Thai Property Market: Bubble Warning As Signs Of Speculation Appear

[Locationthailand]

I always buy direct from the mortgagee in possession sales from the bank. I have never purchased a new house and it is a guaranteed bargain every time. The banks also will finance 90% to a Farang if you take one of their bad debts off the books. SCB Head Office has a property division (Ratchadaphisek Road) dealing in just this and they are inside ground floor as you go through the door. All the other banks have them as well. Don't buy from developers.

[NeverSure]

Well, there are four things the bug me, and I can't lose them. First, the Thai government can't pay its bills but wants to spend more. The PM just returned from Europe trying to sell bonds. (In another very recent news thread.) Second, I see this condo/stock market/burgeoning consumer debt/government spending as no-win except to print more money. Third, Thailand believes in borrowing for economic stimulus, as does the US and China and other countries. In my mind, even if that works, it works only as long as you borrow and spend, but then you must pay the piper. Fourth, China's economy is crashing. Has crashed is a better term, and that has to affect Thailand at some point.

Further in the back of my mind is the knowledge that both Japan and S. Korea are in a world of hurts for debt and economy.

I believe the only way out of this spending spree with Thai debt skyrocketing is to print baht. Not only is that inflationary (another way of saying that the baht loses value) but we have this new minimum wage which will ripple through the economy.

I don't know how long it will be before we see it, but Thailand is on a bubble which will burst. I don't want to own Asia right now, not even Australia.

[mickymouse1]

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.

[worgeordie]

One thing for sure they never learn from the past.and recent past at that,all down to greed.

regards Worgeordie

[tangerinehouse]

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

They( the Rating GUYS) are ALWAYS behind the Curve..Greece was Investmet Grade until erryone know that they cant pay theier Debt...It is an grat contra Indicator..if Fitch or S P downgrade Thailand to Junk in an Decade or so you can think to invest again:) If they give them another Upgrade take your Money and RUN!!!

[how241]

up,down...up, down...It's all a guessing game.

[bunnaag]

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.

Samran did not say that they are financed from cash he said as long as.....

[dcutman]

Is Asia’s Economic Boom Nothing but a Bubble?

Even as the rest of the world struggles amidst an economic slowdown,

many Asian nations have been plowing ahead. To be sure, growth has been

curtailed, but in many Asian countries it is still above 5 percent.

Optimism has fueled a borrowing and lending boom with consumers taking

on household debt and businesses taking out loans to expand their

operations. Now, some analysts are beginning to wonder if Asia’s

continued growth is merely a mirage fueled by credit and real-estate

bubbles.

The total Credit-to-GDP

level of Asia now rests at 104%, not far behind the European Unions 130%

and well ahead of the U.S. 62%. This is a marked increase for Asia

which had a credit-to-debt ratio of only 82 % just five years ago

(2007). This ratio measures bank lending to private households and

companies, largely ignoring government debts which fill the headlines.

It is an important measure for determining the fiscal health of civil

society. http://www.valuewalk.com/2012/12/is-asias-economic-boom-nothing-but-a-bubble/

The Domestic credit provided by banking sector (% of GDP) in Thailand was last reported at 150.78% in 2011, according to a World Bank report published in 2012.

Edited March 15, 2013 by dcutman

[belg]

with the euro and pound getting lesser and lesser bahts for each conversion, me thinks less people will come and spend their money here

[rubl]

The rusty, in 1997 abandoned Sahaviriya project next to Bank of Ayutthaya along RamaIII is almost cleared. Only four elevator shafts remaining. The very rusty Dome in front looked like the one in Hiroshima and had been an eye sore for more than a decade. Along major arteries other abandoned projects have slowly been removed or cleared to a level where further construction was possible. Not sure about the applicable safety standards, but this is Thailand.

Anyway with this rambling I'm just trying to say that to me the bubble has been inflated again and it can't be too long for it to burst. IMHO of course

[khunken]

with the euro and pound getting lesser and lesser bahts for each conversion, me thinks less people will come and spend their money here

From Europe - probably. But they are rapidly being replaced by Asians.

Like others in this thread, I can only rely on observation & anecdotal evidence, but with the number of high-rise condos under construction in my area & the mortgage + promo extras being offered, I'd suggest that many of the condos are being purchased by debt.

Can't see a sign of a bubble yet, but as sure as taxes & death it will come.

[kotsak]

The rusty, in 1997 abandoned Sahaviriya project next to Bank of Ayutthaya along RamaIII is almost cleared. Only four elevator shafts remaining. The very rusty Dome in front looked like the one in Hiroshima and had been an eye sore for more than a decade. Along major arteries other abandoned projects have slowly been removed or cleared to a level where further construction was possible. Not sure about the applicable safety standards, but this is Thailand.

