Invest in a condominium in Bangkok : a bubble risk ?

[Senechal]

What's the rent to buy ratio of the places you're looking at?

[Robert24]

Thonglor is certainly a good location. If the condo is for investment purposes, I would always recommend to calculate the real return on investment and not include any assumption on future price movements of the condo (as people have said on here, depending on what happens the value of the condo can go up or down in the short term nobody knows, I guess in the long term (10 years+) the price will appreciate in a good location like Thonglor).

If you can get 7-8% or more return on your investment I would go for it, if not than I would leave it and look elsewhere for a better investment. Also I think Ezzra mentioned it before about price ranges. Think about who is your target group of people who can rent the apartment, Thais, foreigners? what happens if there is an economic downturn, would that impact your ability to continue to have the returns you calculate? Thais also tend to buy their own property and prefer not to rent. So the people that rent are those that cannot buy a condo because they don't have enough money yet or don't make enough money yet. So my recommendation would be to avoid the luxury segment and buy something appeals to this group I just mentioned (both location and rental price).

hope this helps.

[ldnguy]

It's been rather hard for me to find anything I want to rent near enough to a BTS station for any less than 20K all in and that seems to be a pretty good deal around here. Is it really going to be hard to keep any properly near a BTS or MRT occupied? Let's say you want to live there 6 months a year or you eventually want to live there full time, at least while you are away any rent you can collect can be helping to pay you back on the investment. Where am I going wrong? Not claiming to be an expert here, honest question.

You are wrong in your assumption that it will be easy to rent out a condo near BTS or MRT. There are 100s, maybe even 1000s, of empty condos in these locations. Just go take a look for yourself. Some of these condos remain up for rent for a year or more. There just aren't enough renters to fill the condos that are available for rent.

[Senechal]

Most Westerners come to BKK and don't see the scope of the problem: Absolutely massive quantities of vacant apartments. Most of them have been sold to buyers on credit, who have since defaulted. The properties languish on the books of banks and are for sale -- at the original purchase price. The last part is key. Banks in Thailand do not dump real estate at market value. They preserve the original value of the property on their books as an asset so they can maintain capital ratios.

The result is that banks in Thailand are sitting on hundreds of thousands of units of defaulted property which they have absolutely no intention of liquidating -- but at the same time, they will never be able to sell at their asking price. These units are increasingly dilapidated, and the buildings are aging rapidly. Does that mean they're going to sell them at some point? Hell no. The second they sell, is the second the banks have to realize a loss -- which they will never do.

If you can read Thai, you can browse archives of bank owned properties (don't look for any deals though. The banks aren't interested in selling at a loss. Unused overvalued assets are still very valuable to banks as they form the basis of their capital structure. If they could have sold these properties at their asking price -- they would have).

The government is currently flirting with establishing real estate taxes for the first time. Many people have predicted that this will cause the banks to liquidate properties, as the taxes will begin to eat them alive. Could this happen? Maybe but I doubt it. The banks run the show here (and everywhere). What's good for the banks (ie: No real estate taxes) is what's going to be reflected in policy. And what's potentially destabilizing for the banks, ain't gonna happen.

My two baht, of course.

Edited October 22, 2014 by Senechal

[JThai]

Well this is good info but why can't I find anything at around 20K near those areas if they are all sitting empty ? Wouldn't rental rates at least come down with the market. Not the bank owned ones but ones that are already paid for.

[SheungWan]

" Actually I like Jim Cramer."

that explains so much about you

http://www.dailykos.com/story/2009/03/05/705113/-Jim-Cramer-Uses-CNBC-to-Manipulate-Stocks

Things must be pretty desperate if you have to rummage around in the left-wing blog conspiracy department. Jim Cramer provide a useful antidote to those who go into a panic whenever the markets get volatile, though he himself famously flipped in 2008 at what he perceived to be the Fed's underestimation of how fast and dangerous things were moving. The anti-Wall Street gold bug fraternity obviously don't like anybody talking about stocks at all really so I guess they're not watching CNBC too much during the day.

Gold is a truly awful store of value.

But CNBC's viewership has plunged down to 1994 levels. ...and Jim Cramer is a national embarrassment.

There's nothing "left wing" about realizing that the current system is on a terminal trajectory. It's called "Being good at math".

If my viewing was decided by that which was most popular I guess I should be watching Fox.

