Thailand ( or BKK) Property Bubble

[Senechal]

If they bought in cash they will not want to sell for cheaper and take a loss even if it does coming crashing down.

They may not want to sell at a loss. But if jawboning and standing-ground could prevent real estate collapses, there wouldn't be any real estate collapses. So sure... those who can afford to stand their ground may try. But for how long? The life-span of a condo in Thailand is no more than 20 years anyway, due to shoddy construction, flooding and heavy rains. Ever been in a 30 year old condo? They're falling to pieces, and usually in need of a tear-down. So standing ground and waiting for the next cycle is hardly a good idea if your plan is not to lose value. You're going to lose it one way or another if you're forced to wait a decade for values to return. Lots of people brag about how much their condo has gained in value after 5-10 years. Ever hear about someone bragging like that after 15-20 years? Heh. Not too many!

Besides, in Thailand buying in cash is a rare event. Thai consumers are leveraged to the hilt. Those are "loose hands" at best, as they have little skin in the game.

On top of that there's the "real price" of real estate in Thailand -- which is what anyone reading this board cares about -- and that's the price in foreign currency. The "other" way prices collapse in Thailand is when (not if) the baht collapses next.

Edited December 18, 2013 by Senechal

[rayongchelsea]

If they bought in cash they will not want to sell for cheaper and take a loss even if it does coming crashing down.

I agree.

Same as 97. Prices hardly fell. The baht devaluation made them cheaper of course, but it was hard to find a decent property for sale even through to 2000. When activity did pick up, people were buying multiple units.

[Senechal]

If they bought in cash they will not want to sell for cheaper and take a loss even if it does coming crashing down.

I agree.

Same as 97. Prices hardly fell. The baht devaluation made them cheaper of course, but it was hard to find a decent property for sale even through to 2000. When activity did pick up, people were buying multiple units.

Respectfully disagree:

In 1997, the Thai baht collapsed but global liquidity was surging and consumer credit within Thailand had room to run. Here we have a scenario where the baht is looking increasingly jeopardized (along with all other emerging market currencies) and global liquidity is receding. The emerging-markets game is over, but so is consumer credit within Thailand. What's coming is a confluence of several distinct forces: 1) A collapse of global liquidity. 2) An end to the EM boom. 3) A fall in the value of the baht. 4) Peak consumer credit within Thailand. 5) A surge in available units. 6) Declining consumer sentiment.

There isn't much way to spin a 'strong real estate' story out of that. Additionally, the infrastructure fund is looking increasingly shaky.

IMHO, we're likely to see core areas of Bangkok and (some) coastal vacation areas retain values quite well (ex-exchange rate). But expect a bloodbath in other areas.

Edited December 19, 2013 by Senechal

[Thai at Heart]

I don't believe in "waiting for the right time to buy" in Thailand. Imo, what will probably happen, is even if you did that, somebody who bought years before you and realized gains, will probably be way ahead of you after you buy, even when considering the potential crash. All those years you fail to buy, and the economy does well, you are "losing" as well.

The people just sitting around waiting all their lives for the "right time to buy" are the ones working until they are 70.

A big key to life and financial independence is owning your residence. Don't let anybody dissuade you if you have the money and you want your own place

Thailand is not the west. Rentals are out of sync with purchase costs.

[rayongchelsea]

If they bought in cash they will not want to sell for cheaper and take a loss even if it does coming crashing down.

I agree.

Same as 97. Prices hardly fell. The baht devaluation made them cheaper of course, but it was hard to find a decent property for sale even through to 2000. When activity did pick up, people were buying multiple units.

Respectfully disagree:

In 1997, the Thai baht collapsed but global liquidity was surging and consumer credit within Thailand had room to run. Here we have a scenario where the baht is looking increasingly jeopardized (along with all other emerging market currencies) and global liquidity is receding. The emerging-markets game is over, but so is consumer credit within Thailand. What's coming is a confluence of several distinct forces: 1) A collapse of global liquidity. 2) An end to the EM boom. 3) A fall in the value of the baht. 4) Peak consumer credit within Thailand. 5) A surge in available units. 6) Declining consumer sentiment.

