New visa & immigration restrictions - Impact on rentals

[MrGraz]

As someone who has invested moderately in Thai condo property for the purposes of generating modest recurring rental income, the new visa restrictions are somewhat of a concern to me.

I don't worry so much about continuing to pull in high-season rentals at 1-month durations (and those honestly make up 90% or more of the income potential). But I do worry that the likelihood of attracting longer term rentals (6-month to 1-year) will be significantly impacted. I haven't been pulling in long-term rentals that often anyway, but I could see that possibility virtually disappearing.

Any others see this is a possible concern?

[KittenKong]

It seems fairly obvious to me that if Thailand prevents people under 50 from staying here long-term (whether they are working illegally or are simply well-off) then there will be an impact on long-term property rentals and purchases.

But there will also be an impact on short-term rental prices in high season as many of the places that used to be taken all year would then be available all year, including the high season.

So in tourist areas where traditionally there have been a lot of long-term foreign residents (Pattaya, Phuket etc) I think one can reasonably expect all accommodation prices to move downwards, and possibly by quite a large amount. Many rental prices have been absurdly high here for a long time, as have many purchase prices, so it is probably just a long overdue correction.

Given the number of people who have bought "investment" condos in Pattaya on the hope of either renting them out or selling them on, the domino effect could be quite substantial. Personally I would not be surprised to wake up one day and find that my condo is worth only half what I paid for it, but I knew that when I bought it. I certainly would never buy one here other than to live in myself.

Edited July 20, 2014 by KittenKong

[MrGraz]

It seems fairly obvious to me that if Thailand prevents people under 50 from staying here long-term (whether they are working illegally or are simply well-off) then there will be an impact on long-term property rentals and purchases.

But there will also be an impact on short-term rental prices in high season as many of the places that used to be taken all year would then be available all year, including the high season.

So in tourist areas where traditionally there have been a lot of long-term foreign residents (Pattaya, Phuket etc) I think one can reasonably expect all accommodation prices to move downwards, and possibly by quite a large amount. Many rental prices have been absurdly high here for a long time, as have many purchase prices, so it is probably just a long overdue correction.

Given the number of people who have bought "investment" condos in Pattaya on the hope of either renting them out or selling them on, the domino effect could be quite substantial. Personally I would not be surprised to wake up one day and find that my condo is worth only half what I paid for it, but I knew that when I bought it. I certainly would never buy one here other than to live in myself.

Our thinking is nearly the same. Fortunately rentals make up maybe 10% of my portfolio...they certainly don't or won't make-or-break me. I've been extremely cautious knowing the volatility and uncertainty of Thailand can change the landscape of things literally overnight.

I will say that if property prices do drop anywhere in the 30-40% (even 50%) range, I might be a buyer for my own retirement home needs. Although when I look at how many years I'm likely to remain alive on this 'ol Earth of ours, and play monthly rent costs over that estimated number of years, it's very difficult to justify dropping that big lump sum for house or condo ownership. From a pure fiscal logic point of view, rental just makes a lot of sense unless money is truly a non-factor & you want to live the 'high life'.

[KittenKong]

Although when I look at how many years I'm likely to remain alive on this 'ol Earth of ours, and play monthly rent costs over that estimated number of years, it's very difficult to justify dropping that big lump sum for house or condo ownership.

Indeed. If you arent very young or thinking of leaving something for your dependants then buying here doesnt make much sense financially, at current asking prices anyway. The occasional fire sale that comes on the market might be a different matter.

[ldnguy]

If prices dropped 30-40% I'd buy right away. I very much doubt you'll see prices dropping that much. Even in the recent financial crisis in UK and US it was rare to have those sorts of price movements. There aren't many border runners compared to the total number of renters/buyers. Just look at the figures. Huge numbers of properties get rent and sold every month. The visa runners are a tiny drop in the ocean compared to overall figures. I think many farangs think they prop up the Thai economy with their 30 baht lunches and 5,000 baht rooms. The reality is very different. I think most farangs have no idea of the amount of Thai renters/buyers.

I think rental prices will remain where they are now or maybe there'll be small drops, bit not much at all. Getting rid of the dross may encourage others to come here and that would increase prices.

Some people like to talk about property price crashes, but these people usually have a complete lack of understanding of the property market. They just pluck figures from the air (e.g. 30-40%), and never explain how that would come about. Removing a small amount of demand from a property market does not crash prices by 30-40%. People have been saying things like that in the UK for the last 30-40 years. Meanwhile my property is up almost 10-fold. I'm still waiting for the big crash and still get told it's coming. Even if prices crash 50% in UK I'll still be well ahead. Don't listen to the doom mongers. They are broke and jealous.

