Thai Property Market: Bubble Warning As Signs Of Speculation Appear

[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.

I certainly agree with most of your comments, except where you say unemployment is on the rise. True, because of the cost of the minimum wage, some jobs will be lost as some business' just can't afford it. On the other side, too many business' are telling me that they can not find needed employees, so I imagine there is a home for many of these folks, if not all. If the construction industry does collapse on a bubble, as it did in the US, you will certainly see unemployment rise through the roof. Even in Thailand, this is a good paying job, and the effect will be felt nationwide.

If you can make head or tail of this it might help http://www.bot.or.th/English/Statistics/Indicators/Docs/tab16.pdf

[harryfrompattaya]

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.

This is the dream of people that rent

Real estate in Thailand better that gold

Remember buy buy buy

[samran]

This studied account of 1995-1997 reads like an exact repeat of today to me. Link

So does this. Link.

It isn't reasonable to say that real estate values didn't drop in 1997. There are too many factors at work. The Thai baht depreciated almost 80% against the dollar, meaning that I could have taken at most 25% as many dollars and bought a condo. Worldwide, that's certainly a drop in value of the property. A huge drop.

Also, Thailand was not willing to write off losses on real estate. There are many condo projects from 1997 still standing as ghost reminders of the crash. If they wouldn't sell for the anticipated price, then I have to say the value dropped. Some of those projects were and are still being demolished. Surely that's a loss of value.

But mostly, lenders foreclosed and then didn't sell because they couldn't sell for enough to pay off the loan. They didn't want to write off the loan as a bad debt and ruin the bank's supposed but corrupt balance sheet. The Thai government borrowed money from the IMF, some of it still owed, and bailed out its banks. The collateral for the condo loans sat and rotted just as rice is rotting in warehouses.

By the way, has it occurred to anyone that the price of rice hasn't gone down either? It is the Thai way. Pay my price or I'll let it rot.

So on the surface it may have appeared that prices didn't go down much, but there weren't buyers at the asking price either. There just weren't sales. Had there been sales, the prices surely would have been lower. If you had owned a condo and wanted to sell it you surely would have had to accept a lower price. Sales dried up.

Thailand is in exactly the same position, and doing exactly the same wrong things as 1995 and 1996 and those reports linked above explain it.

I just don't know when 1997 will arrive again.

Big difference is that exchange rates aren't fixed artificially low and people aren't borrowing offshore at ridiculously low rates.

[NeverSure]

This studied account of 1995-1997 reads like an exact repeat of today to me. Link

So does this. Link.

It isn't reasonable to say that real estate values didn't drop in 1997. There are too many factors at work. The Thai baht depreciated almost 80% against the dollar, meaning that I could have taken at most 25% as many dollars and bought a condo. Worldwide, that's certainly a drop in value of the property. A huge drop.

Also, Thailand was not willing to write off losses on real estate. There are many condo projects from 1997 still standing as ghost reminders of the crash. If they wouldn't sell for the anticipated price, then I have to say the value dropped. Some of those projects were and are still being demolished. Surely that's a loss of value.

But mostly, lenders foreclosed and then didn't sell because they couldn't sell for enough to pay off the loan. They didn't want to write off the loan as a bad debt and ruin the bank's supposed but corrupt balance sheet. The Thai government borrowed money from the IMF, some of it still owed, and bailed out its banks. The collateral for the condo loans sat and rotted just as rice is rotting in warehouses.

By the way, has it occurred to anyone that the price of rice hasn't gone down either? It is the Thai way. Pay my price or I'll let it rot.

So on the surface it may have appeared that prices didn't go down much, but there weren't buyers at the asking price either. There just weren't sales. Had there been sales, the prices surely would have been lower. If you had owned a condo and wanted to sell it you surely would have had to accept a lower price. Sales dried up.

Thailand is in exactly the same position, and doing exactly the same wrong things as 1995 and 1996 and those reports linked above explain it.

I just don't know when 1997 will arrive again.

Big difference is that exchange rates aren't fixed artificially low and people aren't borrowing offshore at ridiculously low rates.

Well maybe I'm not outta here quite yet. Every country is manipulating its currency to gain trade advantage. And there is massive offshore borrowing at ridiculously low rates. Interest rates in the US are near zero. People are borrowing against US assets and bringing the money to Thailand to gain a couple of points. Then the Thai banks are awash in cash - foreign money.

1. In banking, unlike any other business, cash on hand is a liability. It is owed to a depositor. Those depositors can get nervous and all want their money back right now. The bank doesn't have it because it loaned it out.

2. I'm sure you know all about Fractional Reserve Banking where new deposits are leveraged inside a balloon.

[cheeryble]

The Stock Market is in an Bubble for shure..With PE between 40and 100 you

pay up to 100 Year !!.....

P/E of the SET = 18.66.

[chiangmaikelly]

The Stock Market is in an Bubble for shure..With PE between 40and 100 you

pay up to 100 Year !!.....

P/E of the SET = 18.66.