There isn't much way to spin a 'strong real estate' story out of that. Additionally, the infrastructure fund is looking increasingly shaky.

IMHO, we're likely to see core areas of Bangkok and (some) coastal vacation areas retain values quite well (ex-exchange rate). But expect a bloodbath in other areas.

Very valid points.

But overall the perception is that their is low or little leverage in The real estate market here in Thailand ( anecdotal ).

So where is the pressure to sell. Maybe stagnation but no crash.

Also is the emerging markets game over or just slower growth? I am looking at the SET.

Like you the rationale at this time would be to rent as there is no ' strong real estate story out there ' .

My experience of Thailand real estate is that other than those very few years when the exchange rates got out of sync ..real estate has never been a real bargain..so people waiting will be disappointed.

Btw, the infrastructure fund was going to be used to prop up the rice buying program scheme one way or another..

[trogers]

"But overall the perception is that their is low or little leverage in The real estate market here in Thailand"

This is the main difference between 1997 and now. Most foreign debts in 1997 were held by corporates because the exchange rate was pegged and foreign loans carried lower interest rates.

Now we have Aeon for the working class and govt credit cards for farmers and taxi drivers. You can see most advertisements of new launches carry 'Only BtXXXX/mth' implying developers have been reaching out to people willing to commit into 25-30 year mortgages.

[danphuket]

...warned that Thai economic fundamentals are not strong enough to withstand the impact of the Fed's tapering because of the country's swelling household debt.

Full article: http://www.bangkokpost.com/business/finance/385763/investors-hold-nerve

[rayongchelsea]

"But overall the perception is that their is low or little leverage in The real estate market here in Thailand"

This is the main difference between 1997 and now. Most foreign debts in 1997 were held by corporates because the exchange rate was pegged and foreign loans carried lower interest rates.

Now we have Aeon for the working class and govt credit cards for farmers and taxi drivers. You can see most advertisements of new launches carry 'Only BtXXXX/mth' implying developers have been reaching out to people willing to commit into 25-30 year mortgages.

But that applies only to the lower end of the market ?

[trogers]

"But overall the perception is that their is low or little leverage in The real estate market here in Thailand"

This is the main difference between 1997 and now. Most foreign debts in 1997 were held by corporates because the exchange rate was pegged and foreign loans carried lower interest rates.

Now we have Aeon for the working class and govt credit cards for farmers and taxi drivers. You can see most advertisements of new launches carry 'Only BtXXXX/mth' implying developers have been reaching out to people willing to commit into 25-30 year mortgages.

But that applies only to the lower end of the market ?

A debt crisis will affect all sectors except cheap goods like instant noodles...

[Senechal]

"But overall the perception is that their is low or little leverage in The real estate market here in Thailand"

This is the main difference between 1997 and now. Most foreign debts in 1997 were held by corporates because the exchange rate was pegged and foreign loans carried lower interest rates.

Now we have Aeon for the working class and govt credit cards for farmers and taxi drivers. You can see most advertisements of new launches carry 'Only BtXXXX/mth' implying developers have been reaching out to people willing to commit into 25-30 year mortgages.

But that applies only to the lower end of the market ?

If Europe and America are any guide, there will be widespread defaults across the entire spectrum of housing prices. Thais at all levels of wealth are overleveraged. All of them playing the "greater fool" game, hoping to sell at a higher price ... but to whom?

According to the recent warning from Standard & Poors ( http://www.bangkokpost.com/breakingnews/376990/rising-household-debt-threatens-asian-banks-s-p-reports ) Thailand has some of the highest household debt in Asia. And Thailand and Malaysia were singled out as having the highest risk of defaults.

