Are the banks sitting on a property timebomb?

[cooked]

Of course Thailand is heading for a crash. Household debt is very high, we all know of people taking on more debt than they can possibly afford. Around Buriram we have nice hotels with empty car parks, too many hardware stores that are nearly empty, shop developments that are remaining unsold, we have no industry, no raw resources, little tourism apart from the racing stadium every two months or so. The only question is when the bubble will burst, not if.

[ozyjon]

Mae Sai Lots of new buildings not selling and so many more are being built . I dont understand the economics ,seems crazy to be buildigs more and more

to understand that kind of economics requires the knowledge that real estate is the best way in Thailand to invest "black" money.

How is a building that sits empty considered an investment?

How is a building that sits empty considered an investment?

It's an investment in the sense that it being empty it gives

the owner choice, it can be rented, sold, demolished etc

If it is occupied, the tenants could be trashing the place,

not paying rent, or inviting the extended family to move in,

you the owner no longer have the choice.

[dinga]

You don't have to look far to see Thailand's time bombs, and they are numerous. At some point, those expensive land plots and houses will be much cheaper.

http://www.ft.com/cms/s/0/f7245dac-e513-11e4-bb4b-00144feab7de.html#axzz3Xw4zxtz0

But before then they are likely to appreciate in value. There is a lot of money out there and with ASEAN starting prices of real estate might go further up.

Pray tell how you reach that guess (seems you are almost 50 years behind the times - ASEAN started in 1967)

[thailand49]

When the shit hits the fan, they got no one to blame but themselves, this is their history shooting themselves in the foot and parting up every Songkran as if there is no tomorrow. Some how they get by?

[off road pat]

There seems to be a law that does not allow banks selling repossessed houses etc for a rice below the outstanding mortgage. Hence the apparently the high asking prices (in some cases).

Maybe another board member knows more about this.

My wife and I were in a nice hotel on the banks of the MaeKong in Nong Khai, a couple of years ago.....when we talked to the owner he told us he had familie in the bank and that he could buy the repossessed hotel for 2 million Bath...I swear the hotel was worth 10 times more....it was on a perfect location.

Just for your information....!

[ianbardon]

Thailand is skint, they have only paid off 1/3 of the 14 trillion the borrowed in 1997, they peg bht to the $ and hope all will good by following the dollar , exports are down, and too expensive compared to other ASIA Countries and now they think tourism is the answer, they need to rethink that one, Thai are great ones for the ostrich sin-drum .

A previous poster said Thailand has vast reserves , OF WHAT ? COCONUTS well yes they do, why did they rice farmers have to wait for their money and only got a % of satang owing ? the big C word, say no more , I will give it 1 year before the sheet hit the fan, GLA

[thailand49]

Beware what you read in the papers here? Thai officials just last year admitted to basically saying, a little lie at times is a good practice since it prevents fear in the people.

They like to distort things for example, there is no rice scream, there is really no really coup, The tourist numbers have increased since the coup is over, Pattaya was packed like never before since some official was stuck in traffic on Sukhumvit, the death toll for Songkran has improved? and here is the latest just reported. A Thai International Tech school is the best in the world.

They do not call this place the land of smiles for nothing.

[Naam]

Thailand is skint, they have only paid off 1/3 of the 14 trillion the borrowed in 1997, they peg bht to the $ and hope all will good by following the dollar , exports are down, and too expensive compared to other ASIA Countries and now they think tourism is the answer, they need to rethink that one, Thai are great ones for the ostrich sin-drum .

A previous poster said Thailand has vast reserves , OF WHAT ? COCONUTS well yes they do, why did they rice farmers have to wait for their money and only got a % of satang owing ? the big C word, say no more , I will give it 1 year before the sheet hit the fan, GLA

if you are willing to search this forum you will find several dozen forecast (spread over the last 9 years) identical to yours. none of them materialised!

yawwwwnnnnn...

you are also adviced to note that the Bank of Thailand, which holds presently foreign exchange valued US-Dollars 148 billions is not in the business, paying domestic rice farmers.

[ExpatOilWorker]

You don't have to look far to see Thailand's time bombs, and they are numerous. At some point, those expensive land plots and houses will be much cheaper.

http://www.ft.com/cms/s/0/f7245dac-e513-11e4-bb4b-00144feab7de.html#axzz3Xw4zxtz0

You have to subscripe to see the FT article. You can however post it here as a picture.

[maidee]

as long as it is not sold, it is not a loss booked for the bank

so no problem to keep it that way, even if it takes 5 - 10 - 20 years

[TallGuyJohninBKK]

There seems to be a law that does not allow banks selling repossessed houses etc for a rice below the outstanding mortgage. Hence the apparently the high asking prices (in some cases).

