When Will The Chiang Mai Building Bubble Burst?

[WinnieTheKhwai]

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.

Don't worry, VegasVic doesn;'t understand it either it seems. 3D printing is one thing, but are people expected to assemble stuff themselves too?

If so any Airfix experience older folks may have will come in very handy. Good luck with anything with multiple materials (glass, metal) moving parts and or electronic parts (i.e. just about everything). Then assembling, painting and finishing it yourself.

Airfix iPhone! Airfix Lawn mower! Airfix Airconditioner! (Etc, etc.)

Edited April 2, 2013 by WinnieTheKhwai

[CobraSnakeNecktie]

Yeah I wouldn't bet the farm on 3D.

Very promising but might fizzle like Solar. Might just be confined to simpler products.

3D print speed seems limited at the present and no solution in sight.

3D really needs a R&D boost from say a race to build a permanent base on the moon.

[IsaanUSA]

Off topic, but I think 3D printing is really only good for rapid prototyping.

[Thighlander]

I don't see the almost no down loans like we has in the US. People with a lot of skin in the game find ways to make payments. Rent could cover most of the payment. Building costs continue to rise.

[Greenside]

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)

This presumably means that these "assets" remain on the books without re-valuation and represent a vast time bomb under the lenders. Hearsay only, but I understand that people in my neighbourhood have been offered 90% loans based on a very optimistic valuation of the land price. I wonder if the banks re-value the re-possessed property upwards, and if they do does that raise the price they are obligated to sell at?

[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.

Or....it just stops going up, and goes sideways for a while. That seems to be the case for Thailand real-estate. No buyers does not mean lower prices here for some strange reason.

Yes, you have a valid point.

[Happyman108]

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.

Or....it just stops going up, and goes sideways for a while. That seems to be the case for Thailand real-estate. No buyers does not mean lower prices here for some strange reason.

Agree, either stop going up or maybe just lower 10-20% for those in need of cash or unable to repay their loan. I remember not seeing few of my neighbours (leaving their house empty for more than 1 year) but just some house agent sometime bring others to view for rental or sale, after almost 2-3 years and waited price to up 20-30% and reach their idea price they finally sold them.

Whatever goes up will come down, but is unlike stock & shares.....property can go up 50-200% but down only 10-30% due to inflation....I dun see the increase of noodle price from 20 baht to 35 baht will be going back to 20 baht in future.

[Puwa]

.

Good point.

[AnotherOneAmerican]

I don't see the almost no down loans like we has in the US. People with a lot of skin in the game find ways to make payments. Rent could cover most of the payment. Building costs continue to rise.

There are a few lenders offering 110% home loans, but most of the banks offer 80%-95% home loans at the moment.

[cheeryble]

I don't see the almost no down loans like we has in the US. People with a lot of skin in the game find ways to make payments. Rent could cover most of the payment. Building costs continue to rise.

There are a few lenders offering 110% home loans, but most of the banks offer 80%-95% home loans at the moment.

I would like to know more about these non-conservative loans Another1.

Could you furnish some details?

And I shall ask my bank manager too.

Edited April 3, 2013 by cheeryble

[AnotherOneAmerican]

There are a few lenders offering 110% home loans, but most of the banks offer 80%-95% home loans at the moment.

I would like to know more about these non-conservative loans Another1.

Could you furnish some details?

And I shall ask my bank manager too.

These levels of home loan are only available to Thai nationals. CIMB, BKB, SCB all offer them at the 90%-95% levels.

I believe the 110% home loans are reserved for government workers.

If you call into any KKN home sales office you can view the various brochures from assorted banks for yourself, all in Thai though.

[cheeryble]

There are a few lenders offering 110% home loans, but most of the banks offer 80%-95% home loans at the moment.

I would like to know more about these non-conservative loans Another1.

Could you furnish some details?

And I shall ask my bank manager too.

These levels of home loan are only available to Thai nationals. CIMB, BKB, SCB all offer them at the 90%-95% levels.

I believe the 110% home loans are reserved for government workers.

If you call into any KKN home sales office you can view the various brochures from assorted banks for yourself, all in Thai though.

Ahhh 110% is only for government workers.

I'd say they are regarded as being safe bets with jobs for life and are an exception.

I shall be interested to ask about the ease with which people can pick up 90 or 95% loans. The Thai banks are regarded as quite conservative since the 90s crash so it may be that that level of lending also requires good accreditation.

[AnotherOneAmerican]

There are a few lenders offering 110% home loans, but most of the banks offer 80%-95% home loans at the moment.

