The Market Should Decide Baht Value: Govt

[Thai at Heart]

You don't have to raise interest rates to slow borrowing, nor does lowering have to stimulate borrowing. You also have the ability to tighten lending requirements.

There have been no-down car loans and home loans for Thais. This isn't necessary. You could require any condo developer to have a stronger financial statement, and to put more of his own money in the project by using a lower loan to value ratio. You could for instance make no condo development loans unless the borrower put 50% of his own money in it, up front, in escrow, in the bank. The first 50% of development costs would be paid out of that. If at that point the project didn't appear to be on budget, the loan could be revoked and the developer would have to find other investors or put up more of his own money.

You could even put a moratorium on condo development loans. That might not be a bad idea considering that big loans to Bangkok real estate developers just broke one Thai government owned bank (IBank) and another is also belly up but the reason for that isn't in the news. However, it is rare for a bank to lose all of its own capital to loan losses for things other than big real estate loans.

There is a lot that the Thai government and the BoT could do but remember, these are the same geniuses who brought us the rice scheme and the new minimum wage.

It appears to me that Thailand, probably without realizing it, is taking debt and unsustainable real estate growth into the same issues that bit the West.

The condo thing is happening just as you describe.

In what way? I'm curious as to what you're thinking there.

It was in the "other" paper talking abouf condo developments up country. The constructor must have at least 50% available free capital for funding the project and they must be able to prove at least 50% sales off plan to obtain further funding. In the town where I live, there is a planned explosion of condo's, some be larger national construction companies, most by local firms. Off plan sales for one massive condo by a national developer were very strong, but those launched subsequently have been very poor.

According to reports from friends, (and I attened the launch of the one I mention) 95% of the off plan purchase were for flicking for a profit. The new condo market up country is very very frothy and I think there are going to be a lot of buyers holding the baby when the final payment start coming in.

[Nickymaster]

Kittiratt is truly a joke. For the last few weeks he was saying that the BOT should interfere and even suggested that the BOT Governor should resign.

Kittiratt has no vision and no understanding of the economy. The guy is clearly managing by emotion, orders and uhh.... feelings I guess. Dangerous to say the least.

Typical PT. They only use people who can serve the master and his family regardless of their performance and capabilities.

[NeverSure]

You don't have to raise interest rates to slow borrowing, nor does lowering have to stimulate borrowing. You also have the ability to tighten lending requirements.

There have been no-down car loans and home loans for Thais. This isn't necessary. You could require any condo developer to have a stronger financial statement, and to put more of his own money in the project by using a lower loan to value ratio. You could for instance make no condo development loans unless the borrower put 50% of his own money in it, up front, in escrow, in the bank. The first 50% of development costs would be paid out of that. If at that point the project didn't appear to be on budget, the loan could be revoked and the developer would have to find other investors or put up more of his own money.

You could even put a moratorium on condo development loans. That might not be a bad idea considering that big loans to Bangkok real estate developers just broke one Thai government owned bank (IBank) and another is also belly up but the reason for that isn't in the news. However, it is rare for a bank to lose all of its own capital to loan losses for things other than big real estate loans.

There is a lot that the Thai government and the BoT could do but remember, these are the same geniuses who brought us the rice scheme and the new minimum wage.

It appears to me that Thailand, probably without realizing it, is taking debt and unsustainable real estate growth into the same issues that bit the West.

The condo thing is happening just as you describe.

In what way? I'm curious as to what you're thinking there.

It was in the "other" paper talking abouf condo developments up country. The constructor must have at least 50% available free capital for funding the project and they must be able to prove at least 50% sales off plan to obtain further funding. In the town where I live, there is a planned explosion of condo's, some be larger national construction companies, most by local firms. Off plan sales for one massive condo by a national developer were very strong, but those launched subsequently have been very poor.

According to reports from friends, (and I attened the launch of the one I mention) 95% of the off plan purchase were for flicking for a profit. The new condo market up country is very very frothy and I think there are going to be a lot of buyers holding the baby when the final payment start coming in.

