Building 'Bubble' In Chiang Mai!

[xylophone]

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

With respect I think that is exactly what is happening, well if the situation here is anything to go by. I mentioned the "shop-house" development in a nearby town being bought by Thais in a recent post and another apartment development comes to mind, where a huge percentage of them were bought off plan by Thai speculators. Now they cannot be rented out for the promised returns I would think a few speculators are feeling the pinch.

Below is part of an article from a local newspaper:-

"PHUKET: The property industry on Phuket was destined for crisis if the growth in the condominium sector continued at present rates, the President of the property Association of Phuket, Thanusak Perkdate, warned today.

He told a meeting at Provincial Hall in Phuket City that the number of condos on Phuket was growing at more than 100 percent a year, much more than was needed.

Most of the units were being bought by Thais for investment, he said. The likelihood was that many of them would be rented out to rival resorts, triggering a different kind of market".

[elektrified]

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…

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.

I'm sorry but 100-150K THB homes here are not what I would call " very nice". In fact I've seen homes for 2.9 million that I wouldn't call "very nice" either.

[beb]

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.

Before the bubble popped in LA, people...experts, you know, people that are a lot smarter about these things. were saying that ongoing immigration into LA made it a unique market that would sustain the sort of rising prices in real estate forever. Seriously, they said the prices were never going to go down again. The point is that bubbles usually reveal themselves after all the experts have assured everybody that the particular situation is not a bubble.

This is seared into my brain because for a few years before the bubble popped a few other friends and I who were too dumb to understand these things kept wondering how in the world the real estate market could keep going as it was when houses were simply getting too expensive to buy. We were too stupid to not ignore the bubble that was staring everybody in the face.

[lannarebirth]

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…

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.

I'm sorry but 100-150K THB homes here are not what I would call " very nice". In fact I've seen homes for 2.9 million that I wouldn't call "very nice" either.

I think he's quoting prices in dollars and he makes a good point. Comfortable, safe housing with nice amenities is pretty cheap here. It doesn't smell like a bubble at all. The only point I would raise is that the infrastructure sucks, but that's an asia wide problem.

Edited June 18, 2012 by lannarebirth

[cheeryble]

Seems to be a lot of opinion without hard facts, only VIBE expanded (sorry Dionysius I cannot understand your last post).

What I think is a fact is that the quality end of the market is not driven by clerks and shop workers......in CM at least they are rent-to-buying tesabahn built apartments at 2000/month and so on. The new condo market is driven by cosmopolitan, educated, Thais who even if they are not earning fortunes are from families with assets........and of course Farang. Plenty of apartments are bought by Thais for offspring to live whilst at university for example.....or for BKKians to use when they come every month......why pay rent when you can hold an asset instead of having money ithe bank?

To my eyes, the real money in this country is in the hands of the Thais......though only a certain class of them.

I can speak better for the farang. The fact is for farang rental prices still seem affordable. The sale prices are decidedly related to those rental prices......and so far the returns, while not spectacular, are reasonable, witnessed by a considerable number of even the newer blocks reaching the 50% limit which causes a two tier pricing system which of course makes it more affordable for Thai buyers.

This suggests a healthy market.....so far.

Edited June 18, 2012 by cheeryble

[TommoPhysicist]

Plenty of apartments are bought by Thais for offspring to live whilst at university for example

University dorms are about 250bht a term (500bht a year)

Why would you buy a condo for your kid to live in?

[cmbe]

Plenty of apartments are bought by Thais for offspring to live whilst at university for example

University dorms are about 250bht a term (500bht a year)

Why would you buy a condo for your kid to live in?

Is that update? I know that is price of university dorms at Khon Kaen university many years ago, now is 1,200 baht / semester,

Chiang Mai university 1,800 baht/semester,

Langsit university (private) 10,000 up/semester.

[TommoPhysicist]

Plenty of apartments are bought by Thais for offspring to live whilst at university for example

University dorms are about 250bht a term (500bht a year)

Why would you buy a condo for your kid to live in?