I would like to know more about these non-conservative loans Another1.

Could you furnish some details?

And I shall ask my bank manager too.

These levels of home loan are only available to Thai nationals. CIMB, BKB, SCB all offer them at the 90%-95% levels.

I believe the 110% home loans are reserved for government workers.

If you call into any KKN home sales office you can view the various brochures from assorted banks for yourself, all in Thai though.

Ahhh 110% is only for government workers.

I'd say they are regarded as being safe bets with jobs for life and are an exception.

I shall be interested to ask about the ease with which people can pick up 90 or 95% loans. The Thai banks are regarded as quite conservative since the 90s crash so it may be that that level of lending also requires good accreditation.

It's really easy for a Thai to get a 90% home loan, especially on new houses from mooban developers.

[CobraSnakeNecktie]

What other investment opportunities are there really in Thailand to compete with Real Estate?

Capital controls prevent capital flight and limited international investments provide few options.

Without the ability to short real estate with REIT's etc and few choices then doesn't real estate just get higher until it's dysfunctional.

Japan's real estate got really overpriced with buyers taking out long loan terms. Those investors have been stuck for 20+ years and no real hope of getting out whole or even close to whole.

[WinnieTheKhwai]

What other investment opportunities are there really in Thailand to compete with Real Estate?

You could buy a bar. That's a goldmine, and low initial investment.

[driedmango]

There are a few lenders offering 110% home loans, but most of the banks offer 80%-95% home loans at the moment.

I would like to know more about these non-conservative loans Another1.

Could you furnish some details?

And I shall ask my bank manager too.

These levels of home loan are only available to Thai nationals. CIMB, BKB, SCB all offer them at the 90%-95% levels.

I believe the 110% home loans are reserved for government workers.

If you call into any KKN home sales office you can view the various brochures from assorted banks for yourself, all in Thai though.

Ahhh 110% is only for government workers.

I'd say they are regarded as being safe bets with jobs for life and are an exception.

I shall be interested to ask about the ease with which people can pick up 90 or 95% loans. The Thai banks are regarded as quite conservative since the 90s crash so it may be that that level of lending also requires good accreditation.

It's really easy for a Thai to get a 90% home loan, especially on new houses from mooban developers.

10% is better than American 100% financing and then $20 000 for clothes and pizza, lump it up and sell the debit to unsuspecting old people, lie and call it triple a good as gold investments, let it collapse, get bail out, buy cheap property from foreclosures with profit and hid profit in offshore bank north america and Europe style .. lol

[OneZero]

10% is better than American 100% financing and then $20 000 for clothes and pizza, lump it up and sell the debit to unsuspecting old people, lie and call it triple a good as gold investments, let it collapse, get bail out, buy cheap property from foreclosures with profit and hid profit in offshore bank north america and Europe style .. lol

+1 Isn't that the truth.

[Rimmer]

Off topic posts about 3D printing removed, the topic is

When Will The Chiang Mai Building Bubble Burst?

Thank you

[driedmango]

Off topic posts about 3D printing removed, the topic is

When Will The Chiang Mai Building Bubble Burst?

Thank you

it will bust in 2050, after a long growth period where the Thai economy becomes in the top 20 around the world, unless Thailand keeps the same ownership rules that ban non Thais from most of the real estate market (one if the biggest reasons homes are so expensive in the west) in that case they won't have a bubble.

[Sparkles]

Have to admire someone who can predict what will happen to the real estate market in 37 years time

[driedmango]

This whole post is prediction. The Thai baht is kept artificial low, the economic outlook is very strong, if they ever open up like say Australia and turn their real estate market into a stock market, the property would go up 5x at least like it did in Vancouver.

Just the biggest film in China this year will bring out the prices in Chiang mai, many of the real estate investment world wide is from China, and the Russians haven't even discovered Chiang mai, they will like they did the south.

Its foolish to think eastern prospects aren't going to effect real estate prices in Thailand sooner or later.

[cheeryble]

There are a few lenders offering 110% home loans, but most of the banks offer 80%-95% home loans at the moment.

I would like to know more about these non-conservative loans Another1.

Could you furnish some details?

And I shall ask my bank manager too.

These levels of home loan are only available to Thai nationals. CIMB, BKB, SCB all offer them at the 90%-95% levels.

I believe the 110% home loans are reserved for government workers.

If you call into any KKN home sales office you can view the various brochures from assorted banks for yourself, all in Thai though.

