When Will The Chiang Mai Building Bubble Burst?

[cheeryble]

Bubbles in Thailand don't burst, they just deflate,the value of property never really falls

like it does in Europe or U.S.A.

regards Worgeordie

This may be because although it may seem the Thais are in debt what we see is trinkets like mobile phones and people stretching to buy cars.

Let's look where the big debt is.

Maybe the fact is that the west is FAR more sensitive to debt as a much larger proportion of homes are up to the hilt in mortgage......whereas in Thailand many people inherit, and if the rubber hits the road they will all have a family home to go back to.

Add to that I'd suggest the houses and condos we see going up still only will cater to a very small proportion of the population here, generally those who come from families with some means. As opposed to the west where everyone expects a "proper" house (and mortgage).

[Eyjafjallajokull]

What usually happens is

The properties with loans outstanding get repossessed and left to rot by the banks who are not allowed to sell at below outstanding loan price.

The properties owned outright purchased as investments are left to rot, can't sell, won't lower price.

Many condo developments and moobaans around ChiangMai still left derelict from the 1990s crash.

You are spot on!

[WinnieTheKhwai]

What usually happens is

The properties with loans outstanding get repossessed and left to rot by the banks who are not allowed to sell at below outstanding loan price.

The properties owned outright purchased as investments are left to rot, can't sell, won't lower price.

Many condo developments and moobaans around ChiangMai still left derelict from the 1990s crash.

You are spot on!

About the first part, yes. About the final part, developments still left derelict from the 1990s crash, I think there is a little more to it.

First of all, what is a bubble: A bubble is when there is (in hindsight) an unreasonable perception of value that's only based on speculation and hype, not on true value.

For example, during the dot-com bubble, some investors believed that anyone with a website ending in ".com" would be raking in the money, based on some early Internet success stories. Then only later people realized that a website really is nothing if you don't have an appealing business model behind it. That's why Amazon.com is indeed still big, but others just disappeared. In short, if the core value is there, it's worth investing regardless of being in a general bubble in a particular sector.

So if there are properties still derelict from the late 1990's crash then it's NOT because there was a bubble, or because of the crash, but because those developments sucked big fat donkey balls to begin with. Properties built in the 1990's that were nice are doing just fine. The development where I live was started during that time, and there isn't a single house empty.

Price wise I think land within a 20 minute drive from downtown Chiang Mai is priced a bit high, but not outrageously so. Existing houses are mostly not overpriced IMHO, and Condominiums (like I showed above in the comparison with Pattaya) are perhaps a little high -esp. given the competition from more reasonably priced houses- but again not outrageously so. This is speaking in general; buying in a very high-end but un-proven condominium in Chiang Mai is a bit of a risk. But spending 1.5-2.5 mil on a condominium in the larger CMU area (incl. Suthep Rd) in a building that looks otherwise okay really won't suddenly turn into nothing. Especially not if it's a property you actually live in; even if an economic crash comes along, the properties that were truly nice all along will bounce back in value just fine.

Edited March 31, 2013 by WinnieTheKhwai

[cheeryble]

Many condo developments and moobaans around ChiangMai still left derelict from the 1990s crash.

those developments sucked big fat donkey balls to begin with.

......ha-ha!

I think the half built condo north of Chiangmai up the river was way too far out of town at that period of time.....it's still a long way out.

The one called Lily Valley in Chang Kian was certainly not central back then, but far worse I heard they built it 6 floors too high and were officially stopped in their tracks as they were in the flight path from CNX. (unverified).

I guess they sucked big fat donkey balls.

[Thighlander]

the land office says that Silom properties are 850,000 per wah. Then, there is that 1200 wah on Sukhumvit that sold for 1,200,000,000. How can you possibly compare with CM?

[cheeryble]

the land office says that Silom properties are 850,000 per wah. Then, there is that 1200 wah on Sukhumvit that sold for 1,200,000,000. How can you possibly compare with CM?

