The Condo Bubble

[arch77778]

When will this bubble collapse?

I am offered a Condo ,building to commence in 2013 with completion in 2015.Surely greed is driving the process or is LOS immune from an economic collapse.

[meom]

Depends a bit what type of condo you’re talking about.

I’m under the impression that the majority of condo’s being build are for the lower end Thai market.

Plenty of demand there and still a long way to go before Thailand reaches unemployment levels such as in Europe which would make people default on their payment.

[Dr Robert]

by world standards real estate in bkk is cheap and good value in my opinion (owned an agency in a previous life) go for location first, eg schools, transport, proximity to services and be prepared to pay a bit more for the privelege. go for quality in the condo market. know that every investment like this has risk. consider rent, then option to buy to ascertain how good it is to live in first. never buy off the plan unless you have the deal of the century secured. be prepared to lose money and you will be delighted if you profit. there are plenty of good buys out there if you do your homework and dont necessarily listen to the advice of the offering party without seeking professional opinions first.

hope this helps. good luck!

[roamer]

When will it burst ?

Dunno but a lot of Thai condominium developments are up for environmental awards for their low energy consumption.

Just look at them at night, I mean I've heard of energy saving light bulbs but they seem to manage with about 4 per building.

Anyway should they ever be fully occupied then Thailand has another export product as the sewers can barely cope at the moment

[cheeryble]

Agree very much with your post about location and cheapness by world standards Dr Robert with one comment

. never buy off the plan unless you have the deal of the century secured.

in CM if you don't buy in advance you're going to miss probably all the best view best floor and mountain side units, because so far they've just been selling all these out early.

But depositing in advance does open you to uncertainty....

Personally I would go for the right older condo building in a great location, try to buy well, and renovate to a far higher internal standard than the new buildings, thus ending up with something in a more prime location and high standard for the same or less money. Unlike the new buildings I would be able to judge how the building will fare for the next 50 years by how it fared the last 20 and I will know the longterm farang percentage and the attitude to looking after the building. There is also opportunity here as it wasn't uncommon for some condo buildings to be poorly looked after, but many seem to be getting active committees who are really bringing things up. That would push prices up and it also attracts more farang, and when you reach the 49% farang ratio you suddenly get a two tier pricing system with the farang prices rising even more and the Thai falling (as they can no longer sell to farang).

Having said all that I still have friends buying new.......presumably they just want a fresh condo and it all, as you say, feels cheap.

Edited October 20, 2012 by cheeryble

[BigJohnnyBKK]

Very very poor investments from a purely financial POV, unless you're buying at the very cheap end of the market targeted to locals for the purpose of collecting rent.

Back Stateside I'd be shooting for a price-to-rent ratio of under 15 - with the extra risks here I'd say 12.

All of which I'm sure has absolutely nothing to do with what most people here are talking about, in which context I think purchasing condos is fine as long as you realize it's an expense like a car or yacht and can afford it from that POV, not a true investment.

[cheeryble]

Very very poor investments from a purely financial POV, unless you're buying at the very cheap end of the market targeted to locals for the purpose of collecting rent.

Not sure if I can quite agree there Johnny....

Assuming that if you buy a condo sensibly it would be fair to assume it will rise with inflation. In fact bearing in mind it's centrality of location will slowly improve as a town grows history says it should outpace inflation.....surely by 2 or 3% even in a slowly growing town, naturally more with real growth.

Then you will either save rent or possibly collect rent.....which we have already ascertained will be between 5 and 10% ballpark.

So you should reasonably expect to total 8-10% even if some's in the form of saving.

But that's 8-10% on top of basic inflation, so more like 10-14%

This is without adding any value by remodeling or picking up units cheap.

Even just keeping up with inflation and getting a bonus few percent I'd call a fair investment of the capital outlay....wish I could do that with my money abroad right now, though I'll grant you it's not as easy as sitting back receiving bank interest or dividends.

Caveat: this is not a recommendation to run out and pay full whack for a new retail unit at any time in the cycle, it is an overview of the longterm picture. It takes some expense to keep a unit up not to mention fees, so reduce everything a bit.

Edited October 20, 2012 by cheeryble

[GreenSnapper]

15 million Baht for 100 sqm in my vicinity (BKK). Crappy building standards made by cement and cheap Burmese labor. Cheapest kitchen, cheapest floor, smelly bathroom.

And 90+% empty building since more than a year.

Good business for the developer, bad for all the silly investors.