Ahhh 110% is only for government workers.

I'd say they are regarded as being safe bets with jobs for life and are an exception.

I shall be interested to ask about the ease with which people can pick up 90 or 95% loans. The Thai banks are regarded as quite conservative since the 90s crash so it may be that that level of lending also requires good accreditation.

It's really easy for a Thai to get a 90% home loan, especially on new houses from mooban developers.

There certainly is Land and House Bank owned by the developer (or is it a separate public company?).

One would guess they would have to be at least reasonably stringent or their shareholders would see the danger and sell down the price?

(not stating......just thinking aloud really)

Edited April 6, 2013 by cheeryble

[Thakkar]

Since the '97 crash, the Thai government has kept Thai Banks on a short leash, which means they haven't been reckless. Protection from foreign bank competition and a de facto cartel situation allows them high margins on all their products and lucrative interest rate spreads. This means their balance sheets are in good shape and they can withstand a property slump and will not easily foreclose or dump the properties they do foreclose. So I think little chance of a major dive in prices.

While 100% mortgages seem risky, I think those are just headline numbers and the more common loans would be more prudent, and the vetting of buyers very thorough. What matters is affordability rather than loan ration.

T

[WinnieTheKhwai]

Someone want to read something funny? This newspaper never disappoints. Then to make sure it ends in complete <deleted> they put in numbers near the end; no newspaper article can contain a number that's accurate in this country, I think it's one of their guidelines.

http://www.nationmultimedia.com/business/Property-boom-in-Chiang-Mai-to-continue-30203504.html

So first they link a building boom in Chiang Mai to the pie-in-the-sky high speed rail that is decades away, if it happens at all. Even if it does happen then it's still unclear why that would make Chiang Mai more attractive; it's not like it's hard to reach currently. My guess is they mindlessly applied what happened to BKK property when a Skytrain or subway comes along. Not. Same.

But then to remove all doubt about this being nonsense or not, they end with some numbers:

Land prices near the airport showed the biggest increase, from Bt3,000 per square wa last year to Bt25,000. The prices of land in the inner areas of Muang district rose by 20 per cent to Bt250,000 per square wa.

Okay.. Whoever wrote that has never been to Chiang Mai. Land near the airport went for 3000 baht/sq. wa LAST YEAR? Perhaps 20-30 years ago? 25K currently is possible depending on anyone's definition of 'near the airport'. But then: 250,000 baht per sq. wa for the inner areas of Muang district!! Just last year I looked at a house inside the moat that was something like 50 sq. wa, and that went for 3 million baht including the house, which was already a big bump from what it was purchased for. But The Nation has it that this is now worth 50 * 250 K = 12.5 million baht for the land alone.

Maybe they have a rule that any number that appears in an article must come out of a random number generator? Or maybe I really am smarter than the average khwai, by stating that you can find inner city land around the 50-60K baht / sq. wa mark. (For small/residential sized plots, excluding commercial property on major roads, and not counting un-used plots by people who don't truly want to sell and just put up some ridiculous price in case a major hotel chain comes along with a bag of money.)

Edited April 6, 2013 by WinnieTheKhwai

[itsgottabedone]

Some interesting viewpoints here.

I'm particularly interested to see what will happen to the high end condo market in CM. In my opinion this segment of the market has traditionially been underserved in CM and many of the observations made here and in similar threads apply to the low - mid end of the market only.

I should qualify my remarks by stating i'm no expert but i do have a couple of properties in CM that have appreciated (based on recent offers made). I've also researched and made regular visits to approx. 10 of these mid to high end developments in recent months (most of which have yet to complete... or even start construction). In total over the last year i've probably visited about half of the 44 new condo projects that have launched

When valuing property much of the debate here has been restricted to either macro economic factors or specifics such as size and location. This doesn't give the entire picture.

The CM property market and particularly the high end segment, exists somewhat in isolation where conventional rules of demand and supply do not wholly apply. Largely fuelled and skewed by SE Asian investors (I'm including BKK) this demographic a) have cash and place a large premium on 'new'

Hence by design or by default the new build properties have neither been aimed at or being bought by westerners.

There is a temptation to make comparisons solely on condo size., ignoring location, quality and design factors. Many (particularly those of us that have been in CM for a while, including myself) have baulked at the recently inflated prices of the new build condos. I recently viewed a condo which was 46sqm and priced at 4m bhat. It worked out to be 88,000 bhat / sqm. This per sqm price was unimaginable just a couple of years ago but is a reality today. This is an extreme example but the fact is these units are selling ..the question remains, do they provide a good investment opportunity and potential return. Like many I'm hesitant but not adverse to considering such investments if all factors are carefully considered.