[Senechal]

The new visa rules could certainly put some downward pressure on prices and sales volume. But in my estimation, I think a far bigger risk to asset values is the fact that our current global financial cycle is looking rather long in the tooth. I know of literally no one who remains bullish on a Western equity markets at these levels. The efforts to bury Europe's severe financial problems has worked for some time, but we are getting to the point where it won't work any longer. China's slowdown has morphed from a "maybe" to a "definitely" to a "how bad is this going to be?" way of thinking.

I could go on. But anyone who invests over the long term knows that macro-cycles have wide-reaching effects across all asset classes, and are definitely not "contained" in today's world. I don't see how this is a good time to buy real estate anywhere in the world. And for those owners who cling to the belief that "people have to live somewhere" and therefore they will rent -- that simply is not true. People downsize. People move in with family. People stop worrying about comfort and start looking at the bare minimum required for survival.

I don't think visa rules are the major threat to values or revenue streams. It's bigger than that right now. But certainly visa rules will have some impact in some areas.

[KittenKong]

If prices dropped 30-40% I'd buy right away. I very much doubt you'll see prices dropping that much. Even in the recent financial crisis in UK and US it was rare to have those sorts of price movements.

Hmmm. Try looking at Ireland. And I would disagree with your comment in respect to many places in the US also.

The UK as a whole was bolstered in the recent crash by the fact that residential property there is in short supply, and as long as that continues the prices will have support. Of course in less desirable areas where there is a good supply of available property prices did drop heavily during the crash, and in some places there houses are now virtually unsellable at any price. Upward price movements in London and the home counties tend to mask what is happening elsewhere in the country.

In most (all?) tourist areas in Thailand (ie the sorts of places in which most visa runners probably live) there is absolutely no shortage of any sort of property. In fact there is a vast oversupply already and masses of empty land on which to build more, and so I see nothing to support prices there apart from thin air and hope.

[trogers]

See only impact on rental units that rely on short term travellers, and not those with tenants on long term visa.

[jonclark]

I think as well as the comments above the long term impact of ASEAN and the movement of labour (and hence requirement for housing) should also absorb any housing surplus.

A couple of years ago there was a 'smart visa' system being talked about - 1 visa for access to all ASEAN countries - and i'm sure that in the next 5 years the start of visa free travel for ASEAN citizens between ASEAN countries will start to take shape. Logically the EU model will be the ultimate goal - and the abolition of WP for ASEAN citizens.

So short term maybe a blip - long term not really an issue - unless ASEAN goes completely belly up.

[ldnguy]

I don't see how this is a good time to buy real estate anywhere in the world. And for those owners who cling to the belief that "people have to live somewhere" and therefore they will rent -- that simply is not true. People downsize. People move in with family. People stop worrying about comfort and start looking at the bare minimum required for survival.

There is always somewhere in the world where property is doing ok, so I don't agree with your comment. Even when the global economy is in recession, many countries are still experiencing growth. Right now London may still be a great place t buy. Prices up 20-30% in some areas. That's a £200K-300K profit for buying one £1 million property. This is like free money at the moment. Yes, it could go wrong, as can everything in life, but I believe in that old saying... make hay while the sun shines. You, and many like you, probably say... even though the sun is shining, don't bother making hay because it will stop shining soon.

Property has given fantastic returns over decades. When exactly do you think is the time to invest in it. As the market is difficult to predict I think it's better to always be buying, regardless of where we are in the cycle. People like you tend to miss out on the best gains because you're too frightened to buy at the best times.

Generally, I wouldn't buy Thai property for investment. I might buy select properties here for investment though. e.g. the right place and the right price. And I plan to buy a condo for myself soon. Will the value of that condo drop? I don't know and I don't care, as I'm buying it for a long term base.Why rent? 30K baht per month means I'll pay 3.6M baht over 10 years. 10.8m baht over 30 years. And that's assuming rents didn't rise for 30 years. Buying is the best option for a long-term stay.

[KittenKong]

See only impact on rental units that rely on short term travellers, and not those with tenants on long term visa.

This is like saying that a new speed limit would affect Fords but not Toyotas.

If any part of the rental market decreases then those left will have more choice and so prices will drop. It applies to increases in demand also. There is always a knock-on effect across sectors.

Unless of course you believe in the Thai custom of raising prices as trade decreases, in which case we can probably expect 25sqm condos to rent for 100K/month.