There's really no question anymore that we're in full bubble-territory here. Just look at Thailand's private sector credit since 2010: http://b-i.forbesimg.com/jessecolombo/files/2013/11/thailand-loans-to-private-sector9.png

Compare that to Ireland's private sector credit heading into the collapse of 2008: http://lh4.ggpht.com/_iSagC8HPtNA/S7N2_g2SolI/AAAAAAAAAhw/WyKxxnReoUc/private%20sector%20credit_thumb%5B7%5D.jpg?imgmax=800

... and we all know what happened there. (The big difference of course, is that Ireland's central bank is hamstrung by the ECB and couldn't reduce FX rates to compensate for the collapse. Thailand on the other hand has full monetary authority. Expect the baht to plunge. Probably not next year, but as these cycles go, it will almost certainly happen before '16. Particularly if foreign import demand continues to stall, and the US taper continues. My two baht, of course...)

Edited December 20, 2013 by Senechal

[fifthcolumn]

Between PraRam9 and Suttisan mrt stops along Rachadapisek extending back no more than ten min walk on any given soi there are nearly two dozen condo projects in some stage of completion. I bet the unit number is about 20,000. Then you have another half dozen older condos in the area and another half dozen new condos ( less than four yrs). The newer condos have tried every sort of con to sellnthe condos, but not lower the price. From iPads to cars. As it stands, the last of one crappy condo block is trying to get rid of last few units for about 60% the original advertised ask. Another two have all but given up and now post signs "rentals". Most of these shoeboxes have three things in common. Miserly sqm, lack of windows, crappy balconies - all at a 3m price tag. Maybe its for show and when the projects are done there will be a rethink according to the market - but it's madness.

Then you have the older units which no one will.want because they are all built right on top of thr busiest road inside Bangkok.

I am curious ehat will happen to PR9 Belle project. It is an absolute monster. The flats can be decent size, but msny are on ask at 8m (hahahahaa).

The speculators esp the little guys are going to get smashed.

When will it come to a head? Who knows, could be the end of QE. Could be WHEN the stock market tanks from 16 to 9.5.

Just gotta remember, artificial forces keeping the market on life support. Any day, month, year or never. But, no way all the black money in Thsilsnd can float the condos I mentioned, let alone the other projects.

The true pain will come if people get thrown out of work. This is starting now. Companies downsizing and rethinking, laying off older $$ employees even if they have to pay big severance. I know a big corporation going thru this now. Look at the office and shops in the main areas, lots of empty shops last six months. Loads of empty little kiosks in.shopping malls. Lots of upscsle food stslls failing. Govt has been whinging about a downturn in gdp nearly two years. Loads of ancedotal evidence. Gdp is awful this year, like 3%.

Coming

[meand]

I don't believe in "waiting for the right time to buy" in Thailand. Imo, what will probably happen, is even if you did that, somebody who bought years before you and realized gains, will probably be way ahead of you after you buy, even when considering the potential crash. All those years you fail to buy, and the economy does well, you are "losing" as well.

The people just sitting around waiting all their lives for the "right time to buy" are the ones working until they are 70.

A big key to life and financial independence is owning your residence. Don't let anybody dissuade you if you have the money and you want your own place

Ha! Tell that to the people who bought in 1995 and lost their shirts. Or to the smart souls who said "no way" in 1995, and bought wisely in 1998.

Think it won't happen again? You don't know Thailand, IMHO.

I dont believe in looking for one point in time where "you would have been screwed if you bought" and letting that ruin your entire investing life. Those examples will always exist. Plus, I think you'd be fine today if you bought in 95, if you held that is.

To each their own.

Edited December 21, 2013 by meand

[VegasVic]

A plate of Goaw pad Kai doubled in price in the last 5 years, if land also doubled in the same time it tells you that it is caused by a Thai baht that is worth less.

Inflation en devaluations of the Thai baht are the main reason why real estate 'never' go down in price. (Not only a Thai phenomenon, happens everywhere where QE is the new normal.)

Add to that the unwillingness of most Thai people and companies to sell at a loss, combined with virtually no taxes.

At the moment we have that slump in real estate sales and lower Thai baht value.

