Empty Condo Units In Bangkok

[turgid]

I've been viewing property in Bangkok to understand the market with an intention to buy at some point . In some condo blocks there seems to be a lot of unsold units. To give a couple of examples I looked at a nice development in Sathorn Road which is probably sixteen years old. They still have unsold "new" apartments (never been occupied with brand new interiors) at premium pricing (10-20M Bht). I looked at a well known prestigious building in Silom which was built in the nineties where on the floor i visited all the corner units were occupied and the corner unit I looked at was a high price (15M Baht) but every other unit on the floor I walked by (probably 16 units) had the keys in the doors and they have never been started (no toilets bathrooms or kitchens etc). Also in both buildings I was told there were no maintenance fees.

I was told that the Banks own both these buildings and that they trickle units out onto the market to keep the prices up.

How widespread is this ? Are there any real stats for "real" occupancy and private ownership ? While i'd like to live on an empty floor and not have people cluttering up the pool , were there to be another 1997 style crisis or a bank failure presumably some of this property would get dumped. Or would you find yourself walking down from the 25th floor because the maintenance company wasn't fixing the elevators anymore and the 3 real condo owners in the building cant afford to spread the maintenance costs between them.

[trogers]

Banks keep such properties at their original loan owing amounts in their books to avoid having to declare losses. They are hoping asset inflation may one day raise their market values to these said amounts. They can play this game because there is no property tax payable on these vacant units.

But it's all imaginary values as they have not been able to sell them for over 16 years. And the building with its design and services are aging more and more. Depreciation will spoil their game...

[dddave]

I don't know if this applies to individual condos, but there is a Thai banking regulation that requires banks to recover at least 75% of defaulted loan value. This law was discussed frequently during the early 2000's when Bangkok's skyline was defined by unfinished "Ghost Buildings" left over from the '97 crash. The law made it difficult for lenders to unload the buildings and clear their books but also served to prevent fraudulent rollovers.

[trogers]

I don't know if this applies to individual condos, but there is a Thai banking regulation that requires banks to recover at least 75% of defaulted loan value. This law was discussed frequently during the early 2000's when Bangkok's skyline was defined by unfinished "Ghost Buildings" left over from the '97 crash. The law made it difficult for lenders to unload the buildings and clear their books but also served to prevent fraudulent rollovers.

I doubt the law is for a requirement to recover. Probably more for preventing booking over 75% of outstanding loans as value of assets in hand. I have won a bidding for a condo at the Legal Execution Department. I have not seen them posting a reserved price so high as to equal 75% of defaulted loans amount.

[davejones]

Which two developments are you talking about?

It seems to be par for the course that there are always unsold units left off. This is proof that they are overpriced. But they probably have enough buyers to overpay on enough units to make it worthwhile having a few spare units.

Contrast this to London, where they just released 600 units at Battersea Power Station. Studios start at around £350,000, with penthouse apartments at £6 million. People started queuing at 6:30 am On Thursday morning. They were all sold by Saturday.

In Bangkok I'd say they'd need to halve prices in order to match buyers and sellers. For me, this seems like the most overpriced market I have ever seen. But many would disagree with me, and there are certainly plenty of people willing to pay these prices. Although not enough to sell out. Even after 16 years. LOL.

Edited February 3, 2013 by davejones

[BlackPuddingBertha]

"Also in both buildings I was told there were no maintenance fees."

This seems both unlikely and unsustainable.

"I was told that the Banks own both these buildings and that they trickle units out onto the market to keep the prices up."

I think a more accurate description would probably be that prices are so over the top that they only sell once in a blue moon.

[BangkokHank]

Interest rates around the world, including in Thailand, are at record lows. Low interest rates = high asset prices for a host of reasons, one of which is because people can afford to pay more for assets when they borrow cheap money.

Low interest rates also have an affect on supply: Since it is so cheap for builders to finance construction, they build and build and build, not because there is demand but because it is cheap and profitable to do so. The eventual result is an oversupply.

If you are a Thai who can borrow cheap money to finance your overpriced purchase, then it MIGHT make sense to buy at these prices. But as a foreigner who has to pay cash, it makes sense to buy only when interest rates are sky high and nobody can afford to borrow.