Maybe another board member knows more about this.

There was another thread on this topic not so long back, and I recall the info there being the same as what you say here -- some kind of law or regulation that restricts how Thai banks may price repossessed property and supposedly doesn't allow them to price under the amount of the outstanding mortgage.

I don't know if that means only that they have to market the property at those kinds of prices, or also that they cannot sell the property at anything less than the outstanding mortgage. I suspect it's the latter -- they cannot sell for less than....

[SheungWan]

as long as it is not sold, it is not a loss booked for the bank

so no problem to keep it that way, even if it takes 5 - 10 - 20 years

There is no free lunch. It is certainly a non-performing loan and a non-performing asset. That means that profit ratio is driven down. Now the question is whether the ratio of such non-performing assets is going up or down over a measurable period of time. Whatever the figures it is still a dead parrot. Having said that, the example of the abandoned structure on Pattaya Beach Road which later turned into the successfully sold Northshore Condo block is an example of a dead parrot being revitalised. Nonetheless there are plenty of dead parrots being built in secondary locations and keeping them live will be somewhat difficult.....

Edited April 21, 2015 by SheungWan

[NeverSure]

as long as it is not sold, it is not a loss booked for the bank

so no problem to keep it that way, even if it takes 5 - 10 - 20 years

You're the one that has it right.

I'm making no predictions, just a few comments. I lived through the US real estate crash less than ten years ago. Some observations.

1. The closer it got to a crash the more it looked like it wouldn't crash because "real estate prices always go up so buy more and buy now."

2. Even the banks and the "smart money" got caught and needed bailouts due to loan losses.

3. The economy appeared to be very good and growing right up to the crash.

4. Real estate prices were rising even after sales began to slow because people couldn't see the writing on the wall.

5. The crash appeared to be sudden even though it was getting set up for at least 2 years. The sudden part was actually only the realization.

6. Banks in the US were more closely audited and regulated and had to mark the fallen values of real estate to market value ("mark to market.") This caused many to go upside down as they had to use their own capital to support loan to value ratios. This was very quick. This is why many needed bailouts as they burned through their own capital supporting loan to value ratios, even on loans which weren't delinquent. It's about truth in the financial statement - admitting that the collateral won't cover the loan.

7. The money banks lend is the depositors' money. Depositors' money is a liability on the banks' books because the bank owes it to the depositors. When a bank doesn't have enough good loans and collateral to cover the depositors' money it is broke. First the bank burns through its own money (its capital) and next it would start burning through depositors money which will get the doors locked short of a bailout.

8. I had a young nephew in Las Vegas who told me he was a millionaire but six months later he filed for bankruptcy. When things stopped selling he couldn't raise the money to pay even the interest on his development loans. Paper millionaires abounded.

9. Thailand's real estate market isn't solid with a solid record of reasonable price rises and normal sales taking a month or two. It is uneven, bumpy and illiquid. The prices seem to be what someone wants to ask and sit on rather than what the market will pay in a reasonable time. Of course there are exceptions but there always are.

10. There are certainly signs of a bubble in the Thai market but lacking a crystal ball it's not possible to say whether it will settle down or go into a crash. The economy is weak, properties aren't moving at a normal pace (no liquidity) and consumers are maxed out. At the least, just for me, it wouldn't be a time where I would buy.

Cheers

[Robert24]

as long as it is not sold, it is not a loss booked for the bank

so no problem to keep it that way, even if it takes 5 - 10 - 20 years

There is no free lunch. It is certainly a non-performing loan and a non-performing asset. That means that profit ratio is driven down. Now the question is whether the ratio of such non-performing assets is going up or down over a measurable period of time. Whatever the figures it is still a dead parrot. Having said that, the example of the abandoned structure on Pattaya Beach Road which later turned into the successfully sold Northshore Condo block is an example of a dead parrot being revitalised. Nonetheless there are plenty of dead parrots being built in secondary locations and keeping them live will be somewhat difficult.....

Accounting rules will force every bank to make write-offs or provisions already when the loan becomes non-performing way ahead of a repossession.

[chiang mai]

You don't have to look far to see Thailand's time bombs, and they are numerous. At some point, those expensive land plots and houses will be much cheaper.

http://www.ft.com/cms/s/0/f7245dac-e513-11e4-bb4b-00144feab7de.html#axzz3Xw4zxtz0

But before then they are likely to appreciate in value. There is a lot of money out there and with ASEAN starting prices of real estate might go further up.