Some observations I've picked up researching / visiting these types of properties:

• These units are indeed selling and at an incredible rate. This is not just a marketing ploy. Many developments not only sell out prior to construction but many near sell out prior to even a showroom being built or any extensive marketing. As has been reported some developments have sold out in a matter of days.
• A breakdown of investors provides an interesting insight - on average approx. 50% are being purchased by BKK investors (not adverse to buying multiple units in the same development), 20% by a similar wealthy CM segment, 20% by 'other' SE Asian investors and at most 10% by westerners
• Approx. 80% are buying with cash (not finance)
• Many are being resold (still off plan) by investors looking on average to make 5,000 bhat per sqm profit i.e. buying early in the hope of turning a quick 200k profit on a 40sqm unit for example. I've witnessed this myself and units are indeed changing hands at least once, a full year before completion. Developers are starting to cash in on this practise by charging a 15,000-20,000 bhat fee for a change in contract ownership.
• There is a mentalitly particularly amongst the Thai community to be 'first' particularly for something 'new'. It's a mad rush. Market anything loud and bright enough in Thailand and it will sell (or at least it feels that way). The condo market is no exception. To this target market - the overall quality of sales and marketing approach has improved. Fancy animated videos, glossy brochures and (particularly if you speak Thai) overall knowledge of sales staff has improved. (I compare to the inept sales staff when i first purchased in CM 5 years ago).
• Conversely this mad rush to buy is not matched by a mad rush to sell. These cash rich investors are happy to sit on these units until they receive an acceptable level of profit in resale or rental. The overall impact on the market, where this attitude prevails, can not be understated.
• For the minority who are purchasing on finance and subsequently unable to secure a loan these units appear back on the market by the developer, often at a premium… and often quickly resold.
• With average 'start to complete' duration (from sales opening to transfer) of approx. 18 months, developers are not afraid to increase their prices in stages to match market rates, particularly post an initial promotion period. Similarly for the handful of units that remain after the initial rush (typically the larger or lower floor units) developers are happy to bide their time without feeling the need to discount or incentivise further.
• Corner units attract a significant premium and price per sqm on average increases by 5,000 bhat per sqm per floor. Despite this almost without exception higher floor corner units sell out first
• In my opinion design is improving. Layouts are being more intelligently designed. 35sqm 1 bedroom units, although considered small by many, particularly compared with spacious units in older units don't feel as cramp as one would imagine due to more effective use of open space and design.
• Where space has been sacrificed is in the open / common areas. Average ratio of car parking spaces to units is approx. 30%-60%. Developers point to the high proportion of BKK investors using as a 2nd home to justify sufficient allocation at any one time. The central location of some new developments particularly on narrow, already congested sois, will undoubtedly cause issues.
• Balconies are still no more than token areas to place a compressor / washing machine. A real shame in my opinion. There are a few exceptions.
• Swimming pool sizes are also shrinking - a must have for presentation but not likely to satisfy the serious swimmer.
• Where permitted, it's nice to see some high rises making use of the roof space. A roof garden / lounge area is still a rareity in CM
• Quality of construction materials being used appears, on paper at least, to be improving
• Those that offer fully furnished by default or by option are using what appears to be higher quality built in units compared to what would ordinarily be available at the likes of Index / Homepro. Mass produced by the developer themselves and a neutral design that appeals to the target segment.. and realistically claims to be 'ready to move in'.
• Electronic packages are increasingly common (from major brands). Electronic door entry system, flat screen tv's, kitchen appliances, AC units are all part of the 'package'
• I'm still sceptical at those that offer a 'mountain view'. How long will this view last ? I've heard for many years about planning restrictions on buildings greater than 4 stories …yet they still build them. For me, a nice view should be considered a bonus for now and nothing more. Often a view of a swimming pool or garden area (that will never change) is a safer bet.
• Common area fees range from 30-45sqm. I maybe in a minority but for more me, IF this money is used effectively and to the benefit of the overall condo community, i'm not in principle against paying a higher rate. However ..
• As rental investment by Thais remain the largest purchasing group, the subsequent low number of owner occupants, together with low % of western ownership could make ongoing management and committee effectiveness a challenge.