Yep, purchases by flippers, planning to make a wad by selling for even more. Where have I seen that before? (The US, just before the crash.)

[lounger]

I sympathise with the ruling to let the market value the bhat. There is no way little Thailand can control the market forces when US$ etc are being dumped here.

However the announcement smacks of lack of understanding when it should be used to guide popular opinion. Unfortunately all we have is a previous reccc toThais to take advantage of a strong Baht. And invest outside Thailand.

[Ricardo]

If the government is willing to let the markets set the rate, will they be abandoning the controls on account-holders sending money out of Thailand, anytime soon ?

And if bond-rates are set too high, resulting in a wave of foreign-money coming into Thailand & strengthening the Baht, will they be cutting the attractive interest-rates in response to the message from the markets ?

Or is this statement just fudge ?

This is tricky. When you say "let the markets set the rate," do you mean for interest paid by banks, or for government debt as in bonds?

A general truism is that the higher the perceived risk, the higher the rate the borrower has to pay. Never forget that Thailand is classed as an "emerging market" and thus riskier in every way than established markets. I did say "perceived."

For instance, IBank, a Thai government owned bank is offering quite high interest rates for deposits, but it's in the news that they are essentially broke and need a bailout from the Thai government.

Thailand is running deficits and borrowing to cover them. They have to pay what the market demands in interest rates on bonds to attract that money. As an emerging market, they have to pay a much higher rate than a more trusted government, such as the UK.

I can't really parse your first sentence because the two ideas don't work together for me as cause and effect. I'm sure I just don't understand what you're asking.

I was trying to highlight that, despite claiming to be happy to let the market set the exchange-rate, the government still restricts the free movement of capital in the outwards direction, which seems to me to be a slight contradiction ?

[xylophone]

Quote Thai at heart: "According to reports from friends, (and I attened the launch of the one I mention) 95% of the off plan purchase were for flicking for a profit. The new condo market up country is very very frothy and I think there are going to be a lot of buyers holding the baby when the final payment start coming in".

Agree with that sentiment, and I believe it is getting worse. About three years ago I went to the "off the plan" launch of some condominiums here in Patong on behalf of a friend, and was very surprised when I found that just about all of the condominiums had gone in a matter of weeks, only to be told that if we wanted to wait a while more would come back onto the market in a matter of months. And "TaH" was correct, the majority of the purchases were Thai investors hoping to make a quick profit.

Fast forward to a month ago when an Aussie guy's Thai girlfriend had just put a deposit on a huge apartment and condominium development here because she "wanted to make some money in selling before completion" and when I cautioned her against this given the amount of building going on, she said it wasn't a problem because all of the Thais were doing it!!

Don't know about the other areas, but here we are definitely due for the bursting of the property bubble in Patong.

[indyuk]

there are so many subsidies, and high import taxes on certain products that there is no real free market in Thailand

Exactly! he Thai Baht is maniplated is so many different ways that I have no idea what it's true value anytime. It baffles me why foreign investors buy into baht securities and projects. In short risk in Thailand is expanential in both directions.

[NeverSure]

Quote Thai at heart: "According to reports from friends, (and I attened the launch of the one I mention) 95% of the off plan purchase were for flicking for a profit. The new condo market up country is very very frothy and I think there are going to be a lot of buyers holding the baby when the final payment start coming in".

Agree with that sentiment, and I believe it is getting worse. About three years ago I went to the "off the plan" launch of some condominiums here in Patong on behalf of a friend, and was very surprised when I found that just about all of the condominiums had gone in a matter of weeks, only to be told that if we wanted to wait a while more would come back onto the market in a matter of months. And "TaH" was correct, the majority of the purchases were Thai investors hoping to make a quick profit.

Fast forward to a month ago when an Aussie guy's Thai girlfriend had just put a deposit on a huge apartment and condominium development here because she "wanted to make some money in selling before completion" and when I cautioned her against this given the amount of building going on, she said it wasn't a problem because all of the Thais were doing it!!

Don't know about the other areas, but here we are definitely due for the bursting of the property bubble in Patong.

Yep.

