Chiang Mai property bubble?

[worgeordie]

The property bubble Thai style is very different to what has occurred

in the West, here property bubbles don't explode,they just deflate

very slowly,the banks are very slow to foreclose on defaults,owners

are very reluctant to take any kind of loss, even with all this building

and expansion going on its very difficult to find a bargain,and that

will still be the same if/when the bubble deflates ,once again,its a

cycle ,has happened before and will happen in the future.

regards Worgeordie

[BlackArtemis]

What I worry about is the "Chiang Mai Property Bubble Thread Bubble"

Over the last few years the Chiang Mai subforum has grown immensely.

Just searching around at how many threads are being made in and around the Chiang Mai sub forum foodie, price of beer, property bubble threads....it is unbelievable, I have never seen growth like it! It's like a posting frenzy!

Are cracks starting to appear eg. Property bubble threads only pages away, sometime even on the same page?

Are they viable? Difficult to tell, as a lot are dormant.

Is there really that much demand or are we heading for a forum crash?

/Just have a joke OP, it is a topic that does interest me though, as I would like to own property here one day, either a condo or land in another's name.

[tango]

it is going to happen as a lot of empty places to rent,and many more being built.so it will happen but when is the question

Not so sure about your wishful 'will happen'.

Been here over two decades, and given various scenarios where one might be tempted to speculate that a property bust 'will happen', nothing of the sort has ever materialized.

The Thai owners would rather sit on the empty property for years rather than sell at a loss, and the loss they calculate is from current market prices.

Thai buyers prefer to purchase new.

If you are now thinking of buying a home or condo 'on the cheap' in Chiangmai or even its outskirts, it's too late; you've missed the proverbial boat.

Edited February 28, 2014 by tango

[beau thai]

it is going to happen as a lot of empty places to rent,and many more being built.so it will happen but when is the question

Not so sure about your wishful 'will happen'.

Been here over two decades, and given various scenarios where one might be tempted to speculate that a property bust 'will happen', nothing of the sort has ever materialized.

The Thai owners would rather sit on the empty property for years rather than sell at a loss, and the loss they calculate is from current market prices.

Thai buyers prefer to purchase new.

If you are now thinking of buying a home or condo 'on the cheap' in Chiangmai or even its outskirts, it's too late; you've missed the proverbial boat.

Sure people have missed that proverbial boat but whatabout the one they can board now? Will the fare look cheap in 5 years time-or expensive?? My bet is cheap

[worgeordie]

it is going to happen as a lot of empty places to rent,and many more being built.so it will happen but when is the question

Not so sure about your wishful 'will happen'.

Been here over two decades, and given various scenarios where one might be tempted to speculate that a property bust 'will happen', nothing of the sort has ever materialized.

The Thai owners would rather sit on the empty property for years rather than sell at a loss, and the loss they calculate is from current market prices.

Thai buyers prefer to purchase new.

If you are now thinking of buying a home or condo 'on the cheap' in Chiangmai or even its outskirts, it's too late; you've missed the proverbial boat.

Sure people have missed that proverbial boat but whatabout the one they can board now? Will the fare look cheap in 5 years time-or expensive?? My bet is cheap

That all depends on the location of said property, but wont the price of cement ,iron rods,sand, labour,and interest rates in 5 years time be greater

oh and i forgot the price of land which has never dropped in price,just keeps going up,as there is a finite supply of suitable land.so new expensive

builds also take the value of older units up with them.seeing into the future is never easy,but looking at the past,this is my view.

regards worgeordie

[binjalin]

Tons of BKK money flooding in and no signs of downturn - floods/politics and the rest is pushing money here and long may it continue

[grin]

I picked my moo baan here in Padaet based on proximity to the airport as I travel a lot. I never expected to be able to sell at a profit, especially due to the somewhat low standards of construction. However, in the past 6 months we have seen 4 year old houses here selling for more than 50% over the original price. Most of the new buyers seem to be from Bangkok or China. A pair of houses on one plot which I thought would never sell was bought by a couple from Hong Kong for almost double the original price. Monthly rents for 500 square meter houses here are now topping 100,000 THB per month. Although that may seem like a lot you would be lucky to find a 2 bedroom apartment in San Francisco for that amount.

Grin

[heybruce]

I picked my moo baan here in Padaet based on proximity to the airport as I travel a lot. I never expected to be able to sell at a profit, especially due to the somewhat low standards of construction. However, in the past 6 months we have seen 4 year old houses here selling for more than 50% over the original price. Most of the new buyers seem to be from Bangkok or China. A pair of houses on one plot which I thought would never sell was bought by a couple from Hong Kong for almost double the original price. Monthly rents for 500 square meter houses here are now topping 100,000 THB per month. Although that may seem like a lot you would be lucky to find a 2 bedroom apartment in San Francisco for that amount.