As a concrete example: I am renting a small studio condo on the outskirts of Bangkok for 8,000 baht per month. Most of the units in the building are empty. My neighbor bought her unit for around 2.2 million baht. She told me her monthly mortgage payments are 10,000 baht a month. Because she can't rent it for the 10,000 baht per month that she needs to cover her mortgage payments, she has kept it empty for the two years since she has bought it, presumably paying the mortgage out of cash flow from one of her other businesses. When I told her that I'm paying 8,000 baht per month for my unit, she offered to rent me hers for the same price. At the same time, she's trying to sell it - for around 2 million baht. I saw other identical units in the building being offered for 1.75 million baht, but they're not selling. I'd be willing to buy one for around 1 to 1.2 million, which I estimate to be the fair market value. (My background is in property valuation, by the way.)

This same neighbor told me that she just bought another unit similar to the ones in our building in a new building going up nearby, perhaps even in a better location within walking distance of the Airport Link, for 1.2 million. She is really regretting her purchase of this one where I'm living for over two million (for a tiny studio apartment way out in the suburbs).

She also owns - or rather has borrowed money to purchase - two other units.

All of this reminds me a whole lot of what I experienced first hand in Bangkok in 1997 during the last real estate bubble. Every Tom, Dick and Somchai is buying a place with the expectation of either flipping it for a quick profit or renting it out and having someone else pay off their mortgage. But out here where I'm living, 8,000 baht is far more than the average local can afford to pay for rent. Prices have gotten way out of line with potential rental income.

Conclusion: The real estate cycle has not been repealed. Prices might rise for a bit longer - and in fact they almost certainly will in the short term - making you regret not having bought. But believe me, there will certainly come a time again when people look back at this period and ask, "What was I thinking when I bought at those prices?"

Anyway, as we know, the best time to buy anything is when prices are low. And what does your gut tell you about where prices are now? Are people saying, "I can't believe how low prices have gotten.", or are they saying, "I can't believe how high prices are!"? My gut tells me that we're closer to high than low.

[malcolminthemiddle]

Interest rates around the world, including in Thailand, are at record lows. Low interest rates = high asset prices for a host of reasons, one of which is because people can afford to pay more for assets when they borrow cheap money.

Mortgage interest rates in Thaiiland are around 7 - 8%. I wouldn't call that cheap money.

Edited February 3, 2013 by malcolminthemiddle

[justcruisin]

Seems a huge building bubble here in Chiang Mai, not so bad as BKK but the cranes and development money coming in from from BKK is crazy, talking to a Thai friend who is an architect says he has never been so busy as now. One company I know built there first condo here six years ago is now onto their 14th condo now, a few are still holes in the ground I might add!

[trogers]

As a concrete example: I am renting a small studio condo on the outskirts of Bangkok for 8,000 baht per month. Most of the units in the building are empty. My neighbor bought her unit for around 2.2 million baht. She told me her monthly mortgage payments are 10,000 baht a month. Because she can't rent it for the 10,000 baht per month that she needs to cover her mortgage payments, she has kept it empty for the two years since she has bought it, presumably paying the mortgage out of cash flow from one of her other businesses. When I told her that I'm paying 8,000 baht per month for my unit, she offered to rent me hers for the same price. At the same time, she's trying to sell it - for around 2 million baht. I saw other identical units in the building being offered for 1.75 million baht, but they're not selling. I'd be willing to buy one for around 1 to 1.2 million, which I estimate to be the fair market value. (My background is in property valuation, by the way.)

This same neighbor told me that she just bought another unit similar to the ones in our building in a new building going up nearby, perhaps even in a better location within walking distance of the Airport Link, for 1.2 million. She is really regretting her purchase of this one where I'm living for over two million (for a tiny studio apartment way out in the suburbs).

She also owns - or rather has borrowed money to purchase - two other units.

She is one of main character feeding the bubble. She made a few mistakes.

One, she bought because she thought prices will rise forever, the same mistake that led to the sub-prime bubble in the US (2003-2007).

Two, she borrowed to speculate, not invest. Investment requires a different mind set and analysis.

Three, she bought 3 small units and not one larger unit, with all three at poor locations and now left vacant. If she had bought just one unit at a better location, rental income may just offset her mortgage payments, though she will still have to pay maintenance fees out of her pocket.

And finally, she is not able to cut losses (1.2m against 2.0m Baht) because she overborrowed and all her units are in negative equity.