[Thai at Heart]

Quote Thai at heart: "According to reports from friends, (and I attened the launch of the one I mention) 95% of the off plan purchase were for flicking for a profit. The new condo market up country is very very frothy and I think there are going to be a lot of buyers holding the baby when the final payment start coming in".

Agree with that sentiment, and I believe it is getting worse. About three years ago I went to the "off the plan" launch of some condominiums here in Patong on behalf of a friend, and was very surprised when I found that just about all of the condominiums had gone in a matter of weeks, only to be told that if we wanted to wait a while more would come back onto the market in a matter of months. And "TaH" was correct, the majority of the purchases were Thai investors hoping to make a quick profit.

Fast forward to a month ago when an Aussie guy's Thai girlfriend had just put a deposit on a huge apartment and condominium development here because she "wanted to make some money in selling before completion" and when I cautioned her against this given the amount of building going on, she said it wasn't a problem because all of the Thais were doing it!!

Don't know about the other areas, but here we are definitely due for the bursting of the property bubble in Patong.

Well, it's an elastic band. How far does it stretch?

[xylophone]

Quote Thai at heart: "According to reports from friends, (and I attened the launch of the one I mention) 95% of the off plan purchase were for flicking for a profit. The new condo market up country is very very frothy and I think there are going to be a lot of buyers holding the baby when the final payment start coming in".

Agree with that sentiment, and I believe it is getting worse. About three years ago I went to the "off the plan" launch of some condominiums here in Patong on behalf of a friend, and was very surprised when I found that just about all of the condominiums had gone in a matter of weeks, only to be told that if we wanted to wait a while more would come back onto the market in a matter of months. And "TaH" was correct, the majority of the purchases were Thai investors hoping to make a quick profit.

Fast forward to a month ago when an Aussie guy's Thai girlfriend had just put a deposit on a huge apartment and condominium development here because she "wanted to make some money in selling before completion" and when I cautioned her against this given the amount of building going on, she said it wasn't a problem because all of the Thais were doing it!!

Don't know about the other areas, but here we are definitely due for the bursting of the property bubble in Patong.

Well, it's an elastic band. How far does it stretch?

Until it doesn't!!

[xylophone]

Quote Thai at heart: "According to reports from friends, (and I attened the launch of the one I mention) 95% of the off plan purchase were for flicking for a profit. The new condo market up country is very very frothy and I think there are going to be a lot of buyers holding the baby when the final payment start coming in".

Agree with that sentiment, and I believe it is getting worse. About three years ago I went to the "off the plan" launch of some condominiums here in Patong on behalf of a friend, and was very surprised when I found that just about all of the condominiums had gone in a matter of weeks, only to be told that if we wanted to wait a while more would come back onto the market in a matter of months. And "TaH" was correct, the majority of the purchases were Thai investors hoping to make a quick profit.

Fast forward to a month ago when an Aussie guy's Thai girlfriend had just put a deposit on a huge apartment and condominium development here because she "wanted to make some money in selling before completion" and when I cautioned her against this given the amount of building going on, she said it wasn't a problem because all of the Thais were doing it!!

Don't know about the other areas, but here we are definitely due for the bursting of the property bubble in Patong.

Well, it's an elastic band. How far does it stretch?

Until it doesn't!!

A bit flippant, but seriously I have never seen the situation as bad as this in 10 years. I would have thought that the "writing was on the wall" because of the amount of closed bars, bars for sale, smaller guest houses for sale and even brand-new ones which have been built less than a year now up for sale.

Even in the high season there were guesthouses prepared to drop the price to 600 to 800 baht per night when previously they had been double that. A couple of larger guesthouse/hotels have stalled due to lack of money I would think, and a very large and grandiose complex which was being built on the south side of Patong has now been abandoned some two years.

There have been some "fire sale" apartments which have absolutely amazed me, and one in particular which was 136 m² with a seaview was sold in a last desperate attempt for 3.6 million baht!! There are many empty apartments here, but still more being built, with something like 500+ being built in a development in a very average road some way from the sea.

The list goes on and on and if you add that to the complete and utter lack of supporting infrastructure which turns the place into a stinking mud bath after some rain, then you'll get the picture.

