Analyzing the Bangkok Condo Market

[Mencken]

^^^^, #1-4 above,

you mentioned earlier, but from a buyers point of view the Bangkok condo market could need a 25-30% haircut to be attractive again.

Would condos become more attractive to you if your currency, lets say $ increaded in value by say 25-30%

What currency are you thinking in dollars or baht?

The Bkk market is doing just fine from a buyers point of view thinking and paying in baht, it appears the ones who dont think this way are farang who tend to think on their own currencys value to the baht.

Disagree. Many of us have been here long enough to be able to value and even think in terms of Thai Baht. When I'm in states, I value out of habit in THB then convert to USD even. Its what I know.

I won't pay X baht for a place and only thing that would change that is if the fx went not to 38 but to 50.

One thing for sure, after the last month, pretty much the only games left in town or the usd snd gbp - and swissie. So, another nail in coffin for Thai condo market.

Chinese were buyers in my area, I think this is done pretty much with Chinese housing falling and economy slowing.

Further, while lots of long term holders, there are also tons of flippers. Not only will the flippers lose desposits, but the developer loses the sale. Finally, bank loans are often made on the off plan sales. So now, the whole project collapses in various states of being built - or not.

Two thjngs I notice when I pass by neighborhood condos. No lights and lots of for rent signs. I don't know about you but I'm not buying a condo for 3m/40sqm with a bunch of dicey people sleeping four to a room snd little dogs shi**ing in yhe hallway.

My 2thb - over valued 20-40% and a 24sqm condo is sinply ridiculous at 3m.

Edited February 21, 2015 by Mencken

[ExpatOilWorker]

According to this Q3-2014 report (http://www.colliers.co.th/images/agency/BwiGzpEQBangkok%20Condominium%20Q3%202014-en.pdf), there are about 420,000 condo units in Bangkok and 40,000 new units are added to the market each year. While another 100 units per day might seem like a lot, I actually think the numbers cement that the real-estate market in Bangkok is fairly healthy. Even if 10-15% units are empty, that is only 40-60,000 condos.

The big elephant in the room, or actually outside the room in this case is China. From a recent 60-Minutes documentary there are 60 million empty condo units in China. In terms of size, population and GDP, China is roughly 20 times bigger than Thailand, so that is equivalent to having 3,000,000 empty condo units in Thailand, a staggering number. A real-estate crash in China will probably have some spillover effect on Thailand, similar to how the 1997 Asian Crises spread around the region.

[Mencken]

According to this Q3-2014 report (http://www.colliers.co.th/images/agency/BwiGzpEQBangkok%20Condominium%20Q3%202014-en.pdf), there are about 420,000 condo units in Bangkok and 40,000 new units are added to the market each year. While another 100 units per day might seem like a lot, I actually think the numbers cement that the real-estate market in Bangkok is fairly healthy. Even if 10-15% units are empty, that is only 40-60,000 condos.

The big elephant in the room, or actually outside the room in this case is China. From a recent 60-Minutes documentary there are 60 million empty condo units in China. In terms of size, population and GDP, China is roughly 20 times bigger than Thailand, so that is equivalent to having 3,000,000 empty condo units in Thailand, a staggering number. A real-estate crash in China will probably have some spillover effect on Thailand, similar to how the 1997 Asian Crises spread around the region.

I have little doubt the exact same thing in China is going on here. I also think there are loads of horror stories left to disclose in both places when the lid comes off. I seriously doubt that 100 new condos (plus 2nd hand) condos are bring closed on daily basis 2014/15. Nothing scientific, just a hunch. So that is just more slack. That's just BKK correct, what of CM, PY, PK?

The economic data is not good nor has it been for years and arguably Thailand must lower rates AND devalue. Could be great for foreign buyers, but Thailand has opposite policies in place. It has had internal political issues and ruined its tourism and long stay tourism sectors, beyind repair - we are in a new normal where Swedish Kr is down 35%.

Real Estate data, real data are unavailable. There is a reason for this. To protect large owners/industry and to hide money.

In my small mind, the thing that keeps prices afloat, neigh fends off wholesale collapse is that the entire condo enterprise is perfect for money laundering and stashing infinite amounts of cash - legally. A person need not even pay any sorts of taxes, property, valuation, wealth, etc...

Is it a wonder we hear of persons or groups buying entire floors of condos? This is a business unto itself.

It is a way for the avg corrupt pol, bureaucrat or cop to stash wealth. Done in a relatives name, it is practically untraceable in this dinosaur system. The punter does not need to go to the mafia to wash the cash, just the condo office and dpeak with s pretty girl and be offered orange juice.

My point is that there are huge pressures propping up a market that seems to my mind quite unnatural. Thailand, Bangkok is not Hong Kong. There is simply a ton of land (held by a very tiny group of Chinese) and if they could ever build on all that, they could knock down all the old condos and shophouses and build for another generation.

Have a look at the open spaces on Google Maps, let alone the addl metro areas that can be opened by light rail.