Is that update? I know that is price of university dorms at Khon Kaen university many years ago, now is 1,200 baht / semester,

Chiang Mai university 1,800 baht/semester,

Langsit university (private) 10,000 up/semester.

Let's say your prices are correct! Even at 5k a year for a dorm room ...... almost nothing.

Furthermore, I can't imagine any people in BKK that are rich enough to buy a condo for their little darlings, sending them to the second rate universities in CM. They would be attending Chula in BKK (or equivalent), or overseas.

Edited June 18, 2012 by TommoPhysicist

[el jefe]

I thought that 25, 50, 100 and 130 posts ago we determined that there was a housing boom, but not a pricing bubble.

In the US and much of Europe during the mid-2000's, because of misguided govt programs, speculators were able to buy houses they couldn't afford on credit with little money down. Demand exceeded supply. Existing houses were put on the market and sold within weeks, sometimes on the first day on the market. Sometimes for more than the asking price. That is definitely NOT the situation in northern Thailand (maybe that's what's going on in Phuket which keeps getting dragged into the discussion here on the CM forum). My understanding of local real estate is that existing houses can remain on the market for years and that not every new project sells out immediately. That's a definitive indication that housing is priced reasonably and there is no "bubble". When your housekeeper starts buying properties with no money down in the hope of renting them out at a profit, then you might have a bubble. (Electrified is the only one I know who is paying his housekeeper enough that she can buy multiple properties).

If property prices are reasonable and there is more supply than demand, then there is no bubble.

[TommoPhysicist]

+10

Sums it all up very nicely....

I think one thing that is saving the property market here in CNX from becoming a bubble, is that banks do not look at equity you may have built up in an existing property when you are trying to get a loan. They see it as a risk, an liability as its not paid for 100%. This is keeping a lot of "easy money" in the form of home loans off the market. In the US and Canada, the banks were twisting your arm to take out a loan based on any equity you had built up in your home.....that is not happening here, hence another reason why I do not believe its a bubble but instead a healthy boom.

Of course it will not continue to grow for ever, nothing does. But I do not believe all the prices will come crashing down. Instead, they will just be stagnant for years, even with no buyers, the Thais do not really lower their asking prices, something which I do not understand.

And yet.

I know of one lady that owes 2,000,000bht after failed property speculation.

And another estate office lady who owns four properties in CM Moobaans through bank loans, who is on the brink.

You say banks want you to live in the houses, but the banks and staff as corrupt as anyone in Thailand, and a 'pal' can always sort you out a special deal with the bank. Any Realtor can sort out a bank mortgage in order to get their commission, exactly the same as sub-prime in the USA.

My wife wants me to buy a holiday property in CM, we went to several banks about a mortgage, BK and SCB both said put 10k a month through one of out accounts for 6 months, and we will give you a 1 million mortgage. The Realtors say, if you have a 20% deposit we can fix the paperwork for a bank mortgage. My wife has no income at all. This is sub-prime lending at it's worst.

Edited June 18, 2012 by TommoPhysicist

[xylophone]

Quote VIBE; "I do not believe any of this. A "realtor" can not "fix" a bank loan for you. Your allegations of corrupt bank staff pushing through loans is laughable".

First hand experience here............a bank manager was paid a "commission" to grant a mortgage to the purchaser of one of my properties when she didn't fulfill the borrowing criteria AND then the cheeky bugger asked me for a "commission" as well, when the deal was done. Mortgages can be fixed I can assure you.

Second point............am in agreement with el jefe inasmuch as I thought we had established that it was more of a property boom with perhaps some elements of a "bust" in it.

Sorry about putting Phuket info on a Ch Mai forum but thought that it was ok to do so??!!

[barefoot1988]

quite surprising to hear that, vibe. did your wife have some credit issue in the past? although i do not have any experiences with the "commission" thingy going on, the bank loan for my wife is pretty smooth but she did have quite a sum in her account while her monthly income varies

[cheeryble]

I can't imagine any people in BKK that are rich enough to buy a condo for their little darlings, sending them to the second rate universities in CM.