If this bubble in Bangkok is not burst, then we will be seeing price stagnation for at least a decade. Price stagnation means buyers and sellers cannot meet on a price. Condo units bought new will be just old units then.

[JomtienEats]

They are hoping asset inflation may one day raise their market values to these said amounts. They can play this game because there is no property tax payable on these vacant units.

As far as I can tell this applies only to condos owned by businesses (in this case banks) - the 'income withholding' tax on a condo sale amounts to a defacto property tax of about .5% to 1% tax per year payable when an individual sells a condo.

Consider the following rule for a business -

"When the condo is owned and sold by a Thai company the 3,3% specific business tax must generally be paid irrespective the years of ownership, and corporate income withholding tax is fixed at a rate of 1% of the registered sale value or appraised value, whichever amount is higher."

A business would therefore be paying 4.3% irrespective of how long the condo was held for, but an individual pays more for every year that passes after 5 years.

What I'd like to see is a 2% per year tax on properties left empty for whatever reason - it's wasteful to have all these empty condo buildings and they distort the market. As we've seen all too recently, distorted markets are a main cause of rapid, painful market correction.

Edited February 4, 2013 by JomtienEats

[turgid]

"Also in both buildings I was told there were no maintenance fees."

This seems both unlikely and unsustainable.

I made the same point to the agent. She couldn't understand why i didn't see this as an amazing plus. I assume the bank are paying the maintenance fees now to protect their investment. Presumably at some point the bank sells all the units, or dumps the remaining ones and walks. At which point either maintenance stops or a fee gets negotiated.

[turgid]

Which two developments are you talking about?

The one with the 15M Baht corner unit and the rest of the floor vacant was State Tower . The one in Sathorn Road I'd rather not name as my friend owns a unit there and her investment is in enough trouble already.

[David48]

Just viewed this thread.

Great OP and contributing posts.

I have a very strong property background, and try and understand the Thai market.

But not only do I have to understand the market statistically ... but I have to understand the Thai mentality and personality towards owning, buying and selling property ... easier said then done ...

David48

[Khun Jean]

Talk about prices all you want. The real thing to discuss is value.

Money depreciates fast (5-10% per year) and even a condo bought for 2.2 million can be a better strategy than having cash. Even borrowing for a low interest rate will work but has a big risk.

It is not as simple as it seems. Banks are counting on the inflation, even help to create it.

It solves all problems for the ones first in line when money is created.

For the rest no inflation or small deflation is much better.

One protection is to have real estate and other things with intrinsic value.

[NeverSure]

Talk about prices all you want. The real thing to discuss is value.

Money depreciates fast (5-10% per year) and even a condo bought for 2.2 million can be a better strategy than having cash. Even borrowing for a low interest rate will work but has a big risk.

It is not as simple as it seems. Banks are counting on the inflation, even help to create it.

It solves all problems for the ones first in line when money is created.

For the rest no inflation or small deflation is much better.

One protection is to have real estate and other things with intrinsic value.

With all due respect, let's discuss value. I've seen real estate fall by 40% almost overnight and stay that way for 5 years and counting. I saw silver drop from about $US50 an ounce to about $5 an ounce almost overnight. That was 30+ years ago and it still hasn't recovered. In the past few years I've seen the US stock market drop by about 1/2 and it still hasn't fully recovered.

I don't advocate holding much cash because you're right, it's depreciating fast. Even LOS has fundamental inflation regardless of its value against other currencies.

But when I buy a hard asset, I want to buy at the right price. I want to see my ROI now, and not count on the price rising. Buying legitimate income, and betting on prices rising are two different things to me. If the price rises, that's just a bonus.

$.02

[BlackPuddingBertha]

They are hoping asset inflation may one day raise their market values to these said amounts. They can play this game because there is no property tax payable on these vacant units.

As far as I can tell this applies only to condos owned by businesses (in this case banks) - the 'income withholding' tax on a condo sale amounts to a defacto property tax of about .5% to 1% tax per year payable when an individual sells a condo.

Not at all. That is a property sales tax, not an ownership tax. If you buy and own a condo for a hundred years you still wont pay a bean in property ownership tax under current legislation.

And even the tax paid on sale is less after 5 years ownership than it is for ownership of less than 5 years.