Land imo is worth perhaps half of what its current value is. Thus is the nature of a very unequal oligarchic system. Entire streets, blocks of shops, stand alone shops left to rot because the rentier class does not beed the money. This is obviously not good for anyone save themselves. Not the city, not its people, the nations gdp, growth, etc...in fact, there is very little good that can come out of hoarding urban land.

Bangkok is a very lackluster city. It is sprawling, unattractive, lacks amenities, has zero culture. What it has is a vibe, I do give it that. It has a vibe like no other city in East Asia save for Hong Kong. Even then BKK wins. But expats get old andno longer hip. They want clean streets, parks, ability to sit outside...they want Singapore.

Edited February 22, 2015 by Mencken

[Mencken]

As I'm reading this thread, something else occurs to me. Thai people are very traditional thinkers. Renting, bad. Buying good. So, young people finslly making a bit of money gravitate to buying a condo despite it (imo) not being in theur best interest.

They buy a tiny box no one will want in 30 years in a complex that will no doubt look dire. They will have paid 150% in interest having put down the most paltry sum as down payment. No doubt they will have done the same with a car. If they would have simply not bought the car, lived in an apt till 40. Imagine the possibilities.

Banks are happy to lend as if they default, they get the condo and the punter is on the hook forever. There is no bankruptcy here. Sound like US in 2007? It should.

So, the mentality of both buying is a way to build equity and thus savings is strong, despite the facts that these very average condos do not go up in price, on the contrary. My wife will tell me we need to buy a condo because we are throwing money away snd then say...we can buy an older condo because they are hslf price (to rennovate). Thai logic.

Thais also are very quick to believe something has a value because it says so. The value is only what the seller gets for the sale. So its WOW, 80% off on the handbag or my friend bought a condo for 2.5 and can get 3m for it in four years (but there are no sales/facts bearing this out), just talk and rumour.

Thais are not very sophisticated financially and it saddens me how they get ripped off and the govt does nothing. Bad condos or bad cosmetics.

[steveromagnino]

If I can add my 2c to this. Firstly, the Thai real estate sector is running on several distinct tracks, and each has its own strengths and weaknesses. I will only talk about Bangkok as I don't know enough about some provincial markets.

You have the pre 1998 crash high quality buildings; a few of these which are owned by high-end Thai families (e.g. Somkid Gardens, Langsuan Ville, Grand Langsuan) in prime neighborhoods with a majority of large units and owner occupiers have seen a minimal number for sale and good maintenance....so you also see good capital appreciation and now these are all selling for deals around 125 - 150k per sqm despite the buildings being older. The only units in Langsuan for 200k per sqm+ are newer buildings (Q House Langsuan, etc) not the older ones.

You have the pre 1998 mid to lower quality buildings; often owned mostly by Thais, these will likely never go anywhere and will be mired around 40k per sqm for the foreseeable future until the location becomes so appealing that the building can be rejigged - however once the building goes down the vicious circle of being cheap so attracting cheap owners who don't pay much in maintenance which means building starts getting run down....it is very hard to fix. Who wants to live in a dump? This is the cheap end of the market; appealing on face value - best avoided.

You have the post 2003 buildings aimed at the upper end market; if they are from a reputable developer (meaning generally publically listed), decent specification, reasonable sizes (i.e. 1 bedroom 50sqm; 2 bedroom 90sqm+; 3 bedroom 140 sqm) with between 90 - 250 units, decent build quality (and some are some aren't) then these have also seen good appreciation if they are in a good neighbourhood and reasonably well run buildings despite not being brand new - examples of these would be buildings like The Lakes, Legend, Domus, Emporio Place. There are owner occupiers and renters in these buildings (including high end Thai renters nowadays - loads of them) but the reason why some buildings succeed and others fail (failures include buildings like The Met, Watermark, Empire Place) tend to be very specific to that building alone and the Thai market perception drives the success or failure for the most part as that's most of the buyers although not always.

Then you have the post 2003 buildings aimed at the mid end. This is where the bulk of the units are LPN etc - then it all comes down to publically listed developer, good building management (LPN are excellent at it), ok facilities and a load of units - difficult to make a lot of money in this type of unit but the rentals can be good - again PLENTY of Thais that rent buildings for 20,000b++ a month.

The bubble if any is forming in the mid end to the gap between mid end to high end. The truly high end (185, MahaNakorn, Sukothai Residences) has a high society market that will live in those both owner occupiers and renters made up of both Thais and expats (mostly Singaporeans and HK Chinese) so these have seen good capital appreciation so far and almost no supply; in fact 185 would be one of the best investments had anyone bought in 2009 at 200,000b per sqm and sold at transfer around 290,000b net (Langsuan side low floor actual numbers); that's a huge gain (with leverage based on 35% deposit something like almost 100% return). I have several friends that did exactly this. again, though it is very project specific, and the end result and quality strongly dictates the success or failure of some of these buildings; Royce would be an example of a building that didn't really fire. The Millenium is another that has struggled until recently.