[trogers]

See only impact on rental units that rely on short term travellers, and not those with tenants on long term visa.

This is like saying that a new speed limit would affect Fords but not Toyotas.

If any part of the rental market decreases then those left will have more choice and so prices will drop. It applies to increases in demand also. There is always a knock-on effect across sectors.

Unless of course you believe in the Thai custom of raising prices as trade decreases, in which case we can probably expect 25sqm condos to rent for 100K/month.

Location, location and location.

How much demand a location has from long term visa holders will determine the difference in impact. I do not see a high percentage of long term visa holders in holiday locations, as against main business areas.

High vacancy in Pattaya or Phuket will not affect my rental units in CBD Bangkok.

[ldnguy]

See only impact on rental units that rely on short term travellers, and not those with tenants on long term visa.

This is like saying that a new speed limit would affect Fords but not Toyotas.

If any part of the rental market decreases then those left will have more choice and so prices will drop. It applies to increases in demand also. There is always a knock-on effect across sectors.

Unless of course you believe in the Thai custom of raising prices as trade decreases, in which case we can probably expect 25sqm condos to rent for 100K/month.

I see it more like a new speed limit in California won't affect drivers in New York.

[KittenKong]

See only impact on rental units that rely on short term travellers, and not those with tenants on long term visa.

This is like saying that a new speed limit would affect Fords but not Toyotas.

If any part of the rental market decreases then those left will have more choice and so prices will drop. It applies to increases in demand also. There is always a knock-on effect across sectors.

Unless of course you believe in the Thai custom of raising prices as trade decreases, in which case we can probably expect 25sqm condos to rent for 100K/month.

I see it more like a new speed limit in California won't affect drivers in New York.

Maybe, but this thread appears to be about specific areas where there is both a short- and long-term rental market. So to my mind that's places like Pattaya/Phuket rather than Bangkok.

[californiabeachboy]

A good thread to read. One thing to mention, aside from location, and supply and demand, what about the wages and/or income of the people who want to live in Thailand?

I use the example of my former home - San Francisco. The rents there are out of control - up 50% or more. The reason? - of course supply - it is a small city (I have run across it, and I am not a great runner - it is 7.8 miles to be exact, nearly killed me). But the wages have increased to ungodly amounts because of the new Google and Twitter millionaires, so the rents have gone up accordingly.

Someone upthread mentioned London. My guess is that prices have gone up because it is a magnet city, and rich people from other parts of the world want to live there (think Russian Oligarchs).

For Thailand, I don't think the lack of visa runs will affect rents much. What is more important is wages in the area, or the desire of rich people from other countries to want to spend time there.

[trogers]

A good thread to read. One thing to mention, aside from location, and supply and demand, what about the wages and/or income of the people who want to live in Thailand?

I use the example of my former home - San Francisco. The rents there are out of control - up 50% or more. The reason? - of course supply - it is a small city (I have run across it, and I am not a great runner - it is 7.8 miles to be exact, nearly killed me). But the wages have increased to ungodly amounts because of the new Google and Twitter millionaires, so the rents have gone up accordingly.

Someone upthread mentioned London. My guess is that prices have gone up because it is a magnet city, and rich people from other parts of the world want to live there (think Russian Oligarchs).

For Thailand, I don't think the lack of visa runs will affect rents much. What is more important is wages in the area, or the desire of rich people from other countries to want to spend time there.

Thailand already has a location where wages, rent and cost of living have risen higher than even its capital city - Phuket.

And due to the same reason of rich foreigners wanting to spend time there. Question is, 'Are the locals better off?'

[ldnguy]

A good thread to read. One thing to mention, aside from location, and supply and demand, what about the wages and/or income of the people who want to live in Thailand?

I use the example of my former home - San Francisco. The rents there are out of control - up 50% or more. The reason? - of course supply - it is a small city (I have run across it, and I am not a great runner - it is 7.8 miles to be exact, nearly killed me). But the wages have increased to ungodly amounts because of the new Google and Twitter millionaires, so the rents have gone up accordingly.

Someone upthread mentioned London. My guess is that prices have gone up because it is a magnet city, and rich people from other parts of the world want to live there (think Russian Oligarchs).

For Thailand, I don't think the lack of visa runs will affect rents much. What is more important is wages in the area, or the desire of rich people from other countries to want to spend time there.

Another major driver of property prices is availability of mortgages. Once mortgages are introduced, property prices shoot up. When mortgages weren't available property prices stayed relatively low. Mortgages increase demand massively, which is why the UK government has introduced new laws to make they more difficult to get.