I think the elastic band is not far from breaking point and it would be a brave (or foolish?) man who spent good money here, when in a couple of years they could take their pick at a very low price, if indeed they wanted to invest money in this country, which is another subject altogether.

[Robby nz]

Got to wondering about the bonds the Thai Govt has been selling to 'investors'

Surely there must be an international bond market with many countries trying to sell bonds to raise money for one reason or another.

If this is the case that market must be competitive.

If that is the case then in order to sell on a competitive market any Govt would have to offer competitive rates.

We are told the Thai interest rate is something like 2.75% but what rate and what conditions did the Thai Govt have to offer in order to sell its bonds on the open market?

Just a look at the topics on this page gives a great indication that Thailand is anything but a stable economy with a stable Government and there must be some around which in reality are better bets.

I am sure international investors with billions to risk know this so the conditions and rates needed to lure them must be pretty good.

But what are they?

[NeverSure]

Got to wondering about the bonds the Thai Govt has been selling to 'investors'

Surely there must be an international bond market with many countries trying to sell bonds to raise money for one reason or another.

If this is the case that market must be competitive.

If that is the case then in order to sell on a competitive market any Govt would have to offer competitive rates.

We are told the Thai interest rate is something like 2.75% but what rate and what conditions did the Thai Govt have to offer in order to sell its bonds on the open market?

Just a look at the topics on this page gives a great indication that Thailand is anything but a stable economy with a stable Government and there must be some around which in reality are better bets.

I am sure international investors with billions to risk know this so the conditions and rates needed to lure them must be pretty good.

But what are they?

Corruption, for one thing. I don't trust the information I get from the government. Every so-called credible article I read on the subject (like Bloomberg) is written by a Thai correspondent. All is roses. Yet my own two lying eyes tell a different story.

Yes, Thailand has a credit rating of BBB+ which is a couple of steps above junk bonds. Therefore, while the major countries like the UK and the US pay zip in interest for their bonds, Thailand pays 2.75%. Dang, I could get a home loan for 2.5% if I wanted one. But if you have 100 mil to invest and your choice is between the West where you get almost no interest, or Thailand where you get 2.75 million dollars in interest in a year, you might want to go for it. Everyone has a different tolerance for risk, and the mainstream media paints Thailand as a great place.

Did I post this here already? Sorry, I'm dropping. It's 01:27.

http://www.nationmultimedia.com/opinion/Economic-bubbles-are-back-to-haunt-Thailand-30196914.html

[Thai at Heart]

Got to wondering about the bonds the Thai Govt has been selling to 'investors'

Surely there must be an international bond market with many countries trying to sell bonds to raise money for one reason or another.

If this is the case that market must be competitive.

If that is the case then in order to sell on a competitive market any Govt would have to offer competitive rates.

We are told the Thai interest rate is something like 2.75% but what rate and what conditions did the Thai Govt have to offer in order to sell its bonds on the open market?

Just a look at the topics on this page gives a great indication that Thailand is anything but a stable economy with a stable Government and there must be some around which in reality are better bets.

I am sure international investors with billions to risk know this so the conditions and rates needed to lure them must be pretty good.

But what are they?

Well with the USA, GBP offering less than 1% and the EU not even sure which country can pay, 2%+ looks like an OK risk for many, I guess.

Thailand is relatively stable, positive growth. The central banks concern is domestic inflation more than the currency.

Edited April 29, 2013 by Thai at Heart

[xylophone]

Got to wondering about the bonds the Thai Govt has been selling to 'investors'

Surely there must be an international bond market with many countries trying to sell bonds to raise money for one reason or another.

If this is the case that market must be competitive.

If that is the case then in order to sell on a competitive market any Govt would have to offer competitive rates.

We are told the Thai interest rate is something like 2.75% but what rate and what conditions did the Thai Govt have to offer in order to sell its bonds on the open market?

Just a look at the topics on this page gives a great indication that Thailand is anything but a stable economy with a stable Government and there must be some around which in reality are better bets.

