Thai Property Market: Bubble Warning As Signs Of Speculation Appear

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OVERDRIVE
Bubble warning as signs of speculation appear
Thanong Khanthong



BANGKOK: -- This week we shall look at the signs of bubbles in the Thai property market, stock market and the baht. Let's start with the stock market.

Recently, UBS organised a property tour for a group of institutional investors. The group held meetings with the management of the major property developers, including Sansiri, LPN, Raimon Land and Prueksa. UBS's findings are not a surprise. It said in its report (Morning Expresso - Asia, March 14) that while it seems there is increased speculative buying in the Thai property market, this is confined not only to the condo market but also to specific segments in the condo sector.

"Based on discussions with industry experts and property companies, we believe there is increased speculative buying in the mid- to high-end condo market, but not at levels that warrant concern as yet."

Well, finally a foreign investment-banking firm has confirmed that there are signs of speculative buying in the Thai property market. Although UBS said the situation does not warrant concern as yet, the Thai authorities should monitor the property market even more closely before the speculation or bubbles go out of control. Not too long ago, Hong Kong and Singapore introduced tough measures to curb property-market speculation. Bangkok should follow suit to pre-empt a repeat of the speculative bubbles seen in the run-up to the Thai crisis in 1997.

The SET index is now trading at the 1,570 level. It is about to quadruple its value since its low of 400 in 2009. The recent sharp rise of Thai stocks is due to corporate tax cuts, improving economic conditions in Thailand and a rating upgrade by Fitch Rating. Moreover, the government's plan to invest Bt500 billion a year in mega-infrastructure projects has further fuelled the speculative buying of the grand Thai story.

The baht has been strengthening notably since the beginning of this year, rising by more than 3 per cent. It is now one of the emerging markets' darling currencies for speculative buying, for investors understand that the Thai authorities aren't likely to intervene in the foreign exchange market as aggressively as in the past to stem the baht's rise.

Dr Prasarn Trairatvorakul, the Bank of Thailand governor, said on Wednesday that the central bank is not concerned with the baht's current level. He noted that the baht may have risen because of rising investor confidence and improving economic conditions. Yesterday morning the baht was moving at Bt29.60-Bt29.65 to the US dollar.

However, the situation is rather worrisome in the baht market. Foreign investors are now borrowing cheap US dollars at a 0.30-per cent Libor rate, buying up the baht and parking the money in the bond market, which offers a higher-yield free lunch. When foreign investors bring in the dollar, they exchange the baht from the commercial banks. Since the banks can't hoard too many dollars, since they are doing business mostly in the baht, they will have to get the baht back by selling the dollar to the Bank of Thailand.

Now the central bank has to come up with baht to exchange for dollars. First, they can print fresh baht for dollars; or they can borrow baht in the money markets to exchange for dollars. The first method will compromise the central bank's monetary management to curb inflation. A baht injection will lead to higher inflation and complicate the BOT's operation to maintain the benchmark rate of 2.75 per cent. So the central bank mostly opts to borrow baht from the money market by issuing BOT bonds.

This intervention has created losses on the BOT's balance sheet because it has to shoulder the burden of paying interest for its bonds. Moreover, the dollar weakness creates loss in its portfolio.

A financial analyst told me that the central bank has gone so far as to issue short-term bonds - seven days, 14 days - in its bond market operation. This allows the foreign investors, almost risk-free, to make money from the primary bond market. They can get in and out of the BOT bond market in a hurry, since the BOT is being handcuffed in its lose-lose baht operation.

The property market, the stock market and the bond market with links to the dollar/baht exchange rates are showing signs of speculation amid the backdrop of easy money. We can expect hard times ahead if these markets are no longer sustainable.


-- The Nation 2013-03-15

[NeverSure]

The last sentence should read "when," not "if."

[Locationthailand]

The stock exchange is just another casino. All this speculation, investment, predictions, et al, and rising stocks are indicative of a flop to come. The world is not out of the woods yet. When international parties 'print money' to pay debts, then buy other currencies to hedge against the eventual collapse, the world is going to witness a correction never before experienced. The sooner the better.

[bigbamboo]

What goes up must come down..... and in the markets it's usually a case of going up by the stairs and coming down by the elevator.

[Moruya]

Nicely written article that explains very simply the risk of overheating in various markets.

I wonder how many of the condo purchases were 1st time buyers looking for their tax break and how many defaults will occur in 2013 resulting in excessive property being placed back on the market thus driving the number of empty condos for sale and at the same time driving prices down?