What I'd like to see is a 2% per year tax on properties left empty for whatever reason - it's wasteful to have all these empty condo buildings and they distort the market. As we've seen all too recently, distorted markets are a main cause of rapid, painful market correction.

I'm in favour of such a tax also, but I wouldnt like to be owning a condo when they bring it in (which they surely will at some point).

Edited February 13, 2013 by BlackPuddingBertha

[JomtienEats]

Not at all. That is a property sales tax, not an ownership tax. If you buy and own a condo for a hundred years you still wont pay a bean in property ownership tax under current legislation.

I'd like to be proven wrong about this. Here's where I reached my conclusions -

I'm very interested to know if I made a mistake in calculations, or if the example I cited from the property lawyer is incorrect. I can't find anything more authoritative published about this tax than the example posted.

[BlackPuddingBertha]

It may be a matter of semantics but for me a property ownership tax is something that you pay every year during the period in which you own the property. A property sales tax is something that you pay if/when you sell. And of course there may well be a tax when you buy it also.

I do know that the percentage perceived by the Pattaya land office for farang name condo sales is lower after 5 years ownership than before 5 years. What happens elsewhere or for other types of property is anyone's guess.

[rgs2001uk]

They are hoping asset inflation may one day raise their market values to these said amounts. They can play this game because there is no property tax payable on these vacant units.

As far as I can tell this applies only to condos owned by businesses (in this case banks) - the 'income withholding' tax on a condo sale amounts to a defacto property tax of about .5% to 1% tax per year payable when an individual sells a condo.

Consider the following rule for a business -

"When the condo is owned and sold by a Thai company the 3,3% specific business tax must generally be paid irrespective the years of ownership, and corporate income withholding tax is fixed at a rate of 1% of the registered sale value or appraised value, whichever amount is higher."

A business would therefore be paying 4.3% irrespective of how long the condo was held for, but an individual pays more for every year that passes after 5 years.

What I'd like to see is a 2% per year tax on properties left empty for whatever reason - it's wasteful to have all these empty condo buildings and they distort the market. As we've seen all too recently, distorted markets are a main cause of rapid, painful market correction.

What I'd like to see is a 2% per year tax on properties left empty for whatever reason - it's wasteful to have all these empty condo buildings and they distort the market. As we've seen all too recently, distorted markets are a main cause of rapid, painful market correction.

Well I suppose it depends on whether you are looking at it from a buyer or a sellers perspective.

Why is it wasetful to have empty condos and why do they distort the market?

As a potential buyer I think its great, bigger choice and leeway for price reduction.

Cant say I have seen a distorted market causing a rapid painful correction in Thailand recently.

If you are talking overseas, maybe its people who should never have been give a mortgage in the first place, speculators or greed that distorted markets.

[Khun Jean]

The only ones that can distort a market are Government and Central banks.

The government because they can promote ownership, backstop banks and granting privileges and Central Banks that can manipulate interest rates, exchange rates and privileges to other financials.

The rest is just suffering or profiting depending on which side of the balance you fall..

[JomtienEats]

The only ones that can distort a market are Government and Central banks.

The government because they can promote ownership, backstop banks and granting privileges and Central Banks that can manipulate interest rates, exchange rates and privileges to other financials.

The rest is just suffering or profiting depending on which side of the balance you fall..

Yes, I'm sure those holding the empty condos are following their rational financial self interest as best they can. The empty condos point to a distortion in the market somewhere causing them to behave like that. A tax on empty condos would be a further distortion to try to correct a previous distortion. It would be better to have a free market where banks are limited in size and fail when they make the wrong bets.

[impulse]

Out of curiosity, what is the rule of thumb for the cost for transferring ownership of a foreigner owned property here in Thailand?

When I sold houses in the US, the rule of thumb was 10%, with 6% going to the Realtors, title searches and title insurance, misc closing costs, loan application and origination fees, inspections, etc. That was back in the '80s and may have changed since then.

Also, other than amortization and discretionary maintenance and utilities, what percent of the value (or cost) of a condo goes to non-discretionary expenses like property taxes, maintenance fees and ????

I'm not a buyer, and that's mostly because I move so often in my jobs, but I'm curious how the numbers shake out.

Edited February 14, 2013 by impulse

[Thereisnoif]

The only ones that can distort a market are Government and Central banks.