[bobobo]

Are You supposed to pay for a prospectus? I know a couple of friends that have done that. Some have actually made some good money. Some have made a very bad deals. Two of them are still waiting for their condos the be ready for move in. The delay is now 13 months...I don't have the nerves or the money for that kind of investment..Give me the key so I can go and have look at the condo, suits my better..

[barefoot1988]

15 million Baht for 100 sqm in my vicinity (BKK). Crappy building standards made by cement and cheap Burmese labor. Cheapest kitchen, cheapest floor, smelly bathroom.

And 90+% empty building since more than a year.

Good business for the developer, bad for all the silly investors.

if its 90% empty, how would it be good business for the developer?

[GreenSnapper]

15 million Baht for 100 sqm in my vicinity (BKK). Crappy building standards made by cement and cheap Burmese labor. Cheapest kitchen, cheapest floor, smelly bathroom.

And 90+% empty building since more than a year.

Good business for the developer, bad for all the silly investors.

if its 90% empty, how would it be good business for the developer?

It's all sold in the hope of high rentals and/or even higher resale prices. Wet dreams of the clueless investors.

[NeverSure]

15 million Baht for 100 sqm in my vicinity (BKK). Crappy building standards made by cement and cheap Burmese labor. Cheapest kitchen, cheapest floor, smelly bathroom.

And 90+% empty building since more than a year.

Good business for the developer, bad for all the silly investors.

if its 90% empty, how would it be good business for the developer?

Investor doesn't necessarily = developer. Developer might get paid up front. Saw lots of that just before the US crash. "Everyone" thought "everything" would always go up. I didn't. I don't now in LOS.

[BigJohnnyBKK]

Very very poor investments from a purely financial POV, unless you're buying at the very cheap end of the market targeted to locals for the purpose of collecting rent.

Not sure if I can quite agree there Johnny....

Assuming that if you buy a condo sensibly it would be fair to assume it will rise with inflation. In fact bearing in mind it's centrality of location will slowly improve as a town grows history says it should outpace inflation.....surely by 2 or 3% even in a slowly growing town, naturally more with real growth.

<snip>

From a purely financial POV everything you say in favor of investing in condos is much more true and less risky in locations other than Thailand.

Given the higher risk here, the purely financial factors would have to be IMO **much** more attractive here than in those safer jurisdictions to even out, and they aren't.

Personally I think investing in condos anywhere doesn't make sense when compared to other alternatives.

But that's just my opinion.

[tgeezer]

When will it burst ?

Anyway should they ever be fully occupied then Thailand has another export product as the sewers can barely cope at the moment

That is a very good point, perhaps the most important point of all.

The house I live in is one of twenty on a plot similar in size to the adjacent plot where a five story condo. is being built. Before these two rows of houses were built twenty or so years ago there was one house here, and one next door!

I imagine that the drains were designed primarily for taking rainwater, I wonder how they will cope in the future. The answer is of course, that no one knows but if there is a problem it will be dealt with; if it is bad enough!

[giddyup]

15 million Baht for 100 sqm in my vicinity (BKK). Crappy building standards made by cement and cheap Burmese labor. Cheapest kitchen, cheapest floor, smelly bathroom.

And 90+% empty building since more than a year.

Good business for the developer, bad for all the silly investors.

if its 90% empty, how would it be good business for the developer?

I guess he gets to keep the investors money, so he's not out of pocket one bit.

[chiangmaikelly]

As far as I know a developer has a construction loan or cash and builds. He gets his money out when someone buys the units.

No one buys the developer gets no money. The construction guy makes money if he gets his money up front.

[NeverSure]

No offense meant to anyone at all, but I'm sure reading a lot of things which parrot what I heard in the US in the few years preceeding the real estate etc. crash.

Real estate always goes up, so better buy now.

No matter that the average person can't really afford these prices. No matter that rental incomes didn't pencil. Unless you had about 75% down, an apartment building was an alligator. What kind of investment is that?

No matter that banks and mortgage companies were making phony loan apps to qualify people. No matter that it eventually broke the banks and Wall Street. No matter that at least 40% of borrowers couldn't afford the payments from day 1.

People were buying not only their own homes, but 3 or 4 "investment" homes because, well, you know, the prices will go up.

Well, when it crashed, more houses had then been built than there were even people! I mean, if people start having 3 or 4 extra homes built for "investment" because prices always go up then there will be a surplus.

So, right now in the US, in many places you can buy a brand new home that's maybe been sitting for 4 years for less than the cost of the lot, building materials, labor and permits etc. So if there are new homes available below even today's building costs, what does that do to those who made a living building homes? They are idle.