Now why would you ruin a good story with facts Thighlander?

ps Chang Kian prices from 12k to 25k per wah(cheapest I've seen last three years 7500)

Guessing one or two "prime" spots like near Nimmanhemin could be more hope they provide free earplugs.

[CobraSnakeNecktie]

Thailand just keeps going farther into debt, and no one knows the actual amount.

Actually household debt figures are available as it's of such concern to you perhaps you could dig them out for us?

Then you'll know if they are looking dangerous or as is more common a stimulus to growth and added prosperity for all.

Just curious. Cheeryble.. How much of your investment portfolio is in CM real estate projects?

[nikster]

Initially it seems strange that so much money is going into the development of the land on the ring roads and very little, apart from boutique hotels, into the old city. However, I discovered while looking for property that most plots of land have strict building restrictions applied to them.

Not only the building restrictions are pushing development outwards, but even more so land prices. Land inside the moat area is now more expensive than land in the inner city of Frankfurt, Cologne, or Munich, which is just plain crazy, because compared to these German cities, Chiang Mai offers just a fraction of the infrastructure, local purchase power, and level of economic development. This makes it of course very unattractive for investors, considering that you can't even build high-rise structures due to building regulations.

Hence, the developers are forced to move outwards due to market prices. Land within the superhighway boundaries and even up to the inner ring road is already too expensive for low density residential development. So, the Moo Baans are now being built around the outer ring road and beyond. The commercial development usually follows within a few years and it has now reached the ring roads. Obviously, this urban sprawl is fuelled by sheer greed, which in case of Chiang Mai has reached astonishing proportions.

Since hoarding land doesn't cost much in Thailand and zoning laws aren't enforced strictly, the result is not just urban sprawl, but also to patchy and uncontrolled development with lots of undeveloped spaces in between and a chaotic mix of industrial, residential, and commercial use. A familiar pattern... If continued, Chiang Mai might become the L.A. of Thailand.

The LA of Thailand? I much closer estimation is a second Bangkok. Bangkok is exactly what happens if there's zero planning.

CM won't be as big or important as BKK any time soon (or ever) but the sprawl-spread should work in similar ways.

I am not sure about a building bubble myself; there is a crazy amount of development going on of course; but the better moo baans seem to sell our relatively quickly, at relatively high prices. That giant new Land & House project near Mae Hia has sold out the first sub-moo-baan and is about to start building the second; first one was houses from 5-11M; that one's sold out except for a few small homes. Second one has started sales and will be 10 - 15M.

Traffic on canal road won't be pretty if they go through with the entire thing - it's about 5 moo baans plus one condo.

That's Serene Lake, the entrance looks like it's for an enormous temple...

I am not sure one can say that all this buying is speculation - what sort of speculation? The houses themselves lose value; rental income is low compared to the price.

[binjalin]

What usually happens is

The properties with loans outstanding get repossessed and left to rot by the banks who are not allowed to sell at below outstanding loan price.

The properties owned outright purchased as investments are left to rot, can't sell, won't lower price.

Many condo developments and moobaans around ChiangMai still left derelict from the 1990s crash.

You are spot on!

that is true - but it's a weird thing that banks cannot sell as they don't want to lose the asset off their books - but that is NOT indicative of the boom in Chiang Mai which is mainly due to the floods and troubles in krung thep and I don't think is about to burst anytime soon

[kaptainrob]

Urbana+2 off Hang Dong Road, Mae Hia, behind Land Transport Office land is priced in @ 25k per wah, building cost incl fences, drive, but NO kitchen = 15,000 per sq/m. IMHO that's expensive.... nice development, pity it's 500m below CNX flight path.

Ban Wangtan land in section 5 (~ 100 wah) @ 13,000 Bt/wah ... much of it cannot be built on due to old khlong's (drainage easements) running through or behind the properties.

Local developers and vendors are pushing prices higher in the belief there's a huge demand ... which there is for KKN/Land & House type developments - 90% purchased by BKK investors.