There is a big difference between buying from a 'proper developer' (meaning Sansiri, Noble, Raimon Land, AP, Pruksa, etc) and a non listed smaller one - the smaller one it is harder to get financing in the secondary market, more difficult to know whether they will ever complete...so the smaller developers don't get a premium and that stays that way long term generally unless the building is sensationally good or the developer has some other business that is related (example: Domus from Gaysorn which has roughly doubled in price since completion in part due to design, location, reputation of the developer, rental income). Compare it to Wilshire which is only a block away, but has pretty much gone nowhere, and if compared to say La Maison Siam in the same vicinity which is still under 100k per sqm...well that demonstrates the way the market perceives value. Even listed developers some projects succeed and some don't this is where choosing carefully is so important. Freehold always will outdo leasehold, although Four Seasons seems to be changing that perception slightly - I don't really believe the CPB numbers from Langsuan being representative of the whole market, like Iconsiam big conglomorates sell to the insiders and suppliers and boom their project is mostly sold straight off.

Buildings with less than 100 units often have problems with maintenance and any building that has a low number of units and a monthly fee of 30b per sqm, well it is going to end up in the toilet long term.

Low rise is usually much more tricky to sell than high rise also.

A lot of the inflation in pricing is not developers getting rich; rather the cost of labour, cost of land and cost of materials has seen substantial inflation. At the high to very high end of the market there are a limited number of contractors; now that CPB are doing the huge Langsuan development with Thai Obayashi and given BTL doing a number of projects, the choice of contractors is limited now and so prices have gone up, which makes selling prices increase.

The ideal mix of owners is mostly Thais with a decent number of expats, and a larger proportion of owner occupiers. It is not true that "Thais don't buy high end they can't afford it" given that 185 is 80%+ Thai; most of the Major projects are 80%+ Thai - increasingly Thai people with money will live in a condo (or their younger generation will)

Lest you think AEC won't have an impact on property.....there are already major corporates moving head offices from Singapore to Thailand, with up to 100 (in the case of one large finance firm alone) senior executives all earning 300-800k USD++ a year looking for high end places to live - this will potentially increase and they aren't going to be living in McMansions for 10k per month with hot Ramkamhaeng students. Well, maybe they will have that as a separate weekday 'pad' but at least they won't be hanging out there with their wife and kids. Some of these intend to buy some are intending to rent - right now there's only about 4-5 developments they will even look at at the CEO level.

So....if there is a bubble what will happen if it bursts? Given that the high end and top end of the market are mostly financed with cash and no debt, you will see like in 1998, almost no sales going through, and a complete lack of liquidity - people will just sit on what they own. High end Thais who are self employed owning businesses tend to be fairly cash rich; they know that property is one part of an investment strategy along with shares, money, etc - long term if Singapore is 4X and HK is 10X Thai prices....there is still room to move and Bangkok has a lot of strengths if things are improved - the market overall will creep up but prime property will race ahead and suburban sprawl will struggle.

The mid end there will be an issue but as long as people can service their debt then units will end up worth less on paper, yields from rent may decrease, but guys, this is Bangkok, there is a huge office worker & student market for LPN level studios; just that the returns will get worse and worse. Sales the prices will only massively slump if people cannot transfer for some reason; that won't be solely a property crash, it will be an entire economy crash with people not working and so on. What we may see though is the speculators getting burned. For this reason, I personally never buy condos where the downpayment terms off the plan are <15% total before transfer...that's like an invitation to speculate.

The ones that will really slump are the less known developments, smaller number of units, low operating budgets and large numbers of renters; once these start to go down, it becomes very hard to save them. We all known "Deeluxe apartments in the sky' that ended up like this post 1998 (Muang Thong has a ton of them) and once they go down, that rental market moves elsewhere or starts renting someplace else.

Edited February 24, 2015 by steveromagnino

[trogers]

OP: What price would you consider value for money?

My Condo on Rama IV (which is up for sale): 74 sqm, 2 Bedroomed (6MB) which works out at 81,081 baht per Sq meter... however, this price per sqm nearly doubles when looking at Condo's on Sukhumvit near BTS stations.

6 million? Haha for 74metres? Good luck with that. You be near 4m if you sell.

Got mine near this location for Bt2.35m for 72 sqm in 2008. What 6m or 4m?

[Mencken]

Thx Stevero - great

I'm sure the inability to declare bankruptcy encourages sketchy loans as well. Lack of prudence as your on the hook forever, regardless of foreclosure.

Edited February 24, 2015 by Mencken

[ExpatOilWorker]

Great analysis by stevero. I also looked at Langsuan Ville and Somkid Gardens a long time ago. At the time I could not understand the high prices, but in hindsight it all make perfect sense. The 39 floor penthouse at Langsuan Ville is a great 255 m2 unit with a 360 degree city view, but untouchable at 50 million.

The Met was hyped up by the developer, but I agree it has failed as high end building.

Below is a picture of the massive project CPB is doing at Langsuan.

[ExpatOilWorker]

That the super-rich dont need nor want to sell is actually fine. It is a separate market as already established and 250 million baht is out of most peoples range anyway (See Nimit below).