As for terminal trajectories well that hasn't worked according to the Mad Max Maths Planning Insitute so far, but hey, its 'inevitable' next week/month/year/decade/ right?

[midas]

" Actually I like Jim Cramer."

that explains so much about you

http://www.dailykos.com/story/2009/03/05/705113/-Jim-Cramer-Uses-CNBC-to-Manipulate-Stocks

Things must be pretty desperate if you have to rummage around in the left-wing blog conspiracy department. Jim Cramer provide a useful antidote to those who go into a panic whenever the markets get volatile, though he himself famously flipped in 2008 at what he perceived to be the Fed's underestimation of how fast and dangerous things were moving. The anti-Wall Street gold bug fraternity obviously don't like anybody talking about stocks at all really so I guess they're not watching CNBC too much during the day.

Gold is a truly awful store of value.

But CNBC's viewership has plunged down to 1994 levels. ...and Jim Cramer is a national embarrassment.

There's nothing "left wing" about realizing that the current system is on a terminal trajectory. It's called "Being good at math".

If my viewing was decided by that which was most popular I guess I should be watching Fox.

As for terminal trajectories well that hasn't worked according to the Mad Max Maths Planning Insitute so far, but hey, its 'inevitable' next week/month/year/decade/ right?

Based on how much you are in touch with reality Disney Channel is probably all you can handle

[SheungWan]

Based on how much you are in touch with reality Disney Channel is probably all you can handle

The old black and white Mickey Mouse cartoons are still worth watching:

[ldnguy]

Well this is good info but why can't I find anything at around 20K near those areas if they are all sitting empty ? Wouldn't rental rates at least come down with the market. Not the bank owned ones but ones that are already paid for.

Most owners I've spoken to say that if they can't get the rent they want they are happy to leave the condo empty. I've seen condos that have been unrented for over a year. I offered say 25k instead of the 30K asking price and they said no. Some will lower prices a little, but most don't want the hassle of tenants if they're only going to get a little rent. And lowering he prices won't bring in extra renters because these prices are way out of reach for the average Thai. Workers in Bangkok earn maybe 15k to 30K. These people live in condos where the rent is 5-7K per month. The people that can afford 20K+ rent are few and far between compared to the number of rental units. So lower rent to 15K and you have the same pool of potential renters. So there's no point for owners as a group.

[ToddinChonburi]

I listen to a realistate agent talk about the Chinese begining to invest in the thai condo market. This will be a good thing.

[ToddinChonburi]

Well this is good info but why can't I find anything at around 20K near those areas if they are all sitting empty ? Wouldn't rental rates at least come down with the market. Not the bank owned ones but ones that are already paid for.

Most owners I've spoken to say that if they can't get the rent they want they are happy to leave the condo empty. I've seen condos that have been unrented for over a year. I offered say 25k instead of the 30K asking price and they said no. Some will lower prices a little, but most don't want the hassle of tenants if they're only going to get a little rent. And lowering he prices won't bring in extra renters because these prices are way out of reach for the average Thai. Workers in Bangkok earn maybe 15k to 30K. These people live in condos where the rent is 5-7K per month. The people that can afford 20K+ rent are few and far between compared to the number of rental units. So lower rent to 15K and you have the same pool of potential renters. So there's no point for owners as a group.

yes this is very true. I read that it has something to do with Face, They tell there friends about price and do not want to rent for less, something to do with losing Face. Sounds dam crazy to me. I went to many condos in my area and no one wants to drop price. They say good price for building. Half the building is empty sir.

[ldnguy]

Well this is good info but why can't I find anything at around 20K near those areas if they are all sitting empty ? Wouldn't rental rates at least come down with the market. Not the bank owned ones but ones that are already paid for.

Most owners I've spoken to say that if they can't get the rent they want they are happy to leave the condo empty. I've seen condos that have been unrented for over a year. I offered say 25k instead of the 30K asking price and they said no. Some will lower prices a little, but most don't want the hassle of tenants if they're only going to get a little rent. And lowering he prices won't bring in extra renters because these prices are way out of reach for the average Thai. Workers in Bangkok earn maybe 15k to 30K. These people live in condos where the rent is 5-7K per month. The people that can afford 20K+ rent are few and far between compared to the number of rental units. So lower rent to 15K and you have the same pool of potential renters. So there's no point for owners as a group.

yes this is very true. I read that it has something to do with Face, They tell there friends about price and do not want to rent for less, something to do with losing Face. Sounds dam crazy to me. I went to many condos in my area and no one wants to drop price. They say good price for building. Half the building is empty sir.