[bluweyze]

While we're speculating about speculation, here's my guess at answering the original question "when will the bubble burst?"

Second half of 2013/ first half of 2014, when national events trigger new political violence, foreign investors balk, new possible concurrent Singapore property bubble pops, and the dominoes start to tip. Probably not as bad as '97, but a correction nonetheless.

I figure there's about a 30% chance this is correct.

so mathematically you consider that your own prediction is incorrect!

[VegasVic]

For the OP, I agree with your observations. Market forces & the laws of economics have not been suspended. Citing the South Florida market is relevant, since prices dropped by 50% in the recent real estate crash. Same with Las Vegas. When the banks stop getting their money & become insolvent, at that point it becomes impossible to sweep problems under the rug with any kind of smoke & mirrors (or dust and mirrors, as they say in CM).

Several people mentioned Chinese money, but in the meantime China is experiencing the Mother of all Bubbles. They not only have empty condos, they have entire empty cities! Expressways with no one driving, shopping malls empty, thousands of unoccupied condos -- all being bought by city-dwellers who never even come to see their new properties. I heard something like 20 new cities built each year, with no one living there. You can find video reports online. This cannot be sustained even in a regime such as theirs. When they experience their own collapse, they will not be coming to Thailand to branch out.. they will be licking their own wounds at home.

As to when... who knows? If it could be predicted, that in itself would probably cause immediate collapse. So it's just as well that it's unpredictable. I've been looking for the bubble to burst these past several years and still see no signs of a let up, only manic building & buying. I'm patient & I'm willing to sit it out as long as necessary and one of these days snap up some cheap properties.

USNret, You have an outstanding grasp of the facts and your instincts are spot on. The Chinese real estate market is a disaster waiting to happen and has been so since before the Olympics(it is truely the elephant in the room that everyone pretends doesn't exist)! When 3D printing begins in earnest on an industrial level, China will lose millions of manufacturing jobs literally overnight and the multitude of uninhabited cities in China will see new (non paying) tenants (squaters) residing in them. Thailand once again is just a pawn in this international game of cheap money, as the U.S., E.U., and Japan flood the world with currency from their printing presses. Once the interest rates begin to rise in the U.S. (sooner than everyone thinks) , the E.U. and Japan will follow and as curencies repatriate back to their countries of origin then countries like Thailand that have had substantial international investment and sizeable curency inflation over the past 8-10years will reverse course! Will it be as bad as in 1997, thats anybodys guess but I certainly hope not. There are two things we know to be accurate from the financial history of the world, (1) never chase an irrational market trying to achieve unsustainable returns, and on the flip side (2) an irrational market can last longer than your investment Dollars (betting against it) can! My personal feeling is that the U.S. equity markets are in a topping phase and the FED may very well start increasing rates 9-12 months hence, all else will follow as it always does.

[AnotherOneAmerican]

that is true - but it's a weird thing that banks cannot sell as they don't want to lose the asset off their books - but that is NOT indicative of the boom in Chiang Mai which is mainly due to the floods and troubles in krung thep and I don't think is about to burst anytime soon

Law passed after the last crash, banks not allowed to sell repossessed properties below outstanding loan amount.

(I may be wrong)

[AnotherOneAmerican]

Local developers and vendors are pushing prices higher in the belief there's a huge demand ... which there is for KKN/Land & House type developments - 90% purchased by BKK investors.

KKN sales are mainly to CM locals, well that's certainly true of the Mae Rim and MaeJo developments, when I visit their offices.

Hang Dong may be different, I have never visited that site, don't like that side of town much.

[WinnieTheKhwai]

While we're speculating about speculation, here's my guess at answering the original question "when will the bubble burst?"

Second half of 2013/ first half of 2014, when national events trigger new political violence, foreign investors balk, new possible concurrent Singapore property bubble pops, and the dominoes start to tip. Probably not as bad as '97, but a correction nonetheless.

I figure there's about a 30% chance this is correct.

so mathematically you consider that your own prediction is incorrect!