You seem to be under the illusion that all Thais are poverty struck. Don't believe it. Well off parents here buy places for their kids the same way well off parents in the UK sometimes buy flats in London for their kids.....it happened to my girlfriend there.

(not to mention Mitt Romney's gift of $100m to his kids, a disgraceful example of genetic selfishness)

I happen to know at least one condo building near CMU that has a considerable number of students, I think mostly postgrad, so you may not be able to imagine it, but it is so. I doubt they come from BKK. I personally know one of the parents, he works for a big international charitable organisation. I also know a PhD applicant there. So there's a couple of walking talking examples for you. My coffee shop gets a lot of better off students. A considerable number have new looking cars. I doubt they bought them themselves.

Edited June 18, 2012 by cheeryble

[givenall]

One thing for sure they never learn from the past,and it seems like

its happening all over again, but thats OK ,even with over supply,

repossessions,the prices of property never seems to fall,its another

fact in mysterious Thailand

regards Worgeordie

Never gall and hardly sells

Sent from my ST18a using Thaivisa Connect App

[butterisbetter]

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.

Im sorry, but your logic about inflations and how it affects property is backwards and incorrect.

With inflation you have an increased money supply, and that increased money supply is what INCREASES the prices of items. You have a larger pool of accessible cash that is now fighting for the same limited pool of assets so the costs go up. Its supply and demand. Inflation does not decrease the price of real-estate.

DE-FLATION on the other hand will. But with all the BAHT that will be printed to pay for all the flood prevention infrastructure and with tablets computers being handed out like banana leafs, I do not see deflation as a foreseeable concern here.

Actually, increases in the money supply do not necessarily increase the cost of items. In the USA, the money supply was vastly increased after the wall street debacle but real estate prices have fallen dramatically. Japan has actually experienced deflation despite following Milton Friedman's advice to increase its money supply. Money supply is only one factor, and not always a determining factor, in regard to prices. We can see this exemplified every day in the commodity market where prices can fluctuate wildly irrespective of the money supply. Demand is not primarily a function of the money supply except during episodes of hyperinflation. There have to be buyers who want whatever the commodity is that's on offer.

As for the question of whether Thailand is in the middle of a bubble or not, anecdotal or personal experience really can't be definitive. I have no idea if there are sources of data about Thai real estate similar to what is available for U.S. other real estate markets. I haven't seen anybody invoke such sources so far in this thread. Does such data exist?

[triffid]

Not just building but they seem to be selling as well!

So True!

Lots of new housing estates, and they are selling well. The new estate just beyond the Chinese cemetary off Chotana near the Super was sold out. Even as I had just discovered it last month, the last home sold in the 3-4 million baht range. Mostly Thai buyers.

Just purchased a double lot in Siriporn. This company is currently well into developing its 10th estate, a more 'modern' take. Land prices are competitive, but twice the price of their 7 and 9 estates.

Had preferred the area near Lanna Hospital but land prices for a 100 rai have escalated in the last 2 years alone to 3 million. For that amount you can purchase a new house with land, for instance in the smart lanna-style estate currently under construction near Meechok Plaza.

On Chotana past Toyota beside the sharp-looking government treasury, the least expensive house starts at only16 million Baht. They would not divulge who besides the Shinawatres are their potential customers; but they seem very confident.

I'd be interested to know about this estate near Meechok Plaza.

[cheeryble]

Actually, increases in the money supply do not necessarily increase the cost of items. In the USA, the money supply was vastly increased after the wall street debacle but real estate prices have fallen dramatically.

To be fair the rise in money supply was completely wrapped up with the housing crash, real estate plummeted regardless and cash bombs simply couldn't stop the rot......but One can assume it did a bit of braking against things being even worse.

I have no idea if there are sources of data about Thai real estate similar to what is available for U.S. other real estate markets. I haven't seen anybody invoke such sources so far in this thread. Does such data exist?

Yes, have thought the same about hard data.

I'm sure some years ago I saw figures about household indebtedness which looked as if they were a regular item.