First of all, most of those 20 baht street meals went to 30 baht not 40 baht, and the reason for most of that increase was the raise in minimum wage for the lower economic class of Thai citizens, however these folks have little or no bearing on real estate values in Thailand As for property prices in Bangkok and elsewhere in Thailand, they are most definitely overpriced as is real estate and other assets in many parts of the world, and these inflated prices are due to what is known as quantitative easing Given that the printing presses in the U.S., U.K., E.U. and Japan are slowing down I would expect to not only see property prices come down in the LOS over the next few years but also the Thai stock exchange values as investor funds are repatriated out of baht and back to their home countries (Dollar, Pound, Euro, Yen ect.) Renting is a far better value in the LOS than buying, that is unless the property values are halved!

[Senechal]

I don't believe in "waiting for the right time to buy" in Thailand. Imo, what will probably happen, is even if you did that, somebody who bought years before you and realized gains, will probably be way ahead of you after you buy, even when considering the potential crash. All those years you fail to buy, and the economy does well, you are "losing" as well.

The people just sitting around waiting all their lives for the "right time to buy" are the ones working until they are 70.

A big key to life and financial independence is owning your residence. Don't let anybody dissuade you if you have the money and you want your own place

Ha! Tell that to the people who bought in 1995 and lost their shirts. Or to the smart souls who said "no way" in 1995, and bought wisely in 1998.

Think it won't happen again? You don't know Thailand, IMHO.

I dont believe in looking for one point in time where "you would have been screwed if you bought" and letting that ruin your entire investing life. Those examples will always exist. Plus, I think you'd be fine today if you bought in 95, if you held that is.

To each their own.

Well, I believe exactly the opposite. Seen the hundreds of enormous unfinished Bangkok buildings which are a blight on the landscape? I'm not really sure how the 100% loss of those investments didn't equal "screwed".

Timing is everything in investing. Recent history in Thailand is filled with thousands upon thousands of cases in which investors suffered 100% losses of capital due to poor timing. Others suffered years of negative earnings.

Here we are in 2013 and consumer debt is worse than it's ever been in Thai history. Political unrest once again threatens stability. The life-support from the US Fed is drying up. Emerging markets are tumbling. Hot money is running for the exits and IPO's are getting canceled right and left. Available condo units on the horizon are still surging. Unit prices have already doubled. The 2 trillion baht infrastructure fund might not happen at all now. The rice pledging scheme has a sunset date now. S&P warned that Thai banks are at the highest risk of defaults in Asia. ASEAN unification is just over a year away, with cheaper labor across every single Thai border (the carnage in SME's will be epic). And that baht is too high according to numerous analysts. ... The road ahead isn't clear but it sure doesn't look like timing is good at the moment.

To each their own indeed!

[GAS]

Interesting thoughts Senechal, hard to argue with any of them. I will say tho', my condo is 20 years in 2014, a little run down but it is built like a brick sh!thouse and will not be going anywhere soon, not fancy and you kinda know what you are getting into at that point.

A lot of the newer condos thrown up in the last few years...those may not fair as well.

I bought mine but it wasnt bubble price as it was older and used...but good location and I dont plan on selling it anytime soon...it is someplace to live.

All that said....TIT so maybe things wont blow up as wonderfully as these did in the US but it is SUPER bubbleville here right now.

[Rancid]

The world economy should have crashed already, shows the central bank monopolies have been able to grease the wheels (print money) for quite a while, as such hard to say when this unsustainable mess will all come tumbling down. No doubt the Thai market is in a bubble, but as to when it will pop? If buying to live probably doesn't doesn't matter, investors are the ones that need to keep their wits about them.

We got some really cheap condos many years back, but the secret was to know someone inside the bank. Head office will demand full return for so long, then they will sell at a loss to move the excess off their books. I didn't set it all up, but have suspicions as to how it went down. Large groups of units were bought with time to finalise, other buyers were found to offload and the markup with no deposit or risk was banked. Good deal if you have the contacts, buyers also did OK, so no losers.