The irony is that distressed owners are so distressed that they have been wiped off the map. I was just recently in a building where some electric work was ongoing and all the electric cabinets were open. On one floor 3 electric meter had been removed and the Juristic person confirmed the 3 units had not paid common fees for years. In fact they had no way of contacting the owners. From a quick walk through the building there at least 20 out of 400 units had water and electricity disconnected.

It is anybodys guess what happened to the owner. Dead, displaced or just lost interest, but certainly not a super-rich savvy investor.

Nimit Langsuan sets the Pace:

Nimit Langsuan, the latest project by Thailand listed high-end property developer Pace Development, has achieved record-breaking pre-sales bookings in just two days.

The company reported 70 percent deposited bookings for the 187 units at the 53-storey freehold development in central Bangkok. Some 90 percent of buyers to date have been Thai, and all five penthouse units with price tags of THB250 million have been snapped-up by local Thai buyers.

Company Chief Executive Officer Sorapoj Techakraisri attributed the stunning sales success to his companys reputation, the location, as well as the AEC effect. The company has reported surging interest on the back of ASEAN integration that will begin in December 2015.

Sorapoj said: The pre-sales success of Nimit Langsuan, and its ability to achieve prices in excess of THB300,000 per sqm, means the project can be self-financing.

Units at the property range in size from 78 sqm upwards to 617 sqm, and most are between two- and four-bedroomed units.

Prices start in excess of THB25 million at the project that will commence construction in October this year and is expected to be completed during the second half of 2018.

[hhgz]

"from a buyers point of view the Bangkok condo market could need a 25-30% haircut to be attractive again."

Condos in Bangkok could drop 50% over night, and the TVers who refuse to buy condos would still refuse to buy condos. It's not a price issue, it's irrational fear.

[Mencken]

"from a buyers point of view the Bangkok condo market could need a 25-30% haircut to be attractive again."

Condos in Bangkok could drop 50% over night, and the TVers who refuse to buy condos would still refuse to buy condos. It's not a price issue, it's irrational fear.

That's not true in my case. But I will state that I think many condos are well 50% overpriced.

Prices in some projects are utterly ridiculous. Many 3.5m condos are not worth 1.75 or if they are, they are fully valued even at that price.

I'm going to visit two condos recently completed. Just have a look. The stuff around me, they have signs all over the bldgs. Rentals, soliciting offers, special prizes...anything but an honest price.

[trogers]

"from a buyers point of view the Bangkok condo market could need a 25-30% haircut to be attractive again."

Condos in Bangkok could drop 50% over night, and the TVers who refuse to buy condos would still refuse to buy condos. It's not a price issue, it's irrational fear.

That's not true in my case. But I will state that I think many condos are well 50% overpriced.

Prices in some projects are utterly ridiculous. Many 3.5m condos are not worth 1.75 or if they are, they are fully valued even at that price.

I'm going to visit two condos recently completed. Just have a look. The stuff around me, they have signs all over the bldgs. Rentals, soliciting offers, special prizes...anything but an honest price.

Can't have a large discount without resulting in mass protests from recent buyers, like had happened in China.

[ExpatOilWorker]

More and more smaller units will soon be added to the market, flooding an already saturated rental market.

Nobel Ploenchit - 1,442 units

Aston Rama IV - 1,182 units

Life Asoke - 1,609 units

[Changnoi2]

With the land tax fast approaching do folks think property/land and condos prices will be effected? I'm sure a lot of land will start to free-up and change hands before and after the new tax takes effect. I think it might be best to sit tight for the next year before I commit to my first purchase

[kingalfred]

What a screwed up city that allows developers to build lots of condos,sell or rent them at 100% over what the price should be and then keep them empty for as long as they want with no penalty.A mess!

[ExpatOilWorker]

Sansiri have 20 billion baht worth of unsold units, so lets build some more!

Sansiri turns focus back to Bangkok

CHULARAT SAENGPASSA

THE NATION

SANSIRI will launch eight condominium projects worth Bt21 billion this year - all in Bangkok, as the residential developer shifts its focus back to the capital.

"Purchasing power in the provincial market has faded in the face of falling crop prices," said Uthai Uthaisangsuk, the firm's senior executive vice president of business development and high-rise project development.

"We've set our condo sales target at Bt22 billion this year and we're confident that we can achieve it."

The firm's total revenue target is Bt34 billion.

All of the new condo projects will sit along Skytrain routes.

The Line will be developed by a joint venture with Skytrain operator BTS Group Holdings. It will be located near Chatuchak station. The Bt5.6-billion project will be launched next quarter. The first project is the Bt1.4-billion The Monument, sited just 300 metres from Sanam Pao Station.

"We are proceeding in line with our 'engineer for growth' approach," Uthai said.

Last year, Sansiri's profits came very close to its target rate of 12 per cent despite the economic slowdown.

It attracted many foreign customers, with the Chinese buying the most units. The biggest group by value is the Russians.

To respond efficiently to the changing circumstances upcountry, Sansiri has decided to concentrate on just Bangkok this year. Also, there was no clear-cut information on transport-infrastructure development in the provinces.

Sansiri decided to suspend plans to develop two condo projects in the Northeast as it waited to see how the new rail route would be developed in the region.