Anyway with this rambling I'm just trying to say that to me the bubble has been inflated again and it can't be too long for it to burst. IMHO of course

Tell me about that damn building.. It's ruining my view every single moment.. And it seems that work has stopped during the past 1-2 weeks.. :/

Not to mention the amount of dust it brings every day..

[stoli]

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.

[stoli]

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

Not well.

Fitch obviously does not see a bubble in the making, or they are looking at it as I do. In the US, when the bubble burst, we screwed the US citizen with 30 year loans, and took their homes through foreclosure. Here, the market has been bought up not by Thai's, but by foreigners. If the bubble burst, although a lot of Thai's would lose their constructions jobs, would affect the foreigners more, even though their properties are usually paid in full by now. Foreclosure market would be extremely small.

[TheGhostWithin]

Samran did not say that they are financed from cash he said as long as.....

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

You do realise that "as long as", means an acceptance of a well accepted assumption? It has traditionally been communicated in western education that eastern economies are more debt free than western economies (with exceptions to Singapore and Hong Kong). However the emergence of speculation and over development exceeding population and immigration growth in places like Shanghai, Shinjin, Gougzhou, Bangkok, and several other asian cities puts this assumptive theory into question at the current state.

With Chinese battling to curb property price rises which cannot be attributed to population growth nor economic expansion (their stock market is an under performer compared to many others) and not being able to because they have interviened too late causes eyebrows to be raised. If they interveine further, I believe it will cause a "hard landing" in China, but put on the brakes too slow and prices will continue to rise, to the point in which a very small group of people control the majority of land and living access in big cities - sounds a lot like communism doesn't it.

Thailand should be looking at what is going on in China, realising they do not have anywhere near the caiptal backing that the PRC has, and starting to act now to avoid more serious pain later. Yes, it will be Somchai who hurts, but it will mostly be John and Jenny from England who were strongly advised by a foreign investment firm to buy a condo in Jomtien, or Somchai the Police Colnel who owns 15 apartments in Pattaya as an investment too.

Note of the figures also quoted above by the Pattaya Daily News, the ratio of properties owned vs. value of properties is an even split - this means it is as expensive to own a small apartment with poor fire protection and security, and low earth quake standards as it is to own your own home on soil in which you (assuming you are a Thai buyer) own. This too points to the need for a price correction - this is Bangkok, not New York. There is lots of land, and lots of rubbish buildings waiting to be busted down.

[Thereisnoif]

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.

[iluvbeaches]

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

Not well.

Fitch obviously does not see a bubble in the making, or they are looking at it as I do. In the US, when the bubble burst, we screwed the US citizen with 30 year loans, and took their homes through foreclosure. Here, the market has been bought up not by Thai's, but by foreigners. If the bubble burst, although a lot of Thai's would lose their constructions jobs, would affect the foreigners more, even though their properties are usually paid in full by now. Foreclosure market would be extremely small.

You must be kidding? Most real estate purchases in Thailand are made by foreigners?!? Not a chance. Likely overweight in areas like Pattaya, Phuket, Samui and such but on a whole I'd recon that foreign purchasers, including those via company purchases, are less than 15-20% of real estate purchases in Thailand per annum.

[chiangmaikelly]

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

Not well.

Fitch obviously does not see a bubble in the making, or they are looking at it as I do. In the US, when the bubble burst, we screwed the US citizen with 30 year loans, and took their homes through foreclosure. Here, the market has been bought up not by Thai's, but by foreigners. If the bubble burst, although a lot of Thai's would lose their constructions jobs, would affect the foreigners more, even though their properties are usually paid in full by now. Foreclosure market would be extremely small.

How do the foreigners buy land in Thailand? It's against the law.

[chiangmaikelly]

The sky is falling I get that but how do we know when it has fallen or the bubble burst? Will the baht go down against the US dollar or pound? Will interest rates spike? Will home prices sink and if so how much? I know time will tell but when is all this stuff going to happen? 1 year? 5 years? 27 years?

To sum it up, how will I know the buttle has burst?

[Unkomoncents]

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

Not well.

Fitch obviously does not see a bubble in the making, or they are looking at it as I do. In the US, when the bubble burst, we screwed the US citizen with 30 year loans, and took their homes through foreclosure. Here, the market has been bought up not by Thai's, but by foreigners. If the bubble burst, although a lot of Thai's would lose their constructions jobs, would affect the foreigners more, even though their properties are usually paid in full by now. Foreclosure market would be extremely small.

How do the foreigners buy land in Thailand? It's against the law.

Law?! In Thailand?! The short of it is that you start a company and the company buys the land.

http://www.siam-legal.com/realestate/thailand-property.php

[chiangmaikelly]

Not well.