The above is purely based on my observation from a number of visits but the general pattern seems to align with recently reported numbers from the Thai Real Estate Info Centre claiming: Of 3,000 units launched in the first 5 months to Feb 2013 there has been a 72% take up rate.

For me, a remaining unknown is what will happen to supply going forward. If as has been suggested, developers are cashing in while cost of raw materials remain relatively low, will 2012-2014 see the peak rate of supply at the high end, followed by a levelling off? If demand sustains itself during this period and beyond and the supply of 'new' development slows, then i see potential to make a profit in the short-medium term with the right investment.

Based on marketing activity, 2nd half 2012 saw a large spike in new launches - perhaps I'm becoming immune to it but there already seems to be fewer new launches 1st half 2013 (sales / marketing launch - not completion). However i have no further insight or basis to be able to make a confident judgement on future supply.

Buying off plan remains a risk and is not for everyone but many of the new developments have backers with at least a track record for completion.

As we know there are few restrictions on developments in Thailand but my feeling is we're nearing the peak rate of supply of high end condos (supply will no doubt continue to rise but not at the accelerated levels we've seen over the last / next 12 months). My guess is local (CM developers) will turn their attention to mid range condos / apartments and BKK developers will continue their drive into the town / office home market.

So my prediction ?

Well i have a general rule of thumb: nothing in CM should be more than half the price of the equivalent in BKK. In that respect there is further room for growth at this end of the market. I believe there will be a correction of more likely a period of levelling off when average prices at the top end start to hit 100,000 bhat / sqm (i consider the average for this segment today at approx. 60,000 bhat). I think we're 2-3 years away from that point and i don't see any of the factors changing during that period (even with an economic downturn / change in government etc i see this market sustaining itself in the short-term). After that ? Well too many variables to predict.

Ease of buying and selling a condo in Thailand makes short-term investments a real possibility, particularly if living there yourself is one of the option. For many making an investment in property has always been about the long-term. It doesn't have to be. However, I would encourage those contemplating making any kind of investment …please do your research. Either through naivety or impulsiveness i've seen and heard too many make rash choices.

There is a tendency to make comparisons with our home town / countries. For me like for like comparisons are difficult. I'm from London and while the rest of the UK has seen a slump / levelling off in recent years the more desirable parts of London with quality new build property, continues to see rapid growth fuelled by overseas investors. CM is no London but some parallels are worth noting.

[IsaanUSA]

itsgottabedone, how do you come up with your rule of thumb, "nothing in CM should be more than half the price of the equivalent in BKK"? I'm just curious why you think 50% is a good number. And how do you factor location into your equation?

Let's assume a developer builds the exact same building in Bangkok and in Chiang Mai. If the location in either one is much more desirable than the location in the other city, then wouldn't that effect your rule of thumb?

I'm just curious because I've never heard an idea like that before.

EDIT: Thanks for your post. Very interesting read

Edited April 8, 2013 by IsaanUSA

[heybruce]

• A breakdown of investors provides an interesting insight - on

  average approx. 50% are being purchased by BKK investors (not adverse to

  buying multiple units in the same development), 20% by a similar

  wealthy CM segment, 20% by 'other' SE Asian investors and at most 10% by

  westerners

• Approx. 80% are buying with cash (not finance)
• Many are being resold (still off plan) by investors looking on

  average to make 5,000 bhat per sqm profit i.e. buying early in the hope

  of turning a quick 200k profit on a 40sqm unit for example. I've

  witnessed this myself and units are indeed changing hands at least once,

  a full year before completion. Developers are starting to cash in on

  this practise by charging a 15,000-20,000 bhat fee for a change in

  contract ownership.

I'm curious where the above numbers, among others, come from.

[cheeryble]

Thanks for the long....but I thought very worthwhile.....post.

It is obvious you have some insight into this area.

Just to add one or two bits:

Swimming pools: how right many have token pools. The only worthwhile pool is rectangular and a decent enough size to do meaningful laps. Kidney shaped and circular cr*p with steps getting in the way ain't my idea of fun.

Common Area fees: I am all for scrupulous maintenance, but i think the CAFs being asked are too high especially as the buildings are new and will be saving on any large maintenance for some time. I favour special assessments for unexpected items as otherwise if the money's in the kitty, someone will find a way to spend it. Also very easy for developers who will probably carry the vote for the first year or two to do their snagging with CAFs why tempt them?

Mountain view: You're so right about having a garden or pool view being a good option I very much think so with the exception of some older condos where you can sometimes know you're OK for mountain views as you now have judgeable mature areas around.