It's not all about face. Many owners do lower the price. I've seen quite a few condos where the owner told me the price and then immediately added that it's negotiable. But even these owners have a limit. I think it's more to do with not being worth the hassle fr a low rent. There'll get wear and tear and will end up making next to nothing. So often better to hang on for better price. There is just no point renting for a very low rent.

[huawei]

Most Westerners come to BKK and don't see the scope of the problem: Absolutely massive quantities of vacant apartments. Most of them have been sold to buyers on credit, who have since defaulted. The properties languish on the books of banks and are for sale -- at the original purchase price. The last part is key. Banks in Thailand do not dump real estate at market value. They preserve the original value of the property on their books as an asset so they can maintain capital ratios.

The result is that banks in Thailand are sitting on hundreds of thousands of units of defaulted property which they have absolutely no intention of liquidating -- but at the same time, they will never be able to sell at their asking price. These units are increasingly dilapidated, and the buildings are aging rapidly. Does that mean they're going to sell them at some point? Hell no. The second they sell, is the second the banks have to realize a loss -- which they will never do.

If you can read Thai, you can browse archives of bank owned properties (don't look for any deals though. The banks aren't interested in selling at a loss. Unused overvalued assets are still very valuable to banks as they form the basis of their capital structure. If they could have sold these properties at their asking price -- they would have).

The government is currently flirting with establishing real estate taxes for the first time. Many people have predicted that this will cause the banks to liquidate properties, as the taxes will begin to eat them alive. Could this happen? Maybe but I doubt it. The banks run the show here (and everywhere). What's good for the banks (ie: No real estate taxes) is what's going to be reflected in policy. And what's potentially destabilizing for the banks, ain't gonna happen.

My two baht, of course.

Generally not desirable assets either.

[huawei]

Well this is good info but why can't I find anything at around 20K near those areas if they are all sitting empty ? Wouldn't rental rates at least come down with the market. Not the bank owned ones but ones that are already paid for.

Most owners I've spoken to say that if they can't get the rent they want they are happy to leave the condo empty. I've seen condos that have been unrented for over a year. I offered say 25k instead of the 30K asking price and they said no. Some will lower prices a little, but most don't want the hassle of tenants if they're only going to get a little rent. And lowering he prices won't bring in extra renters because these prices are way out of reach for the average Thai. Workers in Bangkok earn maybe 15k to 30K. These people live in condos where the rent is 5-7K per month. The people that can afford 20K+ rent are few and far between compared to the number of rental units. So lower rent to 15K and you have the same pool of potential renters. So there's no point for owners as a group.

yes this is very true. I read that it has something to do with Face, They tell there friends about price and do not want to rent for less, something to do with losing Face. Sounds dam crazy to me. I went to many condos in my area and no one wants to drop price. They say good price for building. Half the building is empty sir.

It's not all about face. Many owners do lower the price. I've seen quite a few condos where the owner told me the price and then immediately added that it's negotiable. But even these owners have a limit. I think it's more to do with not being worth the hassle fr a low rent. There'll get wear and tear and will end up making next to nothing. So often better to hang on for better price. There is just no point renting for a very low rent.

Just because a building is half empty you are not going to get a give away rent.

I have had to deal recently with this attitude, the renters are looking for real dirt cheap bargains, it ain't going to happen.

The usual retort is that it's just sitting there making no money..most can afford not to rent, and as rightly pointed out, don't want to deal with the hassle and the demands of the tenants.. I need this, I need that ..etc..

Also when dealing with a renter who is really taking the piss..it's a real turn off..the market is different here..generally owners are not desperate for tenants...

[SheungWan]

Just because a building is half empty you are not going to get a give away rent.

I have had to deal recently with this attitude, the renters are looking for real dirt cheap bargains, it ain't going to happen.

The usual retort is that it's just sitting there making no money..most can afford not to rent, and as rightly pointed out, don't want to deal with the hassle and the demands of the tenants.. I need this, I need that ..etc..

Also when dealing with a renter who is really taking the piss..it's a real turn off..the market is different here..generally owners are not desperate for tenants...