Building lots cost less than 1/2 of what they did 6 years ago. I was lucky and saw it, and sold all but my home in 2004. In 2005, my home appraised for $750,000 with 1/3 of that the land. Today I may take $400k for it to move to LOS. I think that's about the number which would sell it. I'm lucky because I have location, location, location. Otherwise I might sit on it at that price.

If anyone thinks I'm buying into that Ponzi Scheme in LOS right now, he's nuts.

Just sayin'........

[giddyup]

As far as I know a developer has a construction loan or cash and builds. He gets his money out when someone buys the units.

No one buys the developer gets no money. The construction guy makes money if he gets his money up front.

The condos may all have been sold as rental investments. The developer get his money but the investors may not be able to rent because rents are too high, bad location, whatever.

[chiangmaikelly]

No offense meant to anyone at all, but I'm sure reading a lot of things which parrot what I heard in the US in the few years preceeding the real estate etc. crash.

Real estate always goes up, so better buy now.

No matter that the average person can't really afford these prices. No matter that rental incomes didn't pencil. Unless you had about 75% down, an apartment building was an alligator. What kind of investment is that?

No matter that banks and mortgage companies were making phony loan apps to qualify people. No matter that it eventually broke the banks and Wall Street. No matter that at least 40% of borrowers couldn't afford the payments from day 1.

People were buying not only their own homes, but 3 or 4 "investment" homes because, well, you know, the prices will go up.

Well, when it crashed, more houses had then been built than there were even people! I mean, if people start having 3 or 4 extra homes built for "investment" because prices always go up then there will be a surplus.

So, right now in the US, in many places you can buy a brand new home that's maybe been sitting for 4 years for less than the cost of the lot, building materials, labor and permits etc. So if there are new homes available below even today's building costs, what does that do to those who made a living building homes? They are idle.

Building lots cost less than 1/2 of what they did 6 years ago. I was lucky and saw it, and sold all but my home in 2004. In 2005, my home appraised for $750,000 with 1/3 of that the land. Today I may take $400k for it to move to LOS. I think that's about the number which would sell it. I'm lucky because I have location, location, location. Otherwise I might sit on it at that price.

If anyone thinks I'm buying into that Ponzi Scheme in LOS right now, he's nuts.

Just sayin'........

Not the same at all. The US failed because of financial instruments that no one understood that repacked the debt among other things. Thai banking is in the stone age. No danger of complicated financial transactions. Also the Thais remember the financial crash only a few years ago which wrecked the Thai economy. Google 1997 Asian financial crisis before you begin to comment on Thai Ponzi scheme (of which there is none). There are still many hotels and condos empty and abandoned from 1997.

The Thai financial problems are only in the minds of some poor folks who post on Thai Visa. Be informed and don't rely on Thai Visa forums for your financial information about Thailand. Remember our Thai Visa motto. We can argue for 5 pages what time it is at noon.

[chiangmaikelly]

As far as I know a developer has a construction loan or cash and builds. He gets his money out when someone buys the units.

No one buys the developer gets no money. The construction guy makes money if he gets his money up front.

The condos may all have been sold as rental investments. The developer get his money but the investors may not be able to rent because rents are too high, bad location, whatever.

Oh I see, you are calling a buyer of a condo an investor. I know a bunch of guys in Pattaya who do this. They do OK if they speak Russian.

[bonobo]

I paid 2.8 million for a two bedroom condo in Thonburi about 5 years ago. I was the second person to move into what is now a 900 unit development.

The first 3/4 of the place filled up quickly, although after the first section, they stopped making the two bedroom units. Now, the last 1/4 has been essentially empty for more than a year. I wandered over to take a look at the new units yesterday, and they are selling the largest one bedroom for the same 2.8 million.

From what i have seen here, asking and selling price does not always depend on supply and demand. I went to another development to look at a house. I liked the new house, but as there was a used house for sale, I called them up. The house is in pretty bad shape with some very poor done additions. It has been for sale for over a year. But I was told that they were raising the price to match the same price as a fully furnished new unit, one on a much larger lot and in a better location. This is not the first time I have run into this type of pricing for homes here in Bangkok.

[NeverSure]

The US failed because of financial instruments that no one understood that repacked the debt among other things. Thai banking is in the stone age.

Way, way oversimplified. That caused the debacle on Wall Street because investors bought big packages of bad loans, to put it simply.