The firm now had Bt15 billion in unsold condos upcountry and Bt5 billion in Bangkok while existing projects continue.

Sansiri will not stay away from the provincial market for long, Uthai said, pointing out that the upcoming Asean Economic Community would likely spur the upcountry market and the firm would definitely make investments there. Plus Concierge will be a new service designed to respond to customers who have bought units for investment. It will be available in six provinces this year.

This builds on the success of Sansiri's Rental for the Holiday, which was brought out last year. It offers long leases for foreign customers interested in vacation homes, he said.

This year, Sansiri has a Bt7-billion budget in hand for the purchase of land that will be used for its 2016 projects.

http://www.nationmultimedia.com/business/Sansiri-turns-focus-back-to-Bangkok-30256304.html

[kingalfred]

As I said.."madness"..every piece of available land along Sukhumvit and other plots near mrt or bts flooded with condos,with car parking space included. Who would spend 6-12 million baht on buying that to boost Sansiri's profits!

[falkan]

Sansiri did a good job for their 2 first projects in Phuket, Almost sold out! But rest +10 projects looks like ghost communities!

People are scared to buy into new developments if they not sell 80% maintenance will be a big factor of condo value..

[trogers]

As I said.."madness"..every piece of available land along Sukhumvit and other plots near mrt or bts flooded with condos,with car parking space included. Who would spend 6-12 million baht on buying that to boost Sansiri's profits!

In the present situation, people are asking what rents they can likely get for the asking sales price. And the answer is usually less than 5% gross. Thus, ghost buildings.

[Asiantravel]

As I said.."madness"..every piece of available land along Sukhumvit and other plots near mrt or bts flooded with condos,with car parking space included. Who would spend 6-12 million baht on buying that to boost Sansiri's profits!

In the present situation, people are asking what rents they can likely get for the asking sales price. And the answer is usually less than 5% gross. Thus, ghost buildings.

" the answer is usually less than 5% gross "

So one would ask the question why should anyone buy a condominium in Bangkok when you can invest the money in Pattaya on these terms (although I have absolutely no idea how these people can do this )

1. 10% Guaranteed rental return on your investment. For over a decade
2. An unparalleled annual guaranteed rental of 10% for either a five year or a ten year period plus an option where the developer will buy the condo back from you at 100% of the sales price after a 5 year period and if you decide to keep the condo for 10 years they will buy it back for 125% of the price you paid so not only would you have received a 10% return for 10 years you will also get the money you initially invested back plus an additional 25%

http://lovepattayaproperty.com/en-gb/10-guaranteed-investment

[trogers]

As I said.."madness"..every piece of available land along Sukhumvit and other plots near mrt or bts flooded with condos,with car parking space included. Who would spend 6-12 million baht on buying that to boost Sansiri's profits!

In the present situation, people are asking what rents they can likely get for the asking sales price. And the answer is usually less than 5% gross. Thus, ghost buildings.

" the answer is usually less than 5% gross "

So one would ask the question why should anyone buy a condominium in Bangkok when you can invest the money in Pattaya on these terms (although I have absolutely no idea how these people can do this )

• 10% Guaranteed rental return on your investment. For over a decade
• An unparalleled annual guaranteed rental of 10% for either a five year or a ten year period plus an option where the developer will buy the condo back from you at 100% of the sales price after a 5 year period and if you decide to keep the condo for 10 years they will buy it back for 125% of the price you paid so not only would you have received a 10% return for 10 years you will also get the money you initially invested back plus an additional 25%

http://lovepattayaproperty.com/en-gb/10-guaranteed-investment

Their guarantee should last till they declare bankruptcy... ?

By then you would have probably paid them 30% more than market value during title transfer.

I was here when finance companies were offering 20% plus interest for deposits. And then, 56 out of 58 finance companies went under. That was 1997-8.

Edited March 22, 2015 by trogers

[ExpatOilWorker]

As I said.."madness"..every piece of available land along Sukhumvit and other plots near mrt or bts flooded with condos,with car parking space included. Who would spend 6-12 million baht on buying that to boost Sansiri's profits!

In the present situation, people are asking what rents they can likely get for the asking sales price. And the answer is usually less than 5% gross. Thus, ghost buildings.

" the answer is usually less than 5% gross "

So one would ask the question why should anyone buy a condominium in Bangkok when you can invest the money in Pattaya on these terms (although I have absolutely no idea how these people can do this )

1. 10% Guaranteed rental return on your investment. For over a decade
2. An unparalleled annual guaranteed rental of 10% for either a five year or a ten year period plus an option where the developer will buy the condo back from you at 100% of the sales price after a 5 year period and if you decide to keep the condo for 10 years they will buy it back for 125% of the price you paid so not only would you have received a 10% return for 10 years you will also get the money you initially invested back plus an additional 25%

http://lovepattayaproperty.com/en-gb/10-guaranteed-investment

When it sound too good to be true, it aren't true.

The stock price of Sansiri have dropped from above 5 a few years ago to 1.8, so maybe the writing is already at the wall.