[bermondburi]

The Baht has lost 10% against my local currency , so hopefully it will continue to slide

[pistachios]

I'm not sure about the whole national market but there is clear sign of a bubble in many areas.

In Phuket, the housing market has been rising regularly, but it remains healthy. On the lower prices, like in moobahns in the middle of the island, it is selling well and many thai families are living there. It's just not pure speculation.

For more upmarket products, there is also no shortage of retired foreigners who are looking for a nice house. Prices are quite high, but even for investment purposes they are not crazy, as the demand for holiday rentals is very good and I believe you can get a decent roi.

On the other hand, the condo market is doomed for a complete failure. Many buildings are sprouting up everywhere. In patong you may be able to rent an appartment quite easily but in the middle of the island? Thais are not going to rent a 10k+ 40 sqm appartment with the salary they make. If they are able to buy it, they won't live there either. It's too far from everything for tourists. So who are going to live there? English teachers? They can still rent a decent bungalow in chalong for the same price. University students with parents rich enough to afford the rent but living far from phuket? Not enough of them for sure.

In rawai, many upmarket condos are being build. Some buildings have been stalled for a long time. They just don't sell. A big project on sai yuan has been finished for like 3 years but it still completely empty. i drive past regularly in the evening and I have never seen more than one or two appartment occupied, over 50 or maybe a hundred condos! I visited one 2 of these a few years ago. Asking rent was 30 to 45k per month long term for a 2 bedroom place, the price of a house with a private pool in the same area. yeah right...

Also, in issaan prices of land are getting crazy. They have risen 10x to 40x in like 5 years in a place I know. But I don't comprhend this rise :

- the city is developing but it's still an hour away from nearest big city (korat)

- no decent school, hospital, shopping mall in the vicinity. Have to go to korat.

- no particular sight around, moutain, lake or river which would make the place pretty. It's just a plain.

- closest tourist attraction is pimai temple a 30 minutes drive from there.

- no plans of a factory or offices building setting up there, so no more jobs to get

- no shortage at all of available land as there is still tons of fields around the city

So there is SFA going on for this place. But the asking prices for 1 rai is between 500k to 4 million! Complete madness...

[fish fingers]

The main areas like Ekamai and Thonglor will hold their value, not sure about other parts of Bangkok. One area that looks good for investment right now is Dusit (houses).

[trogers]

The main areas like Ekamai and Thonglor will hold their value, not sure about other parts of Bangkok. One area that looks good for investment right now is Dusit (houses).

Doubt this. Many new projects have unrealistic asking sales prices and rents when under investment evaluation, meaning they are overpriced. Those with realistic prices are not favourably located. A simple method to check is whether vacancy rate is double digit.

Then again, you may think these two areas will hold their values when compared with areas like Rachada, Sathorn, Rama 3 or Onnut to Udomsuk, as the latter areas have vacancy rates that are double the double digits...

Edited January 2, 2014 by trogers

[VegasVic]

I have an impression that a lot of people hoped for bubble to blow as it did in USA but it never happened.

To buy anything as investment in Thailand you better to know something most don't know.

My opinion is to buy only for private use and if you have extra money.

A bubble may burst, or may slowly deflate.

Property prices in Japan peaked at 1990 and then deflated for over 20 years to reached pre-bubble levels. A generation of working class avoided buying homes and rented instead.

Trogers, Your point is well taken, although the Thailand model is likely a lot closer to the U.S. model than the Japanese one. There were also extenuating circumstances both in the Japanese situation back in 1990 that were specific to Japan and the U.S. real estate crash (2008+) due to the wall street banksters insatiable desire for subprime mortgages to bundle and sell out the back door that put pressure for the mortgage brokers across the U.S. to lower lending standards, also the bidding up of properties by flippers which is common in all bubbles. I too see a slow unwinding of property prices in Thailand ( a little quicker should the Chinese bubble burst this year) rather than a crash, perhaps a 3-5 year timeframe