Anyone help?

Ps: I dare say a local bank manager could give a good impression about how well mortgages are being repaid or not, or point one in the right direction.

Cheeryble

Edited June 18, 2012 by cheeryble

[WinnieTheKhwai]

Plenty of apartments are bought by Thais for offspring to live whilst at university for example

University dorms are about 250bht a term (500bht a year)

Why would you buy a condo for your kid to live in?

A lot of rules and regulations apply to dorm rooms. Like a curfew when you're expected to be inside, strict segregation between boys and girls, likely people have to share a room and it's overall not very modern or prestigious.

Not saying those are valid reasons, but kids themselves would really want to avoid them if at all possible. (So maybe they can think of more creative reasons.

BTW, did we go off track several pages ago? First the big salary debate, now this?

[dionys]

Wife# 140

With inflation you have an increased money supply, and that increased money supply is what INCREASES the prices of items. You have a larger pool of accessible cash that is now fighting for the same limited pool of assets so the costs go up. Its supply and demand. Inflation does not decrease the price of real-estate.

Cheeryble#131

Seems to be a lot of opinion without hard facts, only VIBE expanded (sorry Dionysius I cannot understand your last post).

butterisbetter #148

Money supply is only one factor, and not always a determining factor,….

Wibes inflation quote is correct: Inflation’ is an increase in the volume of money and credit relative to available goods resulting in substantial and continuing rise in the general price level. In plain language: “When the general price level rises, each unit of currency buys fewer goods and services”.

Now how inflation and real-estate bubble coincide? Below is a short paragraph from the Canadian Real Estate and Inflation article written June 24, 2010

[Canadian Investment review- web-site: http://www.investmentreview.com/analysis-research/canadian-real-estate-and-inflation-4501]

Private real estate has been perceived as the best inflation hedge after real return bonds. Indeed, most pension funds benefit from such hedging ability because of their long-term inflation-linked liabilities, as this hedge protects the purchasing power of plan participants. Future benefits are frequently linked to the salaries of current participants, or in the case of current retirees, to inflation, in order to keep up with the cost of living. At the end of 2007, Canadian pension funds held 9.0% of their investments in real estate assets, etc., etc.

But as you can see from the above write-up and as butterisbetter pointed out in #148-inflation and real-estate bubble form a peculiar marriage.

And as far as the hard facts are concern the quantity of houses on the market and the time required to for them to be sold are the hard facts. Majority of these houses are empty. Now somebody either holds a note or somebody paid cash. Either way the empty houses translate to cash that is just unproductively sitting there.

Inflation is the culprit [small or large] deflating the value of the currency. [One thing that needs to be understood is that inflation is almost like an old age; it is there you like it or not.] Some times inflation is 3% sometimes 1%, but you better understand, it is there.

The Model “T’ Ford was what?- $400; 1972 Camero was $1800; and 2012 Camero is now $25,000. (And please do not drag into it salaries, etc..). It is inflation with its myriad faces, circumstances, etc.

Now for those that stated “I do not understand” Here is an example that, I hope will help you to understand.

You started to save money in 1965, and finally in 1972 you had $1800 for the Camero. You went to service, came home got married, [your wife had car] raised kids, and finally in 2012 you remembered that you had $1800 dollars for your Camero. Of course no further comments are necessary

The moral of the story is money is a tool that needs to be put to work for it to be productive. If not, just as the empty houses, the money will deflate thanks to the inflation, time, and other miscellaneous factors.

Many other countries proved it to us before and quite a few are doing it right now. If you think Thailand is the exception then by all means….

[TommoPhysicist]

She has outstanding credit. The banks main concern they said was for her to be able to service the debt. By paying more down it lowered the monthly payments. Also its a higher interest rate if you buy just land, with no house on it. This is to deter people from borrowing to speculate with vacant land. In many ways the banks here are way more sensible then those in the west.

Nothing to do with lowering monthly payments, all to do with making a profit if they repossess.

From what you have described, it appears they are worried about a default on the loan.