Grin

500 square meters is huge. I assume houses of that size are for very high end renters, which would explain a price of 200 baht per square meter. Most people can get by with much less house, and if they shop around they can find much lower rents.

San Francisco is a peninsula, there's no room to grow. Most cities with high rents have something restricting new construction, which isn't the case in Chiang Mai. Here new construction is insanely unrestricted.

[Thighlander]

That's why you will see better appreciation in the close in areas, where there is only in-fill, or no lots at all. Some of the highest value properties I've seen, would probably be worth more without the perspective buildings on them. In the States, the exhurbs got hit first and hardest. They have a saying, "drive till you qualify," which is what the inexperienced buyers did, also making those homes more riskier for foreclosure waves, which are big value killers. Going for that new house smell, is a big mistake, the home won't ever be "new" again, and usually it takes a few years for serious defects to surface.

[THAIJAMES]

Illegal gotten cash is invested in the real estate business.

The buyer (launderer) asks the seller to sell the property at very low price (paying the rest in cash under the table) When the property is resold, the official price has increased and the money launderer can claim a legal profit.

The seller also benefits because he can claim a loss and not have to pay taxes!

In Thailand its probably easier than that, with no body actually checking the books or paid to look the other way, any enquires regarding income and the launderer can show that profit was made from real estate investments.

There is an absolute frenzy of shop house construction going on,everywhere. There are literally 1000's of old shop houses vacant and an equal number under construction or ready to rent/buy. Due to their size, you are very limited on how you can utilise the space. How can there possibly be a financial return now, or in the future? Money laundering is a distinct possibility for some.

Would love to see official figures if there are such a thing.

I have a friend who knows some thing about money laundering. He figures there is an awful lot of it going on here in Thailand.

I thought the states were getting on Thailand's case about that a while back.

Uhmm...what? I admit I'm not an expert on money laundering, but what little I learned from my time in Central America is that basic money laundering involves cash businesses--casinos, movie theaters, bars, laundromats, etc. Property purchases usually leave a paper trail, which money launderers hate.

But, as stated, I'm not an expert. Did your friend explain how the restrictive process for foreigner's owning property in Thailand was used in money laundering?

Edited March 1, 2014 by THAIJAMES

[chiang mai]

Illegal gotten cash is invested in the real estate business.

The buyer (launderer) asks the seller to sell the property at very low price (paying the rest in cash under the table) When the property is resold, the official price has increased and the money launderer can claim a legal profit.

The seller also benefits because he can claim a loss and not have to pay taxes!

In Thailand its probably easier than that, with no body actually checking the books or paid to look the other way, any enquires regarding income and the launderer can show that profit was made from real estate investments.

There is an absolute frenzy of shop house construction going on,everywhere. There are literally 1000's of old shop houses vacant and an equal number under construction or ready to rent/buy. Due to their size, you are very limited on how you can utilise the space. How can there possibly be a financial return now, or in the future? Money laundering is a distinct possibility for some.

Would love to see official figures if there are such a thing.

I have a friend who knows some thing about money laundering. He figures there is an awful lot of it going on here in Thailand.

I thought the states were getting on Thailand's case about that a while back.

Uhmm...what? I admit I'm not an expert on money laundering, but what little I learned from my time in Central America is that basic money laundering involves cash businesses--casinos, movie theaters, bars, laundromats, etc. Property purchases usually leave a paper trail, which money launderers hate.

But, as stated, I'm not an expert. Did your friend explain how the restrictive process for foreigner's owning property in Thailand was used in money laundering?

That's a decent theory except it's wrong!

The Land Office in Chiang Mai maintains a register showing the value of all properties and when a sale is made, the price is checked against that register. The price can increase but it never decreases hence there's a guide for calculating sales tax. It's therefore not possible for someone to understate the price to any meaningful degree and efforts to do so are viewed as tax evasion.

[Thighlander]

but actually, that is a common practice in Thailand. If things go well, they use their assessment/appraisal as the sale price. Apparently they are showing too many Miami Vice reruns on WeTV. There are many checks and balances to insure money is legit. Transactions over 20K (wire) are scrutinized by the BoT. As an American, I am required to report my foreign bank account (if it ever has more than 20K USD).

They actually have money sniffing dogs at the US/Mexico land border I used to reside near. They would get a few hundred thousand a couple of times a month. While the Underground Economy is quite large; to say that it is remotely a pillar of the Thai property market is on the absurd side. For many foreigners, they can simply sell their homes in their home countries; and buy a nicer house in Thailand with only the profits, and yes, they won't be paying huge property tax bills anymore. But, there is a huge difference in tax avoidance and tax evasion.

[chiang mai]

but actually, that is a common practice in Thailand. If things go well, they use their assessment/appraisal as the sale price. Apparently they are showing too many Miami Vice reruns on WeTV. There are many checks and balances to insure money is legit. Transactions over 20K (wire) are scrutinized by the BoT. As an American, I am required to report my foreign bank account (if it ever has more than 20K USD).