Pray tell how you reach that guess (seems you are almost 50 years behind the times - ASEAN started in 1967)

I believe MW refers to the AEC Blueprint and establishment of the ASEAN Economic Community by end-2015, refered to by the masses as simply ASEAN.

[chiang mai]

Thailand is skint, they have only paid off 1/3 of the 14 trillion the borrowed in 1997, they peg bht to the $ and hope all will good by following the dollar , exports are down, and too expensive compared to other ASIA Countries and now they think tourism is the answer, they need to rethink that one, Thai are great ones for the ostrich sin-drum .

A previous poster said Thailand has vast reserves , OF WHAT ? COCONUTS well yes they do, why did they rice farmers have to wait for their money and only got a % of satang owing ? the big C word, say no more , I will give it 1 year before the sheet hit the fan, GLA

Skint you say, only repaid 1/3 of the '97 IMF loan you say, hmmm!

"On July 31, 2003, Thailand completed an early repayment of its outstanding obligations to the International Monetary Fund under a Stand-By Arrangement".

https://www.imf.org/external/np/sec/pr/2003/pr03131.htm

"Foreign Exchange Reserves in Thailand decreased to 156319.19 USD Million in March of 2015 from 156935.39 USD Million in February of 2015. Foreign Exchange Reserves in Thailand averaged 32958.55 USD Million from 1960 until 2015, reaching an all time high of 189883.65 USD Million in April of 2011 and a record low of 326 USD Million in January of 1960. Foreign Exchange Reserves in Thailand is reported by the Bank of Thailand".

http://www.tradingeconomics.com/thailand/foreign-exchange-reserves

[seedy]

Two Troll / Flaming posts removed

[jacko45k]

How the bank gets to value of 31 million?

Normally they will sell for the money owed to the bank, which never can be 31 million, unless that is what the house cost to build.

It would be unlikely to be just the building costs!

More likely the purchase price, or better still the loan/mortgage taken out to buy it by whoever defaulted.

Perhaps they were silly enough to let him take out a loan secured on the property (or second mortgage), just before he did a runner.

Or maybe they ask Real Estate agents to value foreclosed properties and sell them!

Edited April 22, 2015 by jacko45k

[cloudhopper]

You don't have to look far to see Thailand's time bombs, and they are numerous. At some point, those expensive land plots and houses will be much cheaper.

http://www.ft.com/cms/s/0/f7245dac-e513-11e4-bb4b-00144feab7de.html#axzz3Xw4zxtz0

But before then they are likely to appreciate in value. There is a lot of money out there and with ASEAN starting prices of real estate might go further up.

LOL Credit creation notwithstanding the amount of money "out there" remains unchanged regardless of price or sales - it merely goes from the buyer's account to the seller's account.

[cooked]

Try http://www.forbes.com/sites/jessecolombo/2013/11/04/thailands-bubble-economy-is-heading-for-a-1997-style-crash/

He was right before the last crash and says some sensible things

[dinga]

You don't have to look far to see Thailand's time bombs, and they are numerous. At some point, those expensive land plots and houses will be much cheaper.

http://www.ft.com/cms/s/0/f7245dac-e513-11e4-bb4b-00144feab7de.html#axzz3Xw4zxtz0

But before then they are likely to appreciate in value. There is a lot of money out there and with ASEAN starting prices of real estate might go further up.

Pray tell how you reach that guess (seems you are almost 50 years behind the times - ASEAN started in 1967)

I believe MW refers to the AEC Blueprint and establishment of the ASEAN Economic Community by end-2015, refered to by the masses as simply ASEAN.

in that case, "the Masses" comprise two folks - you and MWski. If he's indeed referring to AEC it has never been referred to as ASEAN. I would really like an explanation as to how AEC will effect land prices - since AEC will bring NO changes to restrictions on ownership.

[ExpatOilWorker]

There could be some slowdown due to high level of debt "Debt levels in several Asian countries, such as China, Malaysia, Thailand and South Korea, are higher than they were before the Asian financial crisis of the late 1990s."

http://www.wsj.com/articles/debt-piles-up-in-asia-threatening-growth-1429645244

[chiang mai]

But before then they are likely to appreciate in value. There is a lot of money out there and with ASEAN starting prices of real estate might go further up.

Pray tell how you reach that guess (seems you are almost 50 years behind the times - ASEAN started in 1967)

I believe MW refers to the AEC Blueprint and establishment of the ASEAN Economic Community by end-2015, refered to by the masses as simply ASEAN.

in that case, "the Masses" comprise two folks - you and MWski. If he's indeed referring to AEC it has never been referred to as ASEAN. I would really like an explanation as to how AEC will effect land prices - since AEC will bring NO changes to restrictions on ownership.