Thai stocks have obviously benefitted from the US and European economies flagging as well as the USD, JPY and EUR interest rates being chopped to near zero. However the US stock markets are now on the increase and the economy is on the up. Europe will eventually follow suit and the investments in Thailand will be reversed resulting in a buyers' market and pushing share prices down. Is an increase in the SET index of 300% in 4 years realistic? We'll see.

Obviously money flooding in to invest in the 2 items above results in a strong Baht and when it floods out that will reverse.

As far as the economy is concerned, unemployment is on the rise, exports are on the way down, imports are on the up. The large infrastructure projects will almost certainly result in further pressure on the balance of payments and further government debt. With the rice fiasco continuing I can see the Thai debt growing from 40% of GDP under this regime to appproaching 100% before its term is complete. The increase in the minimum wage and energy prices will continue to drive up inflation.

[samran]

So long as these asset purchases continue to be financed predominantly from cash rather than debt, the only froth and bubble are these regular stories.

[siampolee]

Comments from the P.M. stating that the Fitch upgrade will enhance Thailand's borrowing powers indicate the fact that this current maladministration is bent on miring the country and its people ito a quagmire of debt bondage..

It plainly shows that the Central Bank along with the Bank of Thailand are both playing chase my tail regarding the baht for dollars and dollars for baht, indeed a recipe for disaster for the country.

Some people are and will be making a killing,sadly those financial killings will be at the expense of Mr. and Mrs. Somchai the ordinary Thai man and woman on the street who will of course be picking up the long term bill.

Methinks this current dollar baht , baht dollar casino game is going to end up making the 1997 meltdown looking like an icicle against the emerging into sight on the horizion of the current financial iceberg,

Thaitanic Thailand is in grave danger of foundering if the correct course altering evasive actions are not taken by the captain and crew of the Thiatanic Thailand i.e. the current maladministration.

Whether or not the financial pirate crew who are getting ever closer to this current maladministration will allow those moves is indeed a ,matter of pure conjecture, the pirate puppet maser captain and his crew are more interested in pillaging the ships cargo and scuttling the Thaitanic in their relentless pursuit of money,, power and revenge.

Many of the same names are involved in this current financial piracy crew threat as were involved in the 1997 meltdown.Get ready to launch the lifeboats folks as we are soon going to need them if the appropriate evasive action is not taken.

[dcutman]

Vast Unsold Units in Five Major Thailand Provinces

Monday, 25 February 2013 14:50 Alex News - Thailand Property News

At the end of 2012,the residential inventory in major provinces showed 71,770 units worth Bt229.26 billion

Chon Buri has the highest inventory, totalling 31,340 units, worth

Bt92.43 billion. Of the total, 19,010 units worth Bt56.38 billion, are

condominium, and the rest, worth Bt36.05 billion, are low-rise

residences - single detached house and townhouse.

Phuket showed an

inventory of 7,430 units, worth Bt33.57 billion, with 4,250 units worth

Bt20.37 billion, being condominium and the rest 3,180 units worth

Bt13.2 billion being single detached houses and townhouses.

Condo projects boom in Bangkok suburbs

Published: 07/09/2012 at 5:14 AM

Category: Real Estate

Tag: Bangkok, condominium projects

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Condominium projects are mushrooming in the suburbs, supplying 64.5 per cent more units than in central Bangkok over the past 12 months.

The Nation

“With mass-transit lines extending further away from the heart of

Bangkok, a large number of new developments are popping up in new hot

spots along their paths,” Simon Derville, deputy vice president for

business development at Raimon Land, said yesterday.

“Over the past 12 months, we have seen the completion of 6,135 new

condominium units in the new development areas compared to just 3,730 in

the prime city centre. This trend looks set to continue in the

foreseeable future, with 30,100 out of 44,168 units due to be completed

in the new areas,” he said.

[submaniac]

I was thinking the same thing as the article long before. Thai real estate is smelling like the us mortgage meltdown of 2008. People (like my cousins) are getting loans when there just unqualified. With credit too easy to get this real estate boom cannot continue.

[noitom]

"bout hard times, they comin' more and more" - Eric Clapton

[dcutman]

Asia’s ticking time bombBy October 19, 2012 - 10:47am

http://www.chinadailyapac.com

While the main

focus of attention has been on Europe’s debt problems over the last four

years, it has masked another potentially damaging problem closer to

home — Asia’s growing household debt.