But where did those loans originate? On Main Street. All over the country. Without the housing bubble and the phony loans in small and big town US, there would have been no huge packages of bad loans. (Mortgage Derivatives.) Wall Street just got greedy seeing big commissions from selling the packages with no air in them.

The problem started with the notion that everyone should own a home. See Dodd Frank, and Freddie/Fannie. It's just too simple. People believed that real estate always goes up. Banks believed it. Wall Street believed it. Big investors believed it. The government believed it. Buy now while you still can.

The Emporor had no clothes.

[chiangmaikelly]

The US failed because of financial instruments that no one understood that repacked the debt among other things. Thai banking is in the stone age.

Way, way oversimplified. That caused the debacle on Wall Street because investors bought big packages of bad loans, to put it simply.

But where did those loans originate? On Main Street. All over the country. Without the housing bubble and the phony loans in small and big town US, there would have been no huge packages of bad loans. (Mortgage Derivatives.) Wall Street just got greedy seeing big commissions from selling the packages with no air in them.

The problem started with the notion that everyone should own a home. See Dodd Frank, and Freddie/Fannie. It's just too simple. People believed that real estate always goes up. Banks believed it. Wall Street believed it. Big investors believed it. The government believed it. Buy now while you still can.

The Emporor had no clothes.

Think about what you said, " Without the housing bubble and the phony loans in small and big town US, there would have been no huge packages of bad loans." Thai banks don't know how to package loans good or bad so you don't have to worry about it in Thailand. Plus 50% of the loans don't go through banks in Thailand. Not the same as the USA, so you can relax. Or better yet move here, learn how to speak Thai and start reading about Thai economics. But one thing I can assure you, nothing you learned in the USA will be of much use in Thailand.

[NeverSure]

But one thing I can assure you, nothing you learned in the USA will be of much use in Thailand.

So, Thailand has revoked the law of supply and demand? Thailand has revoked the principle that over hundreds of years we can see that things don't always go up?

How many worldwide crashes do we have to see in different cultures, different economies and with different languages before we get it that those with big money will drag the small man to his death?

It doesn't matter what the lending system in Thailand is. The question is, is the general population overleveraged? Regardless of who they owe the money to, are they approaching a point of no return? Is consumer borrowing out of control? Do people too readily accept debt as a solution to getting what they want?

Debt is a prison. It stifles things. When people have too much debt they either stop buying because they choose to, or no one will lend to them, or they borrow and go bust. Any and all of that can crash an economy.

Demand is based on a willing and able buyer or renter. The buyer or renter has to be able and willing to pay the asking price. I think LOS has either passed that point, or soon will, but there is no letup in building. (supply)

It's a collision course, and I'll be happy to be the first to tell you "I told you so."

[chiangmaikelly]

But one thing I can assure you, nothing you learned in the USA will be of much use in Thailand.

So, Thailand has revoked the law of supply and demand? Thailand has revoked the principle that over hundreds of years we can see that things don't always go up?

How many worldwide crashes do we have to see in different cultures, different economies and with different languages before we get it that those with big money will drag the small man to his death?

It doesn't matter what the lending system in Thailand is. The question is, is the general population overleveraged? Regardless of who they owe the money to, are they approaching a point of no return? Is consumer borrowing out of control? Do people too readily accept debt as a solution to getting what they want?

Debt is a prison. It stifles things. When people have too much debt they either stop buying because they choose to, or no one will lend to them, or they borrow and go bust. Any and all of that can crash an economy.

Demand is based on a willing and able buyer or renter. The buyer or renter has to be able and willing to pay the asking price. I think LOS has either passed that point, or soon will, but there is no letup in building. (supply)

It's a collision course, and I'll be happy to be the first to tell you "I told you so."

And you have lived in Thailand how long?

I would not go to America after a couple of vacations and advise people how to invest. However it seems that is the standard behavior of tourists to Thailand.

Edited October 21, 2012 by chiangmaikelly

[NormanW]

15 million Baht for 100 sqm in my vicinity (BKK). Crappy building standards made by cement and cheap Burmese labor. Cheapest kitchen, cheapest floor, smelly bathroom.

And 90+% empty building since more than a year.

Good business for the developer, bad for all the silly investors.

if its 90% empty, how would it be good business for the developer?

I guess he gets to keep the investors money, so he's not out of pocket one bit.

As many do, together with the sinking fund!!!!!!!!!

[NeverSure]

And you have lived in Thailand how long?

What's that supposed to mean? No country is exempt from the law of supply and demand. No group is exempt from the pain of getting overleveraged.