[Globalist]

If I can add my 2c to this. Firstly, the Thai real estate sector is running on several distinct tracks, and each has its own strengths and weaknesses. I will only talk about Bangkok as I don't know enough about some provincial markets.

...

Thank you Steveromagnino, for a post about the BKK condo market really worth reading!

Excellent and balanced insight, made my day!

Edited March 23, 2015 by Globalist

[Cabrinha]

Fantastic analysis Steveromagnino. I'm in the market to buy probably in the next 12-18 months. I'd love to pick your brain sometime.

As a matter of interest, I'm curious as to how you define a project as failed (e.g. The Met)

If I can add my 2c to this. Firstly, the Thai real estate sector is running on several distinct tracks, and each has its own strengths and weaknesses. I will only talk about Bangkok as I don't know enough about some provincial markets.

You have the pre 1998 crash high quality buildings; a few of these which are owned by high-end Thai families (e.g. Somkid Gardens, Langsuan Ville, Grand Langsuan) in prime neighborhoods with a majority of large units and owner occupiers have seen a minimal number for sale and good maintenance....so you also see good capital appreciation and now these are all selling for deals around 125 - 150k per sqm despite the buildings being older. The only units in Langsuan for 200k per sqm+ are newer buildings (Q House Langsuan, etc) not the older ones.

You have the pre 1998 mid to lower quality buildings; often owned mostly by Thais, these will likely never go anywhere and will be mired around 40k per sqm for the foreseeable future until the location becomes so appealing that the building can be rejigged - however once the building goes down the vicious circle of being cheap so attracting cheap owners who don't pay much in maintenance which means building starts getting run down....it is very hard to fix. Who wants to live in a dump? This is the cheap end of the market; appealing on face value - best avoided.

You have the post 2003 buildings aimed at the upper end market; if they are from a reputable developer (meaning generally publically listed), decent specification, reasonable sizes (i.e. 1 bedroom 50sqm; 2 bedroom 90sqm+; 3 bedroom 140 sqm) with between 90 - 250 units, decent build quality (and some are some aren't) then these have also seen good appreciation if they are in a good neighbourhood and reasonably well run buildings despite not being brand new - examples of these would be buildings like The Lakes, Legend, Domus, Emporio Place. There are owner occupiers and renters in these buildings (including high end Thai renters nowadays - loads of them) but the reason why some buildings succeed and others fail (failures include buildings like The Met, Watermark, Empire Place) tend to be very specific to that building alone and the Thai market perception drives the success or failure for the most part as that's most of the buyers although not always.

Then you have the post 2003 buildings aimed at the mid end. This is where the bulk of the units are LPN etc - then it all comes down to publically listed developer, good building management (LPN are excellent at it), ok facilities and a load of units - difficult to make a lot of money in this type of unit but the rentals can be good - again PLENTY of Thais that rent buildings for 20,000b++ a month.

The bubble if any is forming in the mid end to the gap between mid end to high end. The truly high end (185, MahaNakorn, Sukothai Residences) has a high society market that will live in those both owner occupiers and renters made up of both Thais and expats (mostly Singaporeans and HK Chinese) so these have seen good capital appreciation so far and almost no supply; in fact 185 would be one of the best investments had anyone bought in 2009 at 200,000b per sqm and sold at transfer around 290,000b net (Langsuan side low floor actual numbers); that's a huge gain (with leverage based on 35% deposit something like almost 100% return). I have several friends that did exactly this. again, though it is very project specific, and the end result and quality strongly dictates the success or failure of some of these buildings; Royce would be an example of a building that didn't really fire. The Millenium is another that has struggled until recently.

There is a big difference between buying from a 'proper developer' (meaning Sansiri, Noble, Raimon Land, AP, Pruksa, etc) and a non listed smaller one - the smaller one it is harder to get financing in the secondary market, more difficult to know whether they will ever complete...so the smaller developers don't get a premium and that stays that way long term generally unless the building is sensationally good or the developer has some other business that is related (example: Domus from Gaysorn which has roughly doubled in price since completion in part due to design, location, reputation of the developer, rental income). Compare it to Wilshire which is only a block away, but has pretty much gone nowhere, and if compared to say La Maison Siam in the same vicinity which is still under 100k per sqm...well that demonstrates the way the market perceives value. Even listed developers some projects succeed and some don't this is where choosing carefully is so important. Freehold always will outdo leasehold, although Four Seasons seems to be changing that perception slightly - I don't really believe the CPB numbers from Langsuan being representative of the whole market, like Iconsiam big conglomorates sell to the insiders and suppliers and boom their project is mostly sold straight off.

Buildings with less than 100 units often have problems with maintenance and any building that has a low number of units and a monthly fee of 30b per sqm, well it is going to end up in the toilet long term.

Low rise is usually much more tricky to sell than high rise also.

A lot of the inflation in pricing is not developers getting rich; rather the cost of labour, cost of land and cost of materials has seen substantial inflation. At the high to very high end of the market there are a limited number of contractors; now that CPB are doing the huge Langsuan development with Thai Obayashi and given BTL doing a number of projects, the choice of contractors is limited now and so prices have gone up, which makes selling prices increase.