Fitch obviously does not see a bubble in the making, or they are looking at it as I do. In the US, when the bubble burst, we screwed the US citizen with 30 year loans, and took their homes through foreclosure. Here, the market has been bought up not by Thai's, but by foreigners. If the bubble burst, although a lot of Thai's would lose their constructions jobs, would affect the foreigners more, even though their properties are usually paid in full by now. Foreclosure market would be extremely small.

How do the foreigners buy land in Thailand? It's against the law.

Law?! In Thailand?! The short of it is that you start a company and the company buys the land.

http://www.siam-legal.com/realestate/thailand-property.php

I'll let someone else tell you.

[IsaanUSA]

with the euro and pound getting lesser and lesser bahts for each conversion, me thinks less people will come and spend their money here

From Europe - probably. But they are rapidly being replaced by Asians.

Like others in this thread, I can only rely on observation & anecdotal evidence, but with the number of high-rise condos under construction in my area & the mortgage + promo extras being offered, I'd suggest that many of the condos are being purchased by debt.

Can't see a sign of a bubble yet, but as sure as taxes & death it will come.

Relying on observation, I agree with you. There are many middle class Thai's that can afford these properties. The amount of new construction is not that high compared to other countries. A US news show, 60 Minutes, recently showed a story about the market in China. They have built entire cities that sit empty because people have bought all the units as investments. Crazy. If you're interested, just go to YouTube and search "60 minutes china real estate"

[NeverSure]

with the euro and pound getting lesser and lesser bahts for each conversion, me thinks less people will come and spend their money here

From Europe - probably. But they are rapidly being replaced by Asians.

Like others in this thread, I can only rely on observation & anecdotal evidence, but with the number of high-rise condos under construction in my area & the mortgage + promo extras being offered, I'd suggest that many of the condos are being purchased by debt.

Can't see a sign of a bubble yet, but as sure as taxes & death it will come.

Relying on observation, I agree with you. There are many middle class Thai's that can afford these properties. The amount of new construction is not that high compared to other countries. A US news show, 60 Minutes, recently showed a story about the market in China. They have built entire cities that sit empty because people have bought all the units as investments. Crazy. If you're interested, just go to YouTube and search "60 minutes china real estate"

With all due respect, your observation about China doesn't go far enough. They are in the crapper. Their economy has crashed. They are communist and the government owns the means of production. The government owned "capitalist" companies are losing money.

Don't look to China to replace the income in Thailand. China has a bigger bubble than the US or Europe or Thailand ever had.

You're right about the crazy "stimulus" building that China has done, and with debt. You're right about the huge cities in the middle of nowhere that they have built and which stand empty. Their high speed rail was "stimulus" spending with debt. China is so far underwater, and the recessions in the West have cut their exports way back.

China has had to continually devalue its currency to try to maintain exports.

China is communist and therefore responsible to feed and house 1.4 billion people.

China is a military danger and the US is moving in massive amounts of armament to dissuade them from trying to take disputed lands, most notably from Japan and Taiwan.

S. Korea is in a world of hurts. Japan is also. All of Asia including Australia is up to its eyeballs in debt and spending.

Don't look to China as the savior of anything. They can't save themselves.

Edited March 15, 2013 by NeverSure

[IsaanUSA]

With all due respect, your observation about China doesn't go far enough. They are in the crapper. Their economy has crashed.

Yeah, since this is a Thai forum, I didn't want to get into that topic more. My point was that Thailand is not building as many units as other countries where there is/was a true boom/bubble.

And I bring that point up because in a lot of these property market threads people often say, "They are building so many new condos!"

Edited March 15, 2013 by IsaanUSA

[NeverSure]

With all due respect, your observation about China doesn't go far enough. They are in the crapper. Their economy has crashed.

Yeah, since this is a Thai forum, I didn't want to get into that topic more. My point was that Thailand is not building as many units as other countries where there is/was a true boom/bubble.

And I bring that point up because in a lot of these property market threads people often say, "They are building so many new condos!"

It is a Thai forum, but the problem is Asian. It is systemic Asian. Thailand can't survive a crash in China, nor is China a replacement for Thai tourism and other markets.

About the Thai condo bubble. How many articles like THIS would you like to read?

"We should be aware that a burst of the property bubble would drag down banks that have lent to land developers and home-buyers," he said.

Edited March 15, 2013 by NeverSure

[IsaanUSA]

About the Thai condo bubble. How many articles like THIS would you like to read?

"We should be aware that a burst of the property bubble would drag down banks that have lent to land developers and home-buyers," he said.

But in my personal observation, I don't see this as a bubble yet.

Also I don't like the headline of that article, "X could happen if". Anything could happen, right?

In your opinion, what's worse...the developers building projects on credit and later default or people paying the developers on credit and later default?

BTW, thanks for your replies. Usually these threads just die and no real conversation is had.