[BlackJack]

possibly soon the Thai Gov will introduce 90 year leases on house, land, condos as the way it stands now the system is handicapped by allowing foreigners to only own 49% of a condo block.

then to get a house and land foreigners have to do the shonky and start a co and stack the proxies

if the 90 years lease is brought in I think you will see some comfort factor in the housing bubble.

another point is that the Worlds gone on a money printing binge and USA is the worst of the worst. So other countries are following suit - the latest being Japan - after all they have been in a recession for 20 years - so now try the old inflate your way out.

start the printing presses I say

wait 12 months and pull your money out and get into metals

the only thing that has withstood the test of time

Edited March 16, 2013 by BlackJack

[Thai at Heart]

I don't personally think that Thai economics defy logic. I think that Thais defy logic.

No one has repealed the law of supply and demand. I read the scholarly studies on 1995 - 1997 in Thailand (and Asia) and they read exactly like what's happening right now. I posted a couple of links above. They read as if they were written about today, but they are about 1997.

The laws of reality caught up with Thailand and Thailand crashed. The baht really crashed. The government borrowed money "off the books" from the IMF to bail out banks, and they still haven't paid it back.

Politicians won't take responsibility for what's happening because responsibility doesn't buy votes. Thailand is looking all over the world for money to borrow for the government, to spend even more into debt. When they do borrow and spend there is so much corruption that who knows where the money really goes. Who knows the real condition of the banks?

The 1997 crash occurred because Thailand had low reserves of foreign currency. Now it has more foreign currency reserve than the USA and three times as much as Canada and Australia. http://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves

Maybe a short course in the crash of 1997 s in order.

There can be a crisis, but it will be a different form to 97.

[rattler]

as an outsider with an interest in the property market in thailand I see that bubble thingy is well overdue.I predicted that to burst back in 2010November given it 3 to 6 month.I was wrong and it carried on blwoing even bigger and bigger with more condos rising up into the BKK sky.

The price per m2 is ridiculouslyy high and when we look at purchasing price v income from rental it is not wise to go that way but to rely on an annual property value increase of 20%.This speculative moves will indeed come to an end and very soon.

I agree with you and the only reason why the bubble hasn't burst and probably won't is that the main driver of the thai real estate market is money laundering .

People don't care to buy units that never will be rented,will never produce any ROI, they have achieved what they wanted : launder dirty cash .

Quite simple.

One can only "launder" money in the Property Market if it is possible to sell the Property bought with the "dirty money" fairly quickly and easily..

By and large this is not possible in Thailand because new Properties are coming on the Market all the time and the Thai attitude is to buy new, not second hand.

Patrick

Tripe, my Wife sells condos, Thais happy to buy secondhand, and she earns very well from it too

[Scully]

I am sorry but not have read all the thread, the whole point of land and property being at a certain price is so locals can afford a place to live and not overspend. Look at America and Europe banks lend money nobody can afford to pay back,

Thailanad is different because complete families stay together but there is still a boom happning and calculating how people can afford a home in the west is usually from the average wage.

Whats the Thai average wage?

A minimum wage single person is going to not only struggle to rent but also buy a home, yes there is a booming economy but it regional, but land price is excessive Thailand over.

London house prices way out of reach for the average wage go up north it's affordable, Bangkok prices way out of reach for the average wage go to Isaan and it's unafordable for most.That is the sign of a bubble.

[p_brownstone]

as an outsider with an interest in the property market in thailand I see that bubble thingy is well overdue.I predicted that to burst back in 2010November given it 3 to 6 month.I was wrong and it carried on blwoing even bigger and bigger with more condos rising up into the BKK sky.

The price per m2 is ridiculouslyy high and when we look at purchasing price v income from rental it is not wise to go that way but to rely on an annual property value increase of 20%.This speculative moves will indeed come to an end and very soon.

I agree with you and the only reason why the bubble hasn't burst and probably won't is that the main driver of the thai real estate market is money laundering .

People don't care to buy units that never will be rented,will never produce any ROI, they have achieved what they wanted : launder dirty cash .

Quite simple.

One can only "launder" money in the Property Market if it is possible to sell the Property bought with the "dirty money" fairly quickly and easily..

By and large this is not possible in Thailand because new Properties are coming on the Market all the time and the Thai attitude is to buy new, not second hand.

Patrick

Tripe, my Wife sells condos, Thais happy to buy secondhand, and she earns very well from it too

1) Why do people find it necessary to be aggressive and offensive when Posting?

You could have made your point and contested my opinion equally well and omitted the first word.

2) I did not say "all Thais" will only buy new property, certainly some will buy second hand but new constructions are much preferred.

Patrick

[cheeryble]

Whats the Thai average wage?

A minimum wage single person is going to not only struggle to rent but also buy a home, yes there is a booming economy but it regional, but land price is excessive Thailand over.

.

I believe looking at the average is not helpful.

There is a much larger discrepancy of wealth here, and condos and fancy are a much smaller portion of the available dwellings and are going to be bought by people with much higher than "average" means. I know lots of Thai condo owners and I would say they are all from at least a somewhat privileged class.

Edited March 17, 2013 by cheeryble

[submaniac]

Thais don't like to buy used condos. Doesn't mean that they do not do it. It's like buying a second hand car. Why would you buy a model that's a few years old if you can afford to get the latest and greatest model? And people in Thailand are selling used condos for about the same price as a new condo. Secondly the dislike of used condos does not necessarily apply to the sale of land or houses. Thais aren't limited to condos. If you want a house most likely you will have to go used if you want to be in the more central locations. Because the land has already been used up in central locations. And my place in thonburi---4 floor shophouse--was less than what people are paying for condos.