The ideal mix of owners is mostly Thais with a decent number of expats, and a larger proportion of owner occupiers. It is not true that "Thais don't buy high end they can't afford it" given that 185 is 80%+ Thai; most of the Major projects are 80%+ Thai - increasingly Thai people with money will live in a condo (or their younger generation will)

Lest you think AEC won't have an impact on property.....there are already major corporates moving head offices from Singapore to Thailand, with up to 100 (in the case of one large finance firm alone) senior executives all earning 300-800k USD++ a year looking for high end places to live - this will potentially increase and they aren't going to be living in McMansions for 10k per month with hot Ramkamhaeng students. Well, maybe they will have that as a separate weekday 'pad' but at least they won't be hanging out there with their wife and kids. Some of these intend to buy some are intending to rent - right now there's only about 4-5 developments they will even look at at the CEO level.

So....if there is a bubble what will happen if it bursts? Given that the high end and top end of the market are mostly financed with cash and no debt, you will see like in 1998, almost no sales going through, and a complete lack of liquidity - people will just sit on what they own. High end Thais who are self employed owning businesses tend to be fairly cash rich; they know that property is one part of an investment strategy along with shares, money, etc - long term if Singapore is 4X and HK is 10X Thai prices....there is still room to move and Bangkok has a lot of strengths if things are improved - the market overall will creep up but prime property will race ahead and suburban sprawl will struggle.

The mid end there will be an issue but as long as people can service their debt then units will end up worth less on paper, yields from rent may decrease, but guys, this is Bangkok, there is a huge office worker & student market for LPN level studios; just that the returns will get worse and worse. Sales the prices will only massively slump if people cannot transfer for some reason; that won't be solely a property crash, it will be an entire economy crash with people not working and so on. What we may see though is the speculators getting burned. For this reason, I personally never buy condos where the downpayment terms off the plan are <15% total before transfer...that's like an invitation to speculate.

The ones that will really slump are the less known developments, smaller number of units, low operating budgets and large numbers of renters; once these start to go down, it becomes very hard to save them. We all known "Deeluxe apartments in the sky' that ended up like this post 1998 (Muang Thong has a ton of them) and once they go down, that rental market moves elsewhere or starts renting someplace else.

[ldnguy]

I guess failed means the building didn't sell out. I think I saw new units advertised recently.

My take on it is that the market isn't a normal supply-demand market, as developers are happy to hold empty units for years. A bit like diamonds. They'd be dirt cheap if DeBeers didn't hold lots back from the market. Property would be cheap in BKK of they sold all units at a price that they'd actually sell. This just distorts the market, but that's the way it will be unless the companies are eventually forced to sell. None of this means that prices will come down though. I think prices are still reasonable compared to many cities around the world. Even 10 million baht is only £200K. That sounds very reasonable for a major city like Bangkok.

But I don't think the BKK property market is good for short-term investment the way some Western markets can be. Places like London have limited land, but Bangkok has enough land to build 1000s of condos every year for decades. We'll all be dead before they run out of land and that should hold prices down. I doubt prices will crash. More likely they'll move sideways for a while.

But it's funny how people who can't afford to buy or are too frightened to buy come up with this 25% overvalued figure. This is what the say in all markets. When a London condo was £500K I heard people say it was 25% overvalued. Now the same property is £1 million they still say it's overvalued. But when London property did crash around 30% in 2008, these people still didn't buy because they claimed that they were still 25% overvalued. Some people just won't buy whatever the price. If you look hard enough you can find many properties at a 25% discount. So put in the effort and buy them. Best to buy from a distressed farang seller, as they offer the best prices.

Buy to live in, but there are better investments than Thai property. I'm puzzled that the people on here are so fascinated by it if they think it's such bad value. Just forget about it and look for a different investment. No point continually complaining that it's over-priced.

Don't forget that there as been a lot of QE around the world and the world is flooded with cheap money. Much of this finds its way into property. It's not property prices that are high, but money that's become more worthless. I'd rather hold property than cash. Cash can disappear very quickly with QE, and other ways that governments find to devalue it. If you had £500K in London in 2007 you could buy a condo. Today you'd have to give £1 million for the same condo, so your money has halved in value.

[Globalist]

I guess failed means the building didn't sell out. I think I saw new units advertised recently.

My take on it is that the market isn't a normal supply-demand market, as developers are happy to hold empty units for years. A bit like diamonds. They'd be dirt cheap if DeBeers didn't hold lots back from the market. Property would be cheap in BKK of they sold all units at a price that they'd actually sell. This just distorts the market, but that's the way it will be unless the companies are eventually forced to sell. None of this means that prices will come down though. I think prices are still reasonable compared to many cities around the world. Even 10 million baht is only £200K. That sounds very reasonable for a major city like Bangkok.

But I don't think the BKK property market is good for short-term investment the way some Western markets can be. Places like London have limited land, but Bangkok has enough land to build 1000s of condos every year for decades. We'll all be dead before they run out of land and that should hold prices down. I doubt prices will crash. More likely they'll move sideways for a while.