[waza]

with the euro and pound getting lesser and lesser bahts for each conversion, me thinks less people will come and spend their money here

From Europe - probably. But they are rapidly being replaced by Asians.

Like others in this thread, I can only rely on observation & anecdotal evidence, but with the number of high-rise condos under construction in my area & the mortgage + promo extras being offered, I'd suggest that many of the condos are being purchased by debt.

Can't see a sign of a bubble yet, but as sure as taxes & death it will come.

Relying on observation, I agree with you. There are many middle class Thai's that can afford these properties. The amount of new construction is not that high compared to other countries. A US news show, 60 Minutes, recently showed a story about the market in China. They have built entire cities that sit empty because people have bought all the units as investments. Crazy. If you're interested, just go to YouTube and search "60 minutes china real estate"

You are absolutely correct but its not just China, take a look at Spain et al.........

"We have spoken a lot about these ghost towns in Ireland and Spain recently [but China] is Ireland and Spain on steroids," says Kevin Doran, a senior investment fund manager at Brown Shipley in the UK.

Investment in infrastructure accounts for much of China's GDP - the country is said to have built the equivalent of Rome every two months in the past decade. And with such a large pool of labour, it is harder to put the brakes on when growth slows and supply outstrips demand.

"You have got seven to eight million people entering the workforce in China every single year, so you have to give them something to do in order to retain the legitimacy of the government," says Doran

Edited March 15, 2013 by waza

[NeverSure]

About the Thai condo bubble. How many articles like THIS would you like to read?

"We should be aware that a burst of the property bubble would drag down banks that have lent to land developers and home-buyers," he said.

But in my personal observation, I don't see this as a bubble yet.

Also I don't like the headline of that article, "X could happen if". Anything could happen, right?

In your opinion, what's worse...the developers building projects on credit and later default or people paying the developers on credit and later default?

BTW, thanks for your replies. Usually these threads just die and no real conversation is had.

Default is default and it broke the banks last time. The article has some mention of bank exposure. I don't see a difference in "who" defaults if the banks take it in the shorts.

[NeverSure]

"We have spoken a lot about these ghost towns in Ireland and Spain recently [but China] is Ireland and Spain on steroids," says Kevin Doran, a senior investment fund manager at Brown Shipley in the UK.

Investment in infrastructure accounts for much of China's GDP - the country is said to have built the equivalent of Rome every two months in the past decade. And with such a large pool of labour, it is harder to put the brakes on when growth slows and supply outstrips demand.

"You have got seven to eight million people entering the workforce in China every single year, so you have to give them something to do in order to retain the legitimacy of the government," says Doran

"You have got seven to eight million people entering the workforce in China every single year, so you have to give them something to do in order to retain the legitimacy of the government," says Doran"

Ah Ha!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

And this is at the bottom of the whole thing.

The leaders of these countries, including Thailand, have to keep pumping borrowed money into their economies to stay in power.

I think it is VERY significant that the PM of Thailand just made a whirlwind trip through Europe trying to borrow money. Oh, she couched it in terms of "Thailand is a great investment" but she was begging for loans, nonetheless.

Neither Thailand nor China is transparent with their finances. No one really knows how much is spent or where it goes. There is also massive corruption that siphons off much of what is supposed to be spent when money is borrowed. What happened to the money for flood control? What would happen to 2 trillion baht if someone would actually lend Thailand money for a dual track train system?

Without this borrowing and stimulating, the people won't be happy so spend like there's no tomorrow. In the meantime the powerful get rich by siphoning off money.

There is in fact a tomorrow. Chickens do come home to roost.

[NeverSure]

The sky is falling I get that but how do we know when it has fallen or the bubble burst? Will the baht go down against the US dollar or pound? Will interest rates spike? Will home prices sink and if so how much? I know time will tell but when is all this stuff going to happen? 1 year? 5 years? 27 years?

To sum it up, how will I know the buttle has burst?

Kelly, the bubble has usually burst a couple of years before people come out of denial. I think it has burst already, at least in several cities. Now individuals who are buying homes and especially condos are doing it because prices have been going up and "therefore will always go up."

But look at the true vacancies coupled with the non stop construction. Yes, many condos may be sold, but to investors and too often on easy credit. These people are counting on rents to pay for them, but vacancies are massive. Never in my life, not even in the US before the housing crash, have I seen so many vacancies. Yet construction goes unabated.

Sure, there are some wealthy people and some conglomerates with investor money who are building without debt. But those investors will want their money back and the piper must be paid.

If I had just built a big condo project in Bangkok or Chiang Mai with investor money and then got pressure put on me to return the money soon with a profit, or if too many investors wanted to sell their investment, I'd be the emperor with no clothes.

I think you're staring it right in the eyeballs.