I am sure international investors with billions to risk know this so the conditions and rates needed to lure them must be pretty good.

But what are they?

Well with the USA, GBP offering less than 1% and the EU not even sure which country can pay, 2%+ looks like an OK risk for many, I guess.

Thailand is relatively stable, positive growth. The central banks concern is domestic inflation more than the currency.

Some $40 billion plus of the Thai Govt bonds sold are "inflation-linked" bonds, and although the base rate is low, the inflation linking equation applied to them can give a return in the region of 4 to 5%..........that's why they are so popular with foreign investors.

If these instruments were not offered, just straight forward bonds, then investment inflows may well slow down, thereby letting the Baht weaken.

[Naam]

there are so many subsidies, and high import taxes on certain products that there is no real free market in Thailand

Exactly! he Thai Baht is maniplated is so many different ways that I have no idea what it's true value anytime. It baffles me why foreign investors buy into baht securities and projects. In short risk in Thailand is expanential in both directions.

why does it baffle you that foreign and local investors made big bucks since several years? is it because you missed the boat and lost some bucks? and please tell us why you think the Baht is maniplated (sic) in so many different ways. then perhaps we could start to maniplate too?

[Thai at Heart]

Got to wondering about the bonds the Thai Govt has been selling to 'investors'

Surely there must be an international bond market with many countries trying to sell bonds to raise money for one reason or another.

If this is the case that market must be competitive.

If that is the case then in order to sell on a competitive market any Govt would have to offer competitive rates.

We are told the Thai interest rate is something like 2.75% but what rate and what conditions did the Thai Govt have to offer in order to sell its bonds on the open market?

Just a look at the topics on this page gives a great indication that Thailand is anything but a stable economy with a stable Government and there must be some around which in reality are better bets.

I am sure international investors with billions to risk know this so the conditions and rates needed to lure them must be pretty good.

But what are they?

Well with the USA, GBP offering less than 1% and the EU not even sure which country can pay, 2%+ looks like an OK risk for many, I guess.

Thailand is relatively stable, positive growth. The central banks concern is domestic inflation more than the currency.

Some $40 billion plus of the Thai Govt bonds sold are "inflation-linked" bonds, and although the base rate is low, the inflation linking equation applied to them can give a return in the region of 4 to 5%..........that's why they are so popular with foreign investors.

If these instruments were not offered, just straight forward bonds, then investment inflows may well slow down, thereby letting the Baht weaken.

True. The rate of inflation is calculated how? On these bonds?

[xylophone]

Got to wondering about the bonds the Thai Govt has been selling to 'investors'

Surely there must be an international bond market with many countries trying to sell bonds to raise money for one reason or another.

If this is the case that market must be competitive.

If that is the case then in order to sell on a competitive market any Govt would have to offer competitive rates.

We are told the Thai interest rate is something like 2.75% but what rate and what conditions did the Thai Govt have to offer in order to sell its bonds on the open market?

Just a look at the topics on this page gives a great indication that Thailand is anything but a stable economy with a stable Government and there must be some around which in reality are better bets.

I am sure international investors with billions to risk know this so the conditions and rates needed to lure them must be pretty good.

But what are they?

Well with the USA, GBP offering less than 1% and the EU not even sure which country can pay, 2%+ looks like an OK risk for many, I guess.

Thailand is relatively stable, positive growth. The central banks concern is domestic inflation more than the currency.

Some $40 billion plus of the Thai Govt bonds sold are "inflation-linked" bonds, and although the base rate is low, the inflation linking equation applied to them can give a return in the region of 4 to 5%..........that's why they are so popular with foreign investors.

If these instruments were not offered, just straight forward bonds, then investment inflows may well slow down, thereby letting the Baht weaken.

True. The rate of inflation is calculated how? On these bonds?

If you go to the link below it will show you how they are calculated, and my figure of 4 to 5% looks a little high (working from memory I'm afraid) although I have used one scenario which would produce a return of around 3.4% pa. Still better than many offerings out there with a potential upside (and less of a downside).

http://www.docstoc.com/docs/132282715/Calculation-Convention-for-Inflation-Linked-Bond