No, he consideres it the most likely one among many other scenarios that together make up 70%, but individually rank lower.

( Of course we will want to see the others itemized as well. )

[elektrified]

that is true - but it's a weird thing that banks cannot sell as they don't want to lose the asset off their books - but that is NOT indicative of the boom in Chiang Mai which is mainly due to the floods and troubles in krung thep and I don't think is about to burst anytime soon

Law passed after the last crash, banks not allowed to sell repossessed properties below outstanding loan amount.

(I may be wrong)

I think you are right. I observed a court-conducted auction last week and was wondering why the lenders were able to object to certain properties being sold for too low a price. As I understood the process, the bidders were invited (required if active bidders) to return the following week to continue bidding with hopefully more bidders to drive the price up. It was an unusual process to see the lenders acting as shills.

[elektrified]

For the OP, I agree with your observations. Market forces & the laws of economics have not been suspended. Citing the South Florida market is relevant, since prices dropped by 50% in the recent real estate crash. Same with Las Vegas. When the banks stop getting their money & become insolvent, at that point it becomes impossible to sweep problems under the rug with any kind of smoke & mirrors (or dust and mirrors, as they say in CM).

Several people mentioned Chinese money, but in the meantime China is experiencing the Mother of all Bubbles. They not only have empty condos, they have entire empty cities! Expressways with no one driving, shopping malls empty, thousands of unoccupied condos -- all being bought by city-dwellers who never even come to see their new properties. I heard something like 20 new cities built each year, with no one living there. You can find video reports online. This cannot be sustained even in a regime such as theirs. When they experience their own collapse, they will not be coming to Thailand to branch out.. they will be licking their own wounds at home.

As to when... who knows? If it could be predicted, that in itself would probably cause immediate collapse. So it's just as well that it's unpredictable. I've been looking for the bubble to burst these past several years and still see no signs of a let up, only manic building & buying. I'm patient & I'm willing to sit it out as long as necessary and one of these days snap up some cheap properties.

USNret, You have an outstanding grasp of the facts and your instincts are spot on. The Chinese real estate market is a disaster waiting to happen and has been so since before the Olympics(it is truely the elephant in the room that everyone pretends doesn't exist)! When 3D printing begins in earnest on an industrial level, China will lose millions of manufacturing jobs literally overnight and the multitude of uninhabited cities in China will see new (non paying) tenants (squaters) residing in them. Thailand once again is just a pawn in this international game of cheap money, as the U.S., E.U., and Japan flood the world with currency from their printing presses. Once the interest rates begin to rise in the U.S. (sooner than everyone thinks) , the E.U. and Japan will follow and as curencies repatriate back to their countries of origin then countries like Thailand that have had substantial international investment and sizeable curency inflation over the past 8-10years will reverse course! Will it be as bad as in 1997, thats anybodys guess but I certainly hope not. There are two things we know to be accurate from the financial history of the world, (1) never chase an irrational market trying to achieve unsustainable returns, and on the flip side (2) an irrational market can last longer than your investment Dollars (betting against it) can! My personal feeling is that the U.S. equity markets are in a topping phase and the FED may very well start increasing rates 9-12 months hence, all else will follow as it always does.

Although I don't understand the 3D printing thing or what it means, the rest of the scenario is pretty much how I see things, more or less.

"(1) never chase an irrational market trying to achieve unsustainable returns..." That is so true. Just look at history, people. If something looks to good to be true, then it is.

I've seen people on this forum say things like "I just bought 9 condos and want to buy more...", "prices are cheap and will only go up", etc., etc., etc. Remember old Alan Greenspan and his phrase "irrational exuberance" just before the dot.com bubble in the late 1990's ? I too, was buying dot.com stocks like crazy at the time. I was a "paper USD millionaire" at the time, getting up each morning to turn on the computer and log-in to my E-trade account and smile at how my net worth had increased by US $100,000.00 overnight. In the end I when the market crashed I lost 50-70% on some of the investments overnight.