Two parts to my answer:

First, a person would need to be blind, stupid or both to have not seen any of the myriad of signs that abound declaring that Thailand is ready for ASEAN 2015!

Second, my posting about AEC is simply to redirect the earlier poster who seemed to have not understood the next stage in ASEAN devlopment.

As for land prices et al: I have no idea whther it will or will not.

[dinga]

But before then they are likely to appreciate in value. There is a lot of money out there and with ASEAN starting prices of real estate might go further up.

Pray tell how you reach that guess (seems you are almost 50 years behind the times - ASEAN started in 1967)

I believe MW refers to the AEC Blueprint and establishment of the ASEAN Economic Community by end-2015, refered to by the masses as simply ASEAN.

Two parts to my answer:

First, a person would need to be blind, stupid or both to have not seen any of the myriad of signs that abound declaring that Thailand is ready for ASEAN 2015!

Second, my posting about AEC is simply to redirect the earlier poster who seemed to have not understood the next stage in ASEAN devlopment.

As for land prices et al: I have no idea whther it will or will not.

Not blind, but must be stupid to have missed the word "Community" between 'ASEAN' and '2015' (hope the attachment clarifies your error).

Waiting patiently for explanation re. increased land prices

[Robert24]

Try http://www.forbes.com/sites/jessecolombo/2013/11/04/thailands-bubble-economy-is-heading-for-a-1997-style-crash/

He was right before the last crash and says some sensible things

This guy predicts crashes all the time all over the world whether it is Singapore, Hong Kong, Europe, the U.S., China and also any asset class whether real estate, equities, bonds etc. So if you do this over many many years, I guess one day you will be right on something. However if you would follow his views as an investment guideline, you would have lost all your money already.

I can also say one day there will be a crash in the property market in Thailand and I'm sure I'll be proven right at some point over the next 25 years.

[Robert24]

There could be some slowdown due to high level of debt "Debt levels in several Asian countries, such as China, Malaysia, Thailand and South Korea, are higher than they were before the Asian financial crisis of the late 1990s."

http://www.wsj.com/articles/debt-piles-up-in-asia-threatening-growth-1429645244

Agree with this that the cumulative debt level is higher than pre the Asian crisis. But the structure of the debt is very different. Before the Asian crisis the issue was mainly Government and corporate debt that was $ denominated. So obviously when they had to devalue the baht, corporates lost at a lot money and the government needed an IMF bailout. Now the situation is somewhat different that government debt is relatively low and mainly baht denominated. And the BoT has a lot of foreign currency reserves to manage big currency movements. The issue now is household and corporate debt which is at a very high level.

[chiang mai]

images1.jpgimages1.jpg

But before then they are likely to appreciate in value. There is a lot of money out there and with ASEAN starting prices of real estate might go further up.

Pray tell how you reach that guess (seems you are almost 50 years behind the times - ASEAN started in 1967)

I believe MW refers to the AEC Blueprint and establishment of the ASEAN Economic Community by end-2015, refered to by the masses as simply ASEAN.

Two parts to my answer:

First, a person would need to be blind, stupid or both to have not seen any of the myriad of signs that abound declaring that Thailand is ready for ASEAN 2015!

Second, my posting about AEC is simply to redirect the earlier poster who seemed to have not understood the next stage in ASEAN devlopment.

As for land prices et al: I have no idea whther it will or will not.

Not blind, but must be stupid to have missed the word "Community" between 'ASEAN' and '2015' (hope the attachment clarifies your error).

[Anthony5]

There could be some slowdown due to high level of debt "Debt levels in several Asian countries, such as China, Malaysia, Thailand and South Korea, are higher than they were before the Asian financial crisis of the late 1990s."

http://www.wsj.com/articles/debt-piles-up-in-asia-threatening-growth-1429645244

Agree with this that the cumulative debt level is higher than pre the Asian crisis. But the structure of the debt is very different. Before the Asian crisis the issue was mainly Government and corporate debt that was $ denominated. So obviously when they had to devalue the baht, corporates lost at a lot money and the government needed an IMF bailout. Now the situation is somewhat different that government debt is relatively low and mainly baht denominated. And the BoT has a lot of foreign currency reserves to manage big currency movements. The issue now is household and corporate debt which is at a very high level.

Government debt is low according to the figures we get to see, but I wonder where all the money came from that was looted from the state coffers for about 10 years by a square headed politician.

Or the trillions paid to the farmers without any rice actually sold.