Quality of construction materials: I've visited a few new buildings and though as you say in the more upmarket ones some things like doors have been custom made and of a moderately OK quality with good hardware, and there are usually a reasonable if not great number of power points, it's almost ubiquitous to see the 40 baht light fittings everywhere, and kitchen units in places like one-plus seem to still be of chipboard type base. Laminated floors and in The Resort they seemed to have some sort of plastic planking but haven't seem any real laid wood or marble floors these may be restricted to the older buildings, odd as they are not so terribly expensive.

I still don't think I've seen a slope inwards on a roof surround of outsanding horizontal surfaces to stop black staining in future and I can honestly say i have never seen a birdsmouth or any type of drip edge so water will hang under edges and eventually eat into the underlying mortar as well as go black. Basically most new units still have lots of exposed horizontal surfaces and it's not exactly cutting edge architecture more like primitive. I would also not fancy "modern" shapes as at one particular new condo. It will look modern for a very limited time then will look bloody awful. Classical....even if it's classical modern.....will endure much better.

BTW, where is this statement relating to:

The above is purely based on my observation from a number of visits but the general pattern seems to align with recently reported numbers from the Thai Real Estate Info Centre claiming: Of 3,000 units launched in the first 5 months to Feb 2013 there has been a 72% take up rate.

???

Again, thanks for the thoughts!

Edited April 8, 2013 by cheeryble

[lannarebirth]

itsgottabedone, how do you come up with your rule of thumb, "nothing in CM should be more than half the price of the equivalent in BKK"? I'm just curious why you think 50% is a good number. And how do you factor location into your equation?

Let's assume a developer builds the exact same building in Bangkok and in Chiang Mai. If the location in either one is much more desirable than the location in the other city, then wouldn't that effect your rule of thumb?

I'm just curious because I've never heard an idea like that before.

EDIT: Thanks for your post. Very interesting read

Well, for one thing, there is a decided lack of earning potential in Chiang Mai, Most valuations for non resort type properties stem from the ability to earn in the locale or pool of educated persons and industry.

[WinnieTheKhwai]

I recently viewed a condo which was 46sqm and priced at 4m bhat. It worked out to be 88,000 bhat / sqm. This per sqm price was unimaginable just a couple of years ago but is a reality today.

• These units are indeed selling and at an incredible rate. This is not just a marketing ploy. Many developments not only sell out prior to construction but many near sell out prior to even a showroom being built or any extensive marketing. As has been reported some developments have sold out in a matter of days.
• A breakdown of investors provides an interesting insight - on average approx. 50% are being purchased by BKK investors (not adverse to buying multiple units in the same development), 20% by a similar wealthy CM segment, 20% by 'other' SE Asian investors and at most 10% by westerners
• Conversely this mad rush to buy is not matched by a mad rush to sell. These cash rich investors are happy to sit on these units until they receive an acceptable level of profit in resale or rental. The overall impact on the market, where this attitude prevails, can not be understated.

Super post! The above points specifically though, really sound like a textbook 'bubble'. People snapping it up for the fun of it (as 'investments') with no immediate need to actually live there or any immediate prospect to turn it into solid rental income. Then for investors from Bangkok, do those truly understand which are indeed desirable locations; hard to say without living here long term and knowing, for example, what traffic can be like in the Canal Rd/Huay Kaew/Nimman area. Which may then mean that developers can be less critical about location in turn, knowing that they'll sell out before a single spade goes into the ground. That in turn could less high-quality developers giving it a go.

With a price of 88K / sq meter, that is actually higher than the price of LAND around (or just outside) the superhighway/Aom Muang ring. As the scale of everything is much smaller in CM compared to Bangkok, that is a big premium to pay to be (wild guess) on Chang Klan Road or Nimmanhaemin, vs. mere minutes away from there just off Aom Muang or up/down the Canal Road. In Bangkok, youbetcha that's worth it to be in the inner city on a Skytrain stop vs way out in Minburi or beyond the airport. For Chiang Mai however you're talking a difference of about 3-4 minutes. And then, 3-4 minutes in which direction: if you're just outside of the ring you may very well be actually closer to many of the places you typically go to, such as schools, malls and hypermarkets, compared to having to get there from Chang Klan or Nimman.

So I'd say 'hm' before paying more for a square meter condo space than I would for a square meter empty land, in a similarly convenient location, no matter how luxurious. I'd have to be a full-time Nimman-bar-tiger before that starts making sense.

Edited April 9, 2013 by WinnieTheKhwai