But it's funny how people who can't afford to buy or are too frightened to buy come up with this 25% overvalued figure. This is what the say in all markets. When a London condo was £500K I heard people say it was 25% overvalued. Now the same property is £1 million they still say it's overvalued. But when London property did crash around 30% in 2008, these people still didn't buy because they claimed that they were still 25% overvalued. Some people just won't buy whatever the price. If you look hard enough you can find many properties at a 25% discount. So put in the effort and buy them. Best to buy from a distressed farang seller, as they offer the best prices.

Buy to live in, but there are better investments than Thai property. I'm puzzled that the people on here are so fascinated by it if they think it's such bad value. Just forget about it and look for a different investment. No point continually complaining that it's over-priced.

Don't forget that there as been a lot of QE around the world and the world is flooded with cheap money. Much of this finds its way into property. It's not property prices that are high, but money that's become more worthless. I'd rather hold property than cash. Cash can disappear very quickly with QE, and other ways that governments find to devalue it. If you had £500K in London in 2007 you could buy a condo. Today you'd have to give £1 million for the same condo, so your money has halved in value.

Some good points made there, in particular about money-printing and the ubiquitous "sour grapes" people.

Just one comment on " Bangkok has enough land to build 1000s of condos every year for decades. We'll all be dead before they run out of land and that should hold prices down. I doubt prices will crash. More likely they'll move sideways for a while." :

This is in principle correct and makes location even more crucial in Bangkok. If a mid- to high-end condo is not extremely close to a BTS or MRT station, it's a risky investment by any account.

And if a luxury- to super-luxury-condo is not in at least a "quasi-unique" location (river-view, park etc), even that will be risky.

[mngmn]

A time-lapse photo over say a month would show which rooms in a condo ever have the lights turned on.

My guess for On Nut area would be around 40% vacant.

[midas]

I guess failed means the building didn't sell out. I think I saw new units advertised recently.

My take on it is that the market isn't a normal supply-demand market, as developers are happy to hold empty units for years. A bit like diamonds. They'd be dirt cheap if DeBeers didn't hold lots back from the market. Property would be cheap in BKK of they sold all units at a price that they'd actually sell. This just distorts the market, but that's the way it will be unless the companies are eventually forced to sell. None of this means that prices will come down though. I think prices are still reasonable compared to many cities around the world. Even 10 million baht is only £200K. That sounds very reasonable for a major city like Bangkok.

But I don't think the BKK property market is good for short-term investment the way some Western markets can be. Places like London have limited land, but Bangkok has enough land to build 1000s of condos every year for decades. We'll all be dead before they run out of land and that should hold prices down. I doubt prices will crash. More likely they'll move sideways for a while.

But it's funny how people who can't afford to buy or are too frightened to buy come up with this 25% overvalued figure. This is what the say in all markets. When a London condo was £500K I heard people say it was 25% overvalued. Now the same property is £1 million they still say it's overvalued. But when London property did crash around 30% in 2008, these people still didn't buy because they claimed that they were still 25% overvalued. Some people just won't buy whatever the price. If you look hard enough you can find many properties at a 25% discount. So put in the effort and buy them. Best to buy from a distressed farang seller, as they offer the best prices.

Buy to live in, but there are better investments than Thai property. I'm puzzled that the people on here are so fascinated by it if they think it's such bad value. Just forget about it and look for a different investment. No point continually complaining that it's over-priced.

Don't forget that there as been a lot of QE around the world and the world is flooded with cheap money. Much of this finds its way into property. It's not property prices that are high, but money that's become more worthless. I'd rather hold property than cash. Cash can disappear very quickly with QE, and other ways that governments find to devalue it. If you had £500K in London in 2007 you could buy a condo. Today you'd have to give £1 million for the same condo, so your money has halved in value.

Some good points made there, in particular about money-printing and the ubiquitous "sour grapes" people.

Just one comment on " Bangkok has enough land to build 1000s of condos every year for decades. We'll all be dead before they run out of land and that should hold prices down. I doubt prices will crash. More likely they'll move sideways for a while." :

This is in principle correct and makes location even more crucial in Bangkok. If a mid- to high-end condo is not extremely close to a BTS or MRT station, it's a risky investment by any account.

And if a luxury- to super-luxury-condo is not in at least a "quasi-unique" location (river-view, park etc), even that will be risky.

But over how many years should you amortise your purchase and how do you factor in financially that sinking feeling?

Thailand needs to act as Bangkok sinks faster

http://www.dw.de/thailand-needs-to-act-as-bangkok-sinks-faster/a-16739739

Edited May 1, 2015 by midas

[KittenKong]

Thailand needs to act as Bangkok sinks faster

One of the really good things about Thailand is the knowledge that one day Bangkok will sink into the mud and be gone forever.

[trogers]

Thailand needs to act as Bangkok sinks faster

One of the really good things about Thailand is the knowledge that one day Bangkok will sink into the mud and be gone forever.

Doubt this would happen before global warming melt those polar ice and beaches form at the foot of Khao Yai.