[elektrified]

I guess I should have said that unlike the dot.com bubble, I don't expect C.M. real estate prices to drop 50-70% overnight. But there will be a correction. How much? I have no idea. One thing for sure, what goes up must come down.

[CobraSnakeNecktie]

3D printing if realized could severely hammer China and other cheap labor markets like Thailand. The question is if and when.

It's a good subject to get up on and it's legit deck shuffling revolution in the making.

It's possible China/Thailand etc adopts 3D printing and just drop ships final products to the developed countries until the technology really allows local production. Doesn't necessarily have to be China's worst nightmare on steroids and a hundred cups of coffee.

There are still labor issues like monitoring and finishing products that could benefit cheap labor markets.

All serious investors should study about 3D printing.

[cheeryble]

One thing for sure, what goes up must come down.

Edited April 2, 2013 by cheeryble

[elektrified]

One thing for sure, what goes up must come down.

Nice one. I don't know how to capture the S&P index chart from 2007-2010 because most websites don't allow copying the chart. But if you post that graphic, it's a much less rosy picture.

How much of your portfolio do you have in C.M. real estate?

[cheeryble]

Hi Elektrified

I find it most informative to look at the biggest picture possible.

This chart has all the recessions shaded.

You will notice something about the proportion of up-to-down periods, and where the combination of up and down takes you.

Here's the way I look at it.

6 billion people in the world wish to do "well" and make their world "better" as they see it.

That's an awfully big tide to push against......some may say inexorable, and the chart would back them up, and despite volatility, I mean up.

[CobraSnakeNecktie]

It's painful to trade against major trends. Lots of people go broke trying to time a major trend change.

No way would I try to take a short position on CM real estate. Not even sure how one would do that.

Often times real estate markets just go sideways for extended periods to scrub off wealth and excess.

No doubt in my mind if China had a crash like Japan did then it would decimate CM projects.

Another risk on the horizon is how this new cooperation on money laundering will change the "easy money" now funding projects. Thailand has signed lots of treaties that included making prostitution illegal and then never enforced it.

Does anyone have any predictions on how the IATF cooperation will affect easy money?

[cheeryble]

It's painful to trade against major trends. Lots of people go broke trying to time a major trend change.

You can say that again.

I didn't even bet against Facebook though I was sure it would drop.

No doubt in my mind if China had a crash like Japan did then it would decimate CM projects.

Listen to this.....about a minute in he gives his highly considered conclusion that the US will be transformed by energy independence within 5 to 7 years.

This is not any guy spouting off.....he owns the biggest oil refinery in the WORLD.

Consider the effects of new oil sources on the world economy.

Edited April 2, 2013 by cheeryble

[CobraSnakeNecktie]

I have read the same. The US is not only on track to become energy independent but also to become a larger oil and gas exporter than Saudi Arabia by early 2020's.

They need to build these pipelines to get the stuff out of the US so the price is not driven too low by oversupply which would slow investment.

This would solidify the US as the premier super power and driver of world growth as in the past.

Lot's of US haters are just going to crap cinderblocks about that revelation.

Trends like that and 3d printing however could affect a lot of investment flow away from Asia where it largely pooled up currently. Japan had a great growth picture and that didn't stop a property crash of epic proportions.

China's bubble still looms large over SEA.

Fascinating times.

Edited April 2, 2013 by CobraSnakeNecktie

[Puwa]

Ha, well like I said, more of a guess than a prediction. It does raise an interesting semantic question: is something with less than a certain chance of being correct automatically incorrect? I will leave that one for sharper minds to ponder.

Anyway my guess is predicated more on national politics than local market conditions. It's easy to forget just how politically unstable Thailand is. Everyone knows that sooner or later events will force a major confrontation between the two opposing forces. We know what the two sides are, we know what the trigger event will be (and following the rules of this forum, let's not get explicit), we don't know when, and we don't know the form or intensity the conflicts will take. And we can't say what the economic impacts will be. The 2010 violence gave some indication how ugly the conflict can be, and frankly I think Thailand's economy dodged a bullet. But we can't dismiss the economic ramifications of the fire next time. I don't think I'm a doomsayer-- I'm just recalling a reality that is present but unseen, and not often mentioned.