While rich people coming to live in an a real can make prices rise, you don't need rich people for price rises. Many countries have big prices rises just because of massively more demand from non-rich people.

[trogers]

A good thread to read. One thing to mention, aside from location, and supply and demand, what about the wages and/or income of the people who want to live in Thailand?

I use the example of my former home - San Francisco. The rents there are out of control - up 50% or more. The reason? - of course supply - it is a small city (I have run across it, and I am not a great runner - it is 7.8 miles to be exact, nearly killed me). But the wages have increased to ungodly amounts because of the new Google and Twitter millionaires, so the rents have gone up accordingly.

Someone upthread mentioned London. My guess is that prices have gone up because it is a magnet city, and rich people from other parts of the world want to live there (think Russian Oligarchs).

For Thailand, I don't think the lack of visa runs will affect rents much. What is more important is wages in the area, or the desire of rich people from other countries to want to spend time there.

Another major driver of property prices is availability of mortgages. Once mortgages are introduced, property prices shoot up. When mortgages weren't available property prices stayed relatively low. Mortgages increase demand massively, which is why the UK government has introduced new laws to make they more difficult to get.

While rich people coming to live in an a real can make prices rise, you don't need rich people for price rises. Many countries have big prices rises just because of massively more demand from non-rich people.

Mortgages have always been available in modern times. Problem is, are buyers committing into debt beyond their means to finance repayments.

The sub-prime bubble shows us the risk in lack of financial discipline of borrowers and the lack of prudence of lenders.

[cheeryble]

Farang are not the major buyers in Thailand.....Thais are, especially for the multiple lower end units which are going up recently.....just folk with half decent jobs who can affrod be mortgage instead of rent.

It is quite obvious there is a demographic revolution happening whereby Thais are starting to live in condos .....nstead of cramming into the family house.....as a matter of course.

Watch the curtains filling the new windows.

No more cheap land in striking distance of town now.....have to go upwards.

Condos are secure, no gardening, and costs are shared by owners so much more economical.

In other words, for many, condos are starting to make sense.

Sent from my iPad using ThaiVisa app

Edited July 28, 2014 by cheeryble

[Senechal]

Farang are not the major buyers in Thailand.....Thais are, especially for the multiple lower end units which are going up recently.....just folk with half decent jobs who can affrod be mortgage instead of rent.

It is quite obvious there is a demographic revolution happening whereby Thais are starting to live in condos .....nstead of cramming into the family house.....as a matter of course.

Watch the curtains filling the new windows.

No more cheap land in striking distance of town now.....have to go upwards.

Condos are secure, no gardening, and costs are shared by owners so much more economical.

In other words, for many, condos are starting to make sense.

Sent from my iPad using ThaiVisa app

Very true. Far too many people here think that Farangs are incredibly important to the overall Thai economy. With tourism a mere 8% of GDP, and farang condo-ownership a very small piece of the pie, it's simply not a major issue in Bangkok. (That doesn't mean that condo prices aren't getting ahead of themselves -- but it does mean that stricter visa laws won't be the thing that breaks the market).

There are some areas in Thailand that will see real estate impacted strongly by visa changes though -- with Pattaya being most notable.

In Pattaya, there is already a shift underway as thousands of month-to-month expats are realizing that this whole "living in Thailand" thing isn't going to work out as planned. And then there are the thousands of Russians who are working in Thailand illegally. The Pattaya market has some difficult years ahead of it. I know more than one owner who has dumped property in the last month for quite a bit under his asking price.

The number of apartments available for rental in Pattaya has gone from "soaring" to what now looks like a very problematic overhang in supply, and that's a problem for all owners (be they Farang or Thai) hoping to find renters.

[KittenKong]

Far too many people here think that Farangs are incredibly important to the overall Thai economy. With tourism a mere 8% of GDP, and farang condo-ownership a very small piece of the pie, it's simply not a major issue in Bangkok. .....

There are some areas in Thailand that will see real estate impacted strongly by visa changes though -- with Pattaya being most notable.

8% of GDP is more than enough to turn an economy running a trade deficit into one running a trade surplus. And that's all you need to do to be successful over time. Even +1% will do the trick, and -1% will bankrupt the same economy over time just as surely.

If you count the indirect effect on GDP then tourism probably accounts for nearer 15% than 8%. Remove or substantially reduce that 8% or 15% here and you will probably be left with just another sick economy with lots of household debt and no trade surplus.