The Bank of Thailand (BOT) is reportedly mulling measures to prevent

“runaway household debt from threatening economic stability”.

According to BOT Deputy Governor Krirk Vanikkul, household debt in

Thailand has surged from 30 percent of household income just a few years

ago to 40-50 percent. And, The Nation newspaper cautions, this does not

include “underground borrowing”.

http://www.chinadailyapac.com/article/asias-ticking-time-bomb

[hellodolly]

Comments from the P.M. stating that the Fitch upgrade will enhance Thailand's borrowing powers indicate the fact that this current maladministration is bent on miring the country and its people ito a quagmire of debt bondage..

It plainly shows that the Central Bank along with the Bank of Thailand are both playing chase my tail regarding the baht for dollars and dollars for baht, indeed a recipe for disaster for the country.

Some people are and will be making a killing,sadly those financial killings will be at the expense of Mr. and Mrs. Somchai the ordinary Thai man and woman on the street who will of course be picking up the long term bill.

Methinks this current dollar baht , baht dollar casino game is going to end up making the 1997 meltdown looking like an icicle against the emerging into sight on the horizion of the current financial iceberg,

Thaitanic Thailand is in grave danger of foundering if the correct course altering evasive actions are not taken by the captain and crew of the Thiatanic Thailand i.e. the current maladministration.

Whether or not the financial pirate crew who are getting ever closer to this current maladministration will allow those moves is indeed a ,matter of pure conjecture, the pirate puppet maser captain and his crew are more interested in pillaging the ships cargo and scuttling the Thaitanic in their relentless pursuit of money,, power and revenge.

Many of the same names are involved in this current financial piracy crew threat as were involved in the 1997 meltdown.Get ready to launch the lifeboats folks as we are soon going to need them if the appropriate evasive action is not taken.

Not wishing harm to Thailand it would be nice to see my $s value up again.

Do we know for sure what the Government's plans are?

Remember we have a finance minister who claims it is OK to lie and a PM who says it takes a lot of investigation to get a suitable candidate for a cabinet position and yet she stuck with an admitted liar in her/him last reshuffle.

To top it all off we have a convicted criminal living outside the country coming out and issuing orders to the ruling party with no regard to the Prime Ministers position as head of the Government.

[IMA_FARANG]

So long as these asset purchases continue to be financed predominantly from cash rather than debt, the only froth and bubble are these regular stories.

------------------

Can you in fact verify that they are being financed from cash and not debt as you say?

I mean I just don't know the case, but i strongly suspect that isn't the case.

I suspect that many condo purchases anyhow are speculative and are being purchased for investment and rental.

I personally doubt that more than 50% of condo purchases are actually occupied by the owner.

To me, that's the sign of a "bubble" about to break.

[wealth]

these are all calculated moves by the (big) bankers.

it's all about of who control the debts. there's one guy in Dubai who has to push it through on a large order. he has to pay back his debts or else ...

roll back and find out of who finally controls the debt. this is slavery in the making and the best slaves are those who don't know that they are.

it all plays together, with the tax free car promotion that will submit hundreds of thousands into slavery. this is the way it works, kinda matrix.

real estate is just another chapter and just part of the game.

[samran]

So long as these asset purchases continue to be financed predominantly from cash rather than debt, the only froth and bubble are these regular stories.

------------------

Can you in fact verify that they are being financed from cash and not debt as you say?

I mean I just don't know the case, but i strongly suspect that isn't the case.

I suspect that many condo purchases anyhow are speculative and are being purchased for investment and rental.

I personally doubt that more than 50% of condo purchases are actually occupied by the owner.

To me, that's the sign of a "bubble" about to break.

I don't think there is any accurate data, so mine is just annecdotal, but I think your 50% comment proves my point. They are buy to let, and they are done by people with cash who can get a 4-5% return on realestate rather thant the derisory 1 or 2% at the bank.

[A_Traveller]

Samran, appreciate the anecdotal nature of the comment, but my impression, over the years, which may be flawed, is that there is a desultory secondary market in property [especially condos].

I wonder if you have a view on this?

Regards

[Unkomoncents]

Nicely written article that explains very simply the risk of overheating in various markets.

I wonder how many of the condo purchases were 1st time buyers looking for their tax break and how many defaults will occur in 2013 resulting in excessive property being placed back on the market thus driving the number of empty condos for sale and at the same time driving prices down?

