and/or work in family businesses. I do know one lady here who graduated from CMU with a degree in Psychology and did have a difficult time finding a job paying more than 10-12K. She recently was accepted in a company in BKK making 27K per month starting and will get 35K next year. She moved about 6 months ago.

[dionys]

JeffreyMcCollum

“One more than to remember that is not the same as in the west. I paid huge property tax on my home back there, 60,000 Bt a month. Here on a larger home I pay no tax to speak of so I can let it sit as others do, it really cost nothing”

Yes indeed that is definitely one of the reason that they are able to weather longer periods of time than people in Western Countries. But it’s not only the houses that sit empty. Years back I used to live next to Ambassador Hotel in Na Jomtien. There must to been 4000 rooms in that hotel. [Just my ‘gestimate’ feel free to correct me]. During the entire time I saw about five rooms with lights on and not even consecutively. How is it possible to amortize [borrowed or your own] capitol of this magnitude.

Personal property-fine. But a capitol in the magnitude of billion of dollars; doesn’t anybody feel responsible for the money? Educate me- what am I missing?

[Paagai]

Even Thais who earn low salaries make up for it by selling Allianz or something in their spare time.

Well, I don't know anyone selling Allianz in their spare time, but I know plenty selling one "something" or another (hint: they're both vices ).

I disagree with elektrified on salary levels here, most make nothing like the levels he is quoting, particularly not in CM. Here are some typical salary levels published by the BOI:

http://www.boi.go.th/index.php?page=labor_costs

[elektrified]

Even Thais who earn low salaries make up for it by selling Allianz or something in their spare time.

Well, I don't know anyone selling Allianz in their spare time, but I know plenty selling one "something" or another (hint: they're both vices ).

I disagree with elektrified on salary levels here, most make nothing like the levels he is quoting, particularly not in CM. Here are some typical salary levels published by the BOI:

http://www.boi.go.th...age=labor_costs

Some of those salaries are exactly in line with what I said. They range from 6500 to 370,000 THB per month. Where is the disagreement?

I also said that many of the people I know are self-employed or own and/or run family businesses. So they are not 'salaried' employees. Sure a salaried housekeeper working for a company is paid 6500 according to the BOI schedule, but our cleaning lady [for example] has her own business and many clients.

Edited June 15, 2012 by elektrified

[el jefe]

Here's another way to look at the building "boom" (not "bubble"):

If 1% of the population of the greater Bangkok area decide to buy a house or condo in the greater CM area, they would need to build 100,000 to 150,000 units to meet that demand. Existing empty units could meet some of that demand but it has been hypothesized here on TV that most Thais would prefer a new house so there's no reason to think builders wouldn't accommodate them.

Even with all the new construction going on, there is no where near that amount of housing available. My guess is that there are about 2,000 new condo units coming online in the next 12 months or so. That leaves a lot of houses that need to be built.

[xylophone]

Quote elektrified, "O.K. fair enough but I would say that the farangs buying are a very tiny percentage compared to the Thais doing the buying".

Agree with that...................the two houses I sold in the recent past had more Thai folk come to look than farangs. eventually sold one to an Aussie guy and one to a Thai family. As a matter of interest a friend sold his large 4 bedroom home on a double section, complete with swimming pool, to a Thai family who already owned a similar one on his estate.

Anecdotal evidence perhaps, but think it seems to reflect what others are saying.

[cmbe]

http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

My opinion and what I see many of Thai peoples want to go to work in Bangkok with the reason in Bangkok you have higher salary than in other province in Thailand (I mean in average) and forget about how high living cost in Bangkok.

I know someone, 20 years ago she has had salary almost 30,000 (15,000 for starting) baht per month in Bangkok because she work in the private hospital, in reality she will get salary only 6,330 baht per month (it is basic salary of Thailand for bachelor degree in that time) if she work in the government hospital.

I know also many normal workers (not specific work) get basic wage 90-120 baht per day (20 years ago) and now they get 200-300 baht per day but there are also many peoples get wage more than 500-??? baht per day depend on kind of job and agreement with employer.

There are much more example about salary in Thailand that show how difference in income of people.

Below is the starting rate of government officer (not for people who work in private company).

1 October 2011 1 January 2012 1 January 2013

(level education) salary (baht per person)

vocational certificat 6,410- 6,810 7,620 - 8,080 9,000 - 9,900

vocational diploma 7,670 - 8,140 9,300 - 9,860 10,500 - 11,550

bachelor's degree 9,140 - 9,690 11,680 - 12,390 15,000 -16,500

master's degree 12,600 - 13,360 15,300 - 16,220 17,500 - 19,250

doctor's degree 17,010 - 18,040 19,000 - 20,140 21,000 - 23,100

** the salary for same degree also difference, depend on major of education.

[chiang mai]

I hope the above goes a long way to helping folks understand why corruption is so rife in the various government departments.

[elektrified]

I hope the above goes a long way to helping folks understand why corruption is so rife in the various government departments.