Its a difficult call and for a friend of mine who had a place empty for too long he did accept a lowball offer earlier this year to rent out a place (in Pattaya). The market was dead but as he himself accepts the apartment is not in a good location. I think there comes a point where its just not worth keeping a place empty. The one caveat is taking on a poor tenant, but then they don't always advertise themselves in advance.

[VegasVic]

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Even if there's a bubble yyou could still make money. e.g. A condo in London was worth £350K when supposedly there was a property price bubble about to burst. Now worth £800K and people are saying the same thing. Big bubbles can become huge bubbles. Huge bubbles can become massive bubbles. You can never perfectly time when a bubble will burst. e.g. 5 million baht now may seem like a bubble, but could to 10 million and then crash 30% to 7 million. So you'd still be better off investing now. On the other hand you could buy and the price could crash months later. You need to think long-term. Should be fine over 20-40 years even with a crash or two. If you're planning to invest for a year or two then it's much more risky.

I seem to remember the same advice being given about investing in condos in Thailand in late 1996 As far as Bangkok being fine 20-40 years from now goes, you had better hope that the global warming-oceans are rising crowd are dead wrong, given that suvarnabhumi airport being nicknamed "swampy" is no accident

[kblaze]

Whats been mentioned, but not enough here is the necessity of being close to the BTS/MRT line if you are trying to generate a return above 5%. Its everything in terms of value and occupancy. I just moved from a place connected to a BTS station and the day I handed over the keys, another foreigner came and is set to move in soon at a higher rent (according to the owner). You can find cheaper places away from the main drags (sukhumvit, sathorn) but you typically cannot fetch a price premium and the occupancy risk jumps big time.

[kblaze]

Even if there's a bubble yyou could still make money. e.g. A condo in London was worth £350K when supposedly there was a property price bubble about to burst. Now worth £800K and people are saying the same thing. Big bubbles can become huge bubbles. Huge bubbles can become massive bubbles. You can never perfectly time when a bubble will burst. e.g. 5 million baht now may seem like a bubble, but could to 10 million and then crash 30% to 7 million. So you'd still be better off investing now. On the other hand you could buy and the price could crash months later. You need to think long-term. Should be fine over 20-40 years even with a crash or two. If you're planning to invest for a year or two then it's much more risky.

If I see that in Spain and the US properties are sold at 30 cents to the dollar compared with 2007, then I question myself what is holding back to burst the bubble here.

It can't be the brilliant economic prospects or the military dictatorship.

Its not that bad; prices have recovered even more than this graph shows as it only goes to Jan'14

Edited November 4, 2014 by kblaze

[choochoo]

Well this is good info but why can't I find anything at around 20K near those areas if they are all sitting empty ? Wouldn't rental rates at least come down with the market. Not the bank owned ones but ones that are already paid for.

onnut ideo -something. 14,000 for a studio. maybe 17,000 for a one -bedroom.

are you blind.......................lol.

[properperson]

bloke down our way said "bubble, Butt............"

Whatever that means......

[OnMyWay2]

I think it's more likely overbuilding than a true price bubble

which will just make your unit impossible to sell, impossible to rent = bad investment.

prices only collapse if there's a rush to the exits after somebody decides to fire sale.

[Robert24]

If there is an oversupply of condos than prices eventually will go down. It's just like physics, prices are determined by demand and supply. But I'm not sure if there is an oversupply of condos. Condos still sell fast and are in high demand all across the country. This is what keeps prices very high. Whether it is a bubble or not is hard to determine. Personally I feel it is rather expensive so I'd be cautious to buy. It is certainly not a bargain and if you do it for investment purposes, then you should look twice whether you don't have better alternatives.

I agree with the previous post from OnMyWay2 that it would take a significant event for prices to crash, i.e. something that would kill demand and trigger existing owners to sell, but frankly I cannot see this on the horizon for now.

[Bill3173]

To those interested, the following site refers to the the banks sites for foreclosed properties for sale. Most are in Thai, but maybe be helpful to some. As a side note, my step-son (Thai National), bought a foreclosed property through a bank, about 1 year ago (Khon Kaen area), and was able to negotiate a large discount. Not saying this the normal practice but can be done. http://mister-kwai.com/foreclosure-thailand-bangkok.html