While we're speculating about speculation, here's my guess at answering the original question "when will the bubble burst?"

Second half of 2013/ first half of 2014, when national events trigger new political violence, foreign investors balk, new possible concurrent Singapore property bubble pops, and the dominoes start to tip. Probably not as bad as '97, but a correction nonetheless.

I figure there's about a 30% chance this is correct.

so mathematically you consider that your own prediction is incorrect!

[AnotherOneAmerican]

Because of the way Thai banks operate property loans and repossession sales the investment risk becomes different.

When the crash happens you effectively have an asset with no resale value. No problem if it's a property to live in (or rent).

A disaster if you were ever hoping to cash in.

[binjalin]

that is true - but it's a weird thing that banks cannot sell as they don't want to lose the asset off their books - but that is NOT indicative of the boom in Chiang Mai which is mainly due to the floods and troubles in krung thep and I don't think is about to burst anytime soon

Law passed after the last crash, banks not allowed to sell repossessed properties below outstanding loan amount.

(I may be wrong)

yes but the problem is the common area fees etc. build up so it's impossible to sell with the fees sometimes more than the value of the property and this hits everyone - a very foolish policy that needs review

[binjalin]

Ha, well like I said, more of a guess than a prediction. It does raise an interesting semantic question: is something with less than a certain chance of being correct automatically incorrect? I will leave that one for sharper minds to ponder.

Anyway my guess is predicated more on national politics than local market conditions. It's easy to forget just how politically unstable Thailand is. Everyone knows that sooner or later events will force a major confrontation between the two opposing forces. We know what the two sides are, we know what the trigger event will be (and following the rules of this forum, let's not get explicit), we don't know when, and we don't know the form or intensity the conflicts will take. And we can't say what the economic impacts will be. The 2010 violence gave some indication how ugly the conflict can be, and frankly I think Thailand's economy dodged a bullet. But we can't dismiss the economic ramifications of the fire next time. I don't think I'm a doomsayer-- I'm just recalling a reality that is present but unseen, and not often mentioned.

While we're speculating about speculation, here's my guess at answering the original question "when will the bubble burst?"

Second half of 2013/ first half of 2014, when national events trigger new political violence, foreign investors balk, new possible concurrent Singapore property bubble pops, and the dominoes start to tip. Probably not as bad as '97, but a correction nonetheless.

I figure there's about a 30% chance this is correct.

so mathematically you consider that your own prediction is incorrect!

this is all true and bound to happen but I think it will be 6 months 'process' at best - maybe a year - I don't think you will see a massive crash but maybe a 20% correction

[Thakkar]

I have read the same. The US is not only on track to become energy independent but also to become a larger oil and gas exporter than Saudi Arabia by early 2020's.

They need to build these pipelines to get the stuff out of the US so the price is not driven too low by oversupply which would slow investment.

This would solidify the US as the premier super power and driver of world growth as in the past.

Lot's of US haters are just going to crap cinderblocks about that revelation.

Trends like that and 3d printing however could affect a lot of investment flow away from Asia where it largely pooled up currently. Japan had a great growth picture and that didn't stop a property crash of epic proportions.

China's bubble still looms large over SEA.

Fascinating times.

I have great confidence in the resilience of the US economy, even without the new energy finds. It's major problem is the deficit and that's not as grave and insurmountable as Republicans would have us believe.

On paper, the US has some of the highest corporate tax rates, as Republicans never tire of telling us. In practice, with all the loopholes, corporate welfare and accounting tricks where much profits are left offshore, American corporations have a great gig going. This, plus excessive military spending and excessive healthcare costs as a result of mollycoddling the healthcare industry are the main causes of the deficit. All fixable once the majority of Americans wake up to the math of it. This is already beginning to happen.

So I'm optimistic.

T