The government because they can promote ownership, backstop banks and granting privileges and Central Banks that can manipulate interest rates, exchange rates and privileges to other financials.

The rest is just suffering or profiting depending on which side of the balance you fall..

Yes, I'm sure those holding the empty condos are following their rational financial self interest as best they can. The empty condos point to a distortion in the market somewhere causing them to behave like that. A tax on empty condos would be a further distortion to try to correct a previous distortion. It would be better to have a free market where banks are limited in size and fail when they make the wrong bets.

The distortion is clear for anyone to see : money laundering .

The humongous amounts of dirty cash produced by the Thai society needs to go somewhere.

Destination number one : expensive cars( how come you see more BMW and Benz here than in Germany , when they are twice as expensive) .

Destination number 2 : real estate.

Quite simple .

[rgs2001uk]

Out of curiosity, what is the rule of thumb for the cost for transferring ownership of a foreigner owned property here in Thailand?

When I sold houses in the US, the rule of thumb was 10%, with 6% going to the Realtors, title searches and title insurance, misc closing costs, loan application and origination fees, inspections, etc. That was back in the '80s and may have changed since then.

Also, other than amortization and discretionary maintenance and utilities, what percent of the value (or cost) of a condo goes to non-discretionary expenses like property taxes, maintenance fees and ????

I'm not a buyer, and that's mostly because I move so often in my jobs, but I'm curious how the numbers shake out.

You aint in Kansa now Dorothy.

Rule of thumb, there are no annual property taxes, maintenance fees depend on where you buy.

Taxes on sale are seller pays everything, depending on what or where you read it, they sometimes say buyer will pay 50%

the rule of thumb was 10%, with 6% going to the Realtors, title searches and title insurance, misc closing costs, loan application and origination fees, inspections, etc

Why would 6% go to realtors, with Thai its usually 3% that the seller pays, what title searches and title insurance?

Loan fees? Sorry you have lost me there.

What inspections, buy as seen.

Seller and buyer rock up at local amphur office, its that simple.

Loan application? Most farang sales are cash.

[BlackPuddingBertha]

The distortion is clear for anyone to see : money laundering .

The humongous amounts of dirty cash produced by the Thai society needs to go somewhere.

You are forgetting all the black foreign money that is imported and finances the purchase of many farang-owned condos and houses.

[Thereisnoif]

The distortion is clear for anyone to see : money laundering .

The humongous amounts of dirty cash produced by the Thai society needs to go somewhere.

You are forgetting all the black foreign money that is imported and finances the purchase of many farang-owned condos and houses.

A drop in the ocean of dirty money created by Thai corruption

[BlackPuddingBertha]

You are forgetting all the black foreign money that is imported and finances the purchase of many farang-owned condos and houses.

A drop in the ocean of dirty money created by Thai corruption

Hmmm. I wonder.

I suspect that more than half the condos in Pattaya have been purchased with tainted imported money, and relatively few of these really belong to Thais (even when they aren't in farang name).

[Thereisnoif]

Pattaya is not Thailand . Actually it is quite the opposite .

[jcnbkk]

Talk about prices all you want. The real thing to discuss is value.

Money depreciates fast (5-10% per year) and even a condo bought for 2.2 million can be a better strategy than having cash. Even borrowing for a low interest rate will work but has a big risk.

It is not as simple as it seems. Banks are counting on the inflation, even help to create it.

It solves all problems for the ones first in line when money is created.

For the rest no inflation or small deflation is much better.

One protection is to have real estate and other things with intrinsic value.

With all due respect, let's discuss value. I've seen real estate fall by 40% almost overnight and stay that way for 5 years and counting. I saw silver drop from about $US50 an ounce to about $5 an ounce almost overnight. That was 30+ years ago and it still hasn't recovered. In the past few years I've seen the US stock market drop by about 1/2 and it still hasn't fully recovered.

I don't advocate holding much cash because you're right, it's depreciating fast. Even LOS has fundamental inflation regardless of its value against other currencies.

But when I buy a hard asset, I want to buy at the right price. I want to see my ROI now, and not count on the price rising. Buying legitimate income, and betting on prices rising are two different things to me. If the price rises, that's just a bonus.

$.02

I am grappling with the same issues. Can I ask how you figure your ROI here?