I've lived on this globe for 66 years and I've studied history. The US has had two major crashes in just the last 100 years, and it has been thought to have a strong economy. Both times the crashes came after great booms.

Look all over the world. We're in a global recession that many call a depression. China is in a world of hurts.

What law of economics makes Thailand exempt from the price paid by excesses?

I'll be happy to be the first to tell you that I told you so.

Edited October 21, 2012 by NeverSure

[GreenSnapper]

There are lots of Thais with serious money and/or are able to get high loans. And some more foreign investors (not so much Farang, but Chinese).

And those people believe 2 mantras:

1. Prices in Thailand always go up.

I have heard it from Thais. When I mentioned the bubble crash in US or even Hongkong, I hear "yes, but this is Thailand, prices always go up".

2. You can rent out your property for 7-8% p.a.

So the basic believe is, you can get rental income of 7% and say 5% property increase per year which makes roughly 12% per year. Not bad, compared with low interest bank accounts.

The only problem with that dream: it doesnt work out. Of course, everybody knows some "friend" who bought 10 years ago and made some serious profit since then. So we can make it too....

Finally, all those "12%" investments stay empty, they have to pay for loans and maintanace fees, nobody rents and nobody buys (people buy new condos).

Instead of lowering rents or selling with a loss, they just keep the place empty and/or increase prices for the loss they have already. This is how it works in Thailand and that's a reason the bubble will not burst soon. But some day it will.

[chiangmaikelly]

And you have lived in Thailand how long?

What's that supposed to mean? No country is exempt from the law of supply and demand. No group is exempt from the pain of getting overleveraged.

I've lived on this globe for 66 years and I've studied history. The US has had two major crashes in just the last 100 years, and it has been thought to have a strong economy. Both times the crashes came after great booms.

Look all over the world. We're in a global recession that many call a depression. China is in a world of hurts.

What law of economics makes Thailand exempt from the price paid by excesses?

I'll be happy to be the first to tell you that I told you so.

You don't know anything about Thailand. You don't know if the past 10 years have been boom or bust. You don't know the shape the Thai economy is in today. Thailand is not in a recession. Google the definition of recession. Yes there is a definition. This is not the US. Thailand has 0 unemployment. The currency of Thailand has dramatically increased against the US dollar.

Detroit has closed auto factories Thailand has opened new ones built by Ford and GM. I sold my house in the US and converted the cash to Thai baht because I know something about the Thai economy. I changed my money and assets to Thai baht when they dollar was worth 40 baht and housing prices in the US were good.

Today look at the value of your home and multiply it by 30 baht to the dollar. Then look at the value of your home 8 years ago and multiply it by 40 and tell me how much money you lost by not listening to me 8 years ago? Perhaps you should also listen to me today. Or not. Just saying....

[NeverSure]

You don't know anything about Thailand. You don't know if the past 10 years have been boom or bust. You don't know the shape the Thai economy is in today. Thailand is not in a recession. Google the definition of recession. Yes there is a definition. This is not the US. Thailand has 0 unemployment. The currency of Thailand has dramatically increased against the US dollar.

Detroit has closed auto factories Thailand has opened new ones built by Ford and GM. I sold my house in the US and converted the cash to Thai baht because I know something about the Thai economy. I changed my money and assets to Thai baht when they dollar was worth 40 baht and housing prices in the US were good.

Today look at the value of your home and multiply it by 30 baht to the dollar. Then look at the value of your home 8 years ago and multiply it by 40 and tell me how much money you lost by not listening to me 8 years ago? Perhaps you should also listen to me today. Or not. Just saying....

There is no unemployment in Thailand. By that standard there was no unemployment in the US during the Great Depression. People didn't have jobs. They just stayed home and raised gardens and small crops on their farms. They were then mostly rural. They bartered and did for each other. How Isaan that is.

There is no poverty in Thailand. No one is being left behind. Same with China and India.

The few get rich at the expense of the many. There is, BTW, no unemployment in Russia or China either. Just poverty.

Thailand is a third world country where to the extreme the few do well at the expense of the many. I will show you the same in every third world country including Mexico, just to the South of the US.

Thailand today reminds me of that proverbial group of guys, all standing in a circle with their hands in each other's pockets, believing they will all get rich.

You can export cars. Cars are also a depreciating asset. Not so of condos and houses. If you can't sell them where they stand, you have to eat them.

Pass the ketchup.

Edited October 21, 2012 by NeverSure