Indeed. But one thing to note is that along with those government jobs/salaries comes benefits packages. The g/f's brother is an officer in the government (Ministry of Education). He will have his Ph.D. this year. He is paid about 17,500/month but he receives a benefits package equivalent to that. He told me that he could drive a government Mercedes Benz if he wanted to but prefers his motorcycle. His rent is paid for and he always eats at work. He has a health plan for him and his mother where they can both go to Sripat. He doesn't drink or gamble and rarely goes on a date so his salary pretty much all goes into his savings or investment accounts. He has saved an enormous amount of money over the years on his government salary and frugal lifestyle.

Edited June 16, 2012 by elektrified

[chiang mai]

I hope the above goes a long way to helping folks understand why corruption is so rife in the various government departments.

Indeed. But one thing to note is that along with those government jobs/salaries comes benefits packages. The g/f's brother is an officer in the government (Ministry of Education). He will have his Ph.D. this year. He is paid about 17,500/month but he receives a benefits package equivalent to that. He told me that he could drive a government Mercedes Benz if he wanted to but prefers his motorcycle. His rent is paid for and he always eats at work. He has a health plan for him and his mother where they can both go to Sripat. He doesn't drink or gamble and rarely goes on a date so his salary pretty much all goes into his savings or investment accounts. He has saved an enormous amount of money over the years on his government salary and frugal lifestyle.

Interesting, I wasn't aware of the official benefits.

[beb]

Are we in a bubble? How high is high?

A year ago a mate told me I was crazy to buy a condo. That condo has increased in value, and I see no reason why it should not continue to. As far as I am concerned, Chiang Mai has a long ways to go to "catch up" to the development of Phuket, Ko Samui, Pattay and BKK.

This is where the money is flowing right now. Are you going to stand on the side yelling its a bubble, or jump in and enjoy it? I am not saying to speculate, but buying to own a home is not a bad idea in my opinion. Bubble or no bubble.

I had a similar conversation with a friend in Los Angeles several years ago. She insisted that prices were going up, up, up and she couldn't go wrong with such an investment. And that she was throwing away money on rent.

The only problem was that the condo she bought was not worth what they were charging. It was overpriced like everything else in the market. 5 or so years later and it is worth about $40,000 less than she paid. Your reasons for buying describe a bubble right before it pops.

For all the owners here I hope things keep going but it's easy to remember the mid 2000s in the US when everybody was giddy with the value of their home only to see it plummet in a matter of months.

[cheeryble]

We looked at some condos a few weeks ago, a brightly coloured 'rebuild on the right, as you drive to Doi Saket (shortly after the 121 lights). Prices from 160k and up ....... they are having trouble selling them. Plenty of places in town starting at 200k.

The was a lot of poor siting and poor building and poor management for which renovation may not solve the underlying problems.

There are no places with any slight degree of quality selling for that sort of money. New condos cost multiples more to build than the square metre price you suggest.....and strangely, they generally and with exceptions continue to sell......evidenced by the fact that many blocks are by companies relying on previous success to continue getting money from the bank.

We also have some friends (foreigners) trying to sell in the CM area, nothing second hand sells unless at 'fire sale' prices

A close friend of mine sold a quality renovation very recently in a recognised block at over 42,000/sqm. Given condo laws about minimum size and the normal minimum size of condo units, that sounds like at the least 8 or more likely 10 or more times the sqm price of the units you saw. The reason your units are not selling, if they are not next to a crematorium, is they are deeply flawed.

Edited June 16, 2012 by cheeryble

[cmbe]

Someone bought a condo in a good location for 900,000 baht 2 years ago, but with difficult situation need to sell it then buy again (same size, same building but different floor) with 60 % more expensive price.

[TommoPhysicist]

Ok, but this is not LA, this is Chiang Mai. Read post 104 as that is what I believe is happening. There is, and will be an influx of Bangkok people moving up here, not only because of the floods, but because the life here is better, and more and more companies are opening up bases here and sending there staff as well.

But there is no work up in CM and wages are half those in BK, can't see many people wanting to move up here.

Those with the spare money are busy buying up land nearer BK.

Edited June 17, 2012 by TommoPhysicist

[kaptainrob]

But there is no work up in CM and wages are half those in BK, can't see many people wanting to move up here.

Those with the spare money are busy buying up land nearer BK.

My research proves otherwise. Majority of 2 bedroom (plus) sales of condo's and townhouses are to Bangkok and southern province residents. Perhaps more for investment or as a flood-free bolt-hole ... they are NOT buying nearer BKK where severe flooding is prevalent.

[cheeryble]

But there is no work up in CM and wages are half those in BK, can't see many people wanting to move up here.

Those with the spare money are busy buying up land nearer BK.

My research proves otherwise. Majority of 2 bedroom (plus) sales of condo's and townhouses are to Bangkok and southern province residents. Perhaps more for investment or as a flood-free bolt-hole ... they are NOT buying nearer BKK where severe flooding is prevalent.

Probably borne out by the number of Bangkok number plates that started appearing in CM.....and last week I was told the same was even so in CR.