They actually have money sniffing dogs at the US/Mexico land border I used to reside near. They would get a few hundred thousand a couple of times a month. While the Underground Economy is quite large; to say that it is remotely a pillar of the Thai property market is on the absurd side. For many foreigners, they can simply sell their homes in their home countries; and buy a nicer house in Thailand with only the profits, and yes, they won't be paying huge property tax bills anymore. But, there is a huge difference in tax avoidance and tax evasion.

I agree it's a common practice, the only thing in question is the vehicle. Under/over stating the price is an obvious method which is why the Land Office now has a reference point. Similarly, the limited company approach using Thai nominees was cracked down upon about two years ago as I recall.

But the above is hardly indicative of money laundering, nobody really gives a toss about 5 or 10 million baht of dodgy money from an individual, my guess is that a closer inspection of the larger construction companies might reveal the true picture.

[THAIJAMES]

In reference to money laundering

The Land department does not keep a register of past sales. What it does do is set a minimum value price for each land area. When you transfer land, you must pay taxes equal to or higher than this minimum price.

This minimum price is raised every few years but is usually well bellow the real price.

Even so, what matters is not what taxes you pay but the transaction that is made in the contract and what you declare.

Also keep in mind that I was referring to real estate investments and not the purchase and sale of bare land, and hence the boom in building.

Most real estate transactions don't actually require any movement through the land department. An investment can simply be made by buying company shares. So the money launderer can buy the shares at a low price and then sell high.

If he is not really worried about the source of his funds being investigated, he can just pay the regular price and eventually the funds get co-mingled and it is easy for them to show that funds came from other "successful" real estate investments.

Edited March 1, 2014 by THAIJAMES

[THAIJAMES]

Also any person in a position of higher authority in Thailand will likely be earning an illegal income. In order to live a good lifestyle and in order not to be seen living "beyond their means" They usually need to have side businesses to show that their money comes from there and not from them doing anything illegal.

Real estate is just one of these businesses, better businesses are businesses that generate a lot of cash, so that the illegal cash can easily be co mingled with legal cash and declared as a legal profit.

[chiang mai]

In reference to money laundering

The Land department does not keep a register of past sales. What it does do is set a minimum value price for each land area. When you transfer land, you must pay taxes equal to or higher than this minimum price.

This minimum price is raised every few years but is usually well bellow the real price.

Even so, what matters is not what taxes you pay but the transaction that is made in the contract and what you declare.

Also keep in mind that I was referring to real estate investments and not the purchase and sale of bare land, and hence the boom in building.

Most real estate transactions don't actually require any movement through the land department. An investment can simply be made by buying company shares. So the money launderer can buy the shares at a low price and then sell high.

If he is not really worried about the source of his funds being investigated, he can just pay the regular price and eventually the funds get co-mingled and it is easy for them to show that funds came from other "successful" real estate investments.

That is only partially correct although the LO also keep a record of past sales which is used as a reference for future sales, case in point is condominium sales where land value is not a factor. The last time I sold a condo here in CM I was told what the value would be for tax purposes, based on the previous sales transaction, the LO figure was about 40% of the actual sales value and at that time.

[THAIJAMES]

Yes you are correct, what I meant is that the land department does not look at past sales price on a property to set the minimum amount of tax that must be paid.

In reference to money laundering

The Land department does not keep a register of past sales. What it does do is set a minimum value price for each land area. When you transfer land, you must pay taxes equal to or higher than this minimum price.

This minimum price is raised every few years but is usually well bellow the real price.

Even so, what matters is not what taxes you pay but the transaction that is made in the contract and what you declare.

Also keep in mind that I was referring to real estate investments and not the purchase and sale of bare land, and hence the boom in building.

Most real estate transactions don't actually require any movement through the land department. An investment can simply be made by buying company shares. So the money launderer can buy the shares at a low price and then sell high.

If he is not really worried about the source of his funds being investigated, he can just pay the regular price and eventually the funds get co-mingled and it is easy for them to show that funds came from other "successful" real estate investments.

That is only partially correct although the LO also keep a record of past sales which is used as a reference for future sales, case in point is condominium sales where land value is not a factor. The last time I sold a condo here in CM I was told what the value would be for tax purposes, based on the previous sales transaction, the LO figure was about 40% of the actual sales value and at that time.

[Dante99]

The property bubble Thai style is very different to what has occurred

in the West, here property bubbles don't explode,they just deflate

very slowly,the banks are very slow to foreclose on defaults,owners

are very reluctant to take any kind of loss, even with all this building

and expansion going on its very difficult to find a bargain,and that

will still be the same if/when the bubble deflates ,once again,its a

cycle ,has happened before and will happen in the future.

regards Worgeordie

Do you really think the 1997-1998 property bubble deflated slowly? Sure the banks were slow and owners did not want to sell but the transaction prices dropped very quickly didn't they? Admittedly the transaction volume became very small very quickly.