Thai stocks have obviously benefitted from the US and European economies flagging as well as the USD, JPY and EUR interest rates being chopped to near zero. However the US stock markets are now on the increase and the economy is on the up. Europe will eventually follow suit and the investments in Thailand will be reversed resulting in a buyers' market and pushing share prices down. Is an increase in the SET index of 300% in 4 years realistic? We'll see.

Obviously money flooding in to invest in the 2 items above results in a strong Baht and when it floods out that will reverse.

As far as the economy is concerned, unemployment is on the rise, exports are on the way down, imports are on the up. The large infrastructure projects will almost certainly result in further pressure on the balance of payments and further government debt. With the rice fiasco continuing I can see the Thai debt growing from 40% of GDP under this regime to appproaching 100% before its term is complete. The increase in the minimum wage and energy prices will continue to drive up inflation.

Property prices in Thailand have a funny way of not going down the way they do in pretty much any other market after a bubble bursts (see prices after the '97 Crash). Hard to account for it except to say that Thais are very reluctant to sell at a loss, even if it means taking out loans from unsavory high-interest loan providers. I suppose perhaps it's a loss of face thing coupled with the fact that there are no property taxes in the Kingdom. This means that sellers have little incentive to accept lower offers regardless of market conditions. Thais will hold on to property, regardless of whether it is generating any income, for an eternity. They are patient people.

Edited March 15, 2013 by Unkomoncents

[tangerinehouse]

The Stock Market is in an Bubble for shure..With PE between 40and 100 you
pay up to 100 Year !!Earnings for many Companies here..and as i stay
here daily at an local Broker i see every day the people come here an
open Accounts ..Even some Motorbike taxi Drivers flocked in ...and want
to become rich quick as they hear from other people that there is an
sooooo easy way to make money..... What is not an very good Sign.. My
Feeling is it can go an bit higher from here..but over an Period over
1-2 Years i will give you an Guarantee that you will loose your last
Shirt if you Buy and Hold now: ) I stay here at the Stock market for at
least 15 Years but what is happen in the last 2 Month or so is
Insane.....

Edited March 15, 2013 by tangerinehouse

[farangme]

Property speculation...ya think? Just count the empty properties that have never been occupied and have for sale signs on them. Maybe they will offer two for one deals: buy a repoed house and get a repoed car thrown in.

[samran]

Samran, appreciate the anecdotal nature of the comment, but my impression, over the years, which may be flawed, is that there is a desultory secondary market in property [especially condos].

I wonder if you have a view on this?

Regards

I had some friends of the family explain this to me and laid out the maths.

They won't sell and are happy to leave their apparments empty if the rent offered isn't right. Doing this, being patient, and getting the rent they want, their money will return better than 4 or 5% over time, which is better than a bank deposit. So they park their money there and this is an incentive to.

None of these places are leveraged and they have to be the right property, of course.

[Robby nz]

How does this and the other 2 topics on the Thai economy on todays news fit with he recent Fitch upgrade?

[hellodolly]

Nicely written article that explains very simply the risk of overheating in various markets.

I wonder how many of the condo purchases were 1st time buyers looking for their tax break and how many defaults will occur in 2013 resulting in excessive property being placed back on the market thus driving the number of empty condos for sale and at the same time driving prices down?

Thai stocks have obviously benefitted from the US and European economies flagging as well as the USD, JPY and EUR interest rates being chopped to near zero. However the US stock markets are now on the increase and the economy is on the up. Europe will eventually follow suit and the investments in Thailand will be reversed resulting in a buyers' market and pushing share prices down. Is an increase in the SET index of 300% in 4 years realistic? We'll see.

Obviously money flooding in to invest in the 2 items above results in a strong Baht and when it floods out that will reverse.

As far as the economy is concerned, unemployment is on the rise, exports are on the way down, imports are on the up. The large infrastructure projects will almost certainly result in further pressure on the balance of payments and further government debt. With the rice fiasco continuing I can see the Thai debt growing from 40% of GDP under this regime to appproaching 100% before its term is complete. The increase in the minimum wage and energy prices will continue to drive up inflation.

Property prices in Thailand have a funny way of not going down the way they do in pretty much any other market after a bubble bursts (see prices after the '97 Crash). Hard to account for it except to say that Thais are very reluctant to sell at a loss, even if it means taking out loans from unsavory high-interest loan providers. I suppose perhaps it's a loss of face thing coupled with the fact that there are no property taxes in the Kingdom. This means that sellers have little incentive to accept lower offers regardless of market conditions. Thais will hold on to property, regardless of whether it is generating any income, for an eternity. They are patient people.