As for lower wages.....well growth can simply happen at a lower price level in CM than BKK.....doesn't stop things selling at that level.

Edited June 17, 2012 by cheeryble

[elektrified]

I know Thais in CNX that earn 30K-60K per month.

I do too, but for some reason a couple of members can't believe it';s true. Go figure...

[uptheos]

I know Thais in CNX that earn 30K-60K per month.

I do too, but for some reason a couple of members can't believe it';s true. Go figure...

Maybe they're in denial, that a Thai can earn more than an English teacher?

[el jefe]

I know Thais in CNX that earn 30K-60K per month.

I do too, but for some reason a couple of members can't believe it';s true. Go figure...

Maybe they're in denial, that a Thai can earn more than an English teacher?

Your anecdotal experience proves what?

I know Thais in CM making 300k per month. But that's not the average, nor the mean or median. Most Thais in here aren't making 30-60k either.

[SoloFlyer]

^ how far off from a western pension is it? That sucks.

[cmbe]

I know Thais in CNX that earn 30K-60K per month.

I do too, but for some reason a couple of members can't believe it';s true. Go figure...

I believe, like I say there are difference in low income and high income.

Salary of many ministers in Thailand approx. 120,000 -140,000 baht per month (a part for position and other part is salary).

[dionys]

beb: posting #110

“For all the owners here I hope things keep going but it's easy to remember the mid 2000s in the US when everybody was giddy with the value of their home only to see it plummet in a matter of months”.

I have a feeling you have not visited US for a wile. In 2000 the housing market was fine. In 2004 a friend of mine both place in So. California for 460 K and he just sold it last month for 160K. (Year 2012). And this time it is the entire USA. Properties are down by 60% (+); and that’s what maybe called a bubble. In 2006 nobody believed that this bubble is going to burst either.

The argument this is not LA or US is totally false because it is not the location that controls the “bubble” it is that ‘funny-insignificant’ think we all call money. Money is a tool just as is a hammer, screwdriver, etc... You need to use for it to be productive.

Of course as many members pointed out there are some different scenarios uniquely applicable to Thailand that are slowing-down the “bursting” process. [And to be honest I also can’t believe how long it is taking for the bubble to burst in Thailand], but nevertheless, it will. And folks when the roller coaster starts to descent, well you are familiar with the rest…

[TommoPhysicist]

"And you do not see your average Thai borrowing to speculate on real-estate, which, fueled the bubble in the US."

I see this all the time, especially in CM.

[dionys]

VIBE #124:

The argument that this is not the US is valid, well, because its NOT the US and the valuations are not the same, not the people or the culture.

Your friend paid 460K for a home. Thats crazy in my opinion and one reason why I do not buy in Canada because they are STILL in a bubble.

In CNX, we got a condo that was in the higher end of the range for just over 100K, and for 100 -150K you can get a very nice home here. That is not indicative of a bubble to me. And you do not see your average Thai borrowing to speculate on real-estate, which, fueled the bubble in the US. People financing the "new value" of their homes to buy more and more, it was plain to see what was happening. Greed is what was happening. So far, most Thais that we know who have bought have done so for a place to LIVE, which in my opinion is a sign of a healthy market, not one that is built on sand and fog.

With all due respect allow me to quote a few paragraphs from a “real estate bubble” write up.

“In attempting to identify bubbles before they burst, economists have developed a number of financial ratios and economic indicators that can be used to evaluate whether homes in a given area are fairly valued. By comparing current levels to previous levels that have proven unsustainable in the past (i.e. led to or at least accompanied crashes), one can make an educated guess as to whether a given real estate market is experiencing a bubble. Indicators describe two interwoven aspects of housing bubble: a valuation component and a debt (or leverage) component. The valuation component measures how expensive houses are relative to what most people can afford, and the debt component measures how indebted households become in buying them for home or profit”.

Again as you can see, it is the condition that is being evaluated rather than a territorial dispute.

Having said that please take a look at some of the Thai RE agencies such as Jasmine in CM- http://www.jasminehomes.co.th/, Town and Country http://www.towncountryproperty.com/, Pattya One- http://www.pattayaone.net/, and Thai Visa-real-estate for sale for that matter [there must be at least forty of them in Thailand]. Once you take a look at these listing and investigate the historical data (i.e. how long are they on the market) it becomes obvious that there are about 40/50 thousands [yes THOUSAND] houses for sale on the market for years. Now just assume that the average price of a Thai house is 1000,000 [a figure rather low in my opinion] than the number below will introduce us to some staggering numbers

1,000,000 x 1,000,000 = $ 50,000,000,000.00 Baths. Now should the inflation be just 1.5% annually, the money [the houses on the market] just lost mare

$ 7,500,000,000.00 Baths. In other words this is the “valuation component/debt (or leverage) component”.

This is incredibly frightening fact that $ 7,500,000,000.00 Baths annually was just flushed down the toilet. Just like that, no question asked. Hence my question is: How many flushes can the market afford before the Bubble plugs the toilet? Sorry it is not the most elegant comparison just could not come up with anything more eloquent at the monument.