No property tax is defiantly a bad thing here. People who have paid off the mortgage have nothing to lose by letting the property sit idle. Make them pay a tax on it and they might not be so happy just sitting on it.

It would also help to raise money for the Government.

On the down side of it what would the Government do with it buy rice?

[laislica]

these are all calculated moves by the (big) bankers.

it's all about of who control the debts. there's one guy in Dubai who has to push it through on a large order. he has to pay back his debts or else ...

roll back and find out of who finally controls the debt. this is slavery in the making and the best slaves are those who don't know that they are.

it all plays together, with the tax free car promotion that will submit hundreds of thousands into slavery. this is the way it works, kinda matrix.

real estate is just another chapter and just part of the game.

I couldn't agree more.

In the Thatcher years, the people were encouraged to buy their rent controlled council houses.

This got them nicely into the poverty trap as slaves.

They are then too busy to even notice what is going on around them.

How civil liberties are being eroded - gotta earn money to pay the mortgage.

The Deeds to a property are not ownership papers, more like a maintenance contract and a positioning trap.

If you want to move to a new area to get a better job, you have to sell first and this may not be easy.

A nice fixed, dependant work force for the Big Boys!

Add to that hire purchase agreements for household goods, the car(s) and motorcycle and people are so trapped, they must not make waves, just keep the head down and do as they are told.

[hellodolly]

Samran, appreciate the anecdotal nature of the comment, but my impression, over the years, which may be flawed, is that there is a desultory secondary market in property [especially condos].

I wonder if you have a view on this?

Regards

I had some friends of the family explain this to me and laid out the maths.

They won't sell and are happy to leave their apparments empty if the rent offered isn't right. Doing this, being patient, and getting the rent they want, their money will return better than 4 or 5% over time, which is better than a bank deposit. So they park their money there and this is an incentive to.

None of these places are leveraged and they have to be the right property, of course.

How long did they say the property sat idle. Here in Chiang Mai we have them sitting idle so long they are collapsing. One month is far different than one year.

Even using their math were they sure the property was going to stay rented for the length of time to make the 4% to 5 % profit.

[hellodolly]

Samran, appreciate the anecdotal nature of the comment, but my impression, over the years, which may be flawed, is that there is a desultory secondary market in property [especially condos].

I wonder if you have a view on this?

Regards

I had some friends of the family explain this to me and laid out the maths.

They won't sell and are happy to leave their apparments empty if the rent offered isn't right. Doing this, being patient, and getting the rent they want, their money will return better than 4 or 5% over time, which is better than a bank deposit. So they park their money there and this is an incentive to.

None of these places are leveraged and they have to be the right property, of course.

How long did they say the property sat idle. Here in Chiang Mai we have them sitting idle so long they are collapsing. One month is far different than one year.

Even using their math were they sure the property was going to stay rented for the length of time to make the 4% to 5 % profit.

[NeverSure]

Well, in 97 the banks took big hits on real estate loans. They didn't want to write off condos as losses by actually selling at a loss, so many of those still sit empty and uncompleted. No loss, you see.

If a private citizen has a loan he can't repay, he loses his farm or his pickup or whatever he put up for collateral.

[NeverSure]

How does this and the other 2 topics on the Thai economy on todays news fit with he recent Fitch upgrade?

Not well.

[A Member]

The last sentence should read "when," not "if."

The last sentence should read "when," not "if."

The last sentence should read "when," not "if."

I'm no expert on property or financial markets and base my thoughts on the theatrical bent of the Thais as in " it will be alright on the night " so they happily wait until it's too late and of course it isn't alright

[asiamaster]

I suppose the big boys are ready to take the money and run. Cash in -convert to foreign exchange at the current high exchange rate - and let the game begin again...

[Thai at Heart]

So long as these asset purchases continue to be financed predominantly from cash rather than debt, the only froth and bubble are these regular stories.

------------------

Can you in fact verify that they are being financed from cash and not debt as you say?

I mean I just don't know the case, but i strongly suspect that isn't the case.

I suspect that many condo purchases anyhow are speculative and are being purchased for investment and rental.

I personally doubt that more than 50% of condo purchases are actually occupied by the owner.

To me, that's the sign of a "bubble" about to break.

If anyone had seen feeding frenzy in my up country town for of plan purchase in a massive new Apartment block, one would agree it is verging on a bubble.

All the down payment was financed with freshly issued credit cards and the next day 50 percent were bring flicked for a clip.