Thai real estate prices to crash by 50%?

[ExpatForever]

Very thought provoking as usual. So is there a property bubble in Thailand?

I'm not sure about this financial repression talk but what about when global rates do rise? Won't that lessen the allure of high yielding Asia when better returns can be had in America?

Let's say foreigners start to cool on the idea of investing in Thailand. Won't that seriously affect the demand for condominiums even amongst Thais? When they see local real estate markets begin to cool, they also start buying property abroad rather then in Thailand.

I'm beginning to wonder if condos in Thailand are seriously overhyped.

[TommyUK1960]

The last time the property prices collapsed all Thai's did was sit on the property until the price they wanted was achieved.

This time many have bank loan's for property and truck/car. Also many new house and condo projects to compete against in obtained a price

Thailand is in new territory.

Land prices in some areas seem to have topped out.

So maybe Thailand is going to have a large correction.

[trogers]

There is no property tax in Thailand, and so lesser pain to hang on rather than to sell at a deep discount.

You may be able to get some foreclosed units at 25-30% off, but doubtful they would be well located.

Those in good locations would be let out to help pay the mortgage.

[hhgz]

Thailand property values have never collapsed by 50%, and I'm not sure why you are convinced that they will. When the prices did decline, there seemed to be competition between TVers to see who could predict the most dire circumstances ("I'm right. I predicted that capitalism would cause this 20 years ago.") The former prophet and seer, Stickman, predicted condos would be going for 5 cents on the dollar. As late as 2014, TVers predicted the total and utter collapse of the condo market on August 29, 2014. Nothing of the sort happened.

But, perspective differ. When the price of gold collapsed by 40%, goldbugs were overjoyed, "Fantastic, now I can buy even more gold."

Edited June 4, 2015 by hhgz

[Suradit69]

Very thought provoking as usual.

As usual?

financial repression

What is "financial repression?

Let's say foreigners start to cool on the idea of investing in Thailand.

Investment flows are cyclical, but the US markets are getting toppy and the bull market is getting long in the tooth. With the dollar so high, long term foreign investments in the US take on an increasing currency rate risk going forward. Europe may be relatively cheap right now, but there's political risk there as the southern parts of Europe (the so called PIGS) seem to be on shaky ground with their debt loads.

If anything investment might move to other parts of Asia, but unless there's a resurgence in commodity prices Australia won't be that attractive for awhile and most of the rest of this region carries much the same risk as would Thailand. The ASEAN economic community integration is likely to be beneficial for trade if anything.

As for condos and retirement homes, the number of western retirees is swelling and many of them are looking for places to settle. Thailand isn't as cheap as it once was, but then few places are. If there's reduced interest in real estate, it might cause a slow down in construction, but that would be ultimately beneficial to price stability.

Investment flows are cyclical, but expecting money, especially Asian money, to suddenly abandon Thailand for the US is pretty far fetched and thinking that real estate prices will plummet by 50% isn't so much thought provoking as it is wildly speculative. As Tommy said, Thais tend not to panic and sell at any price like westerners do. They'd rather sit on property and wait for prices to come back to their asking price. Increased amounts of personal and investor debt could exacerbate the situation this time around, but I doubt it will be anywhere near as bad as you seem to hoping for and even when lender foreclose on non-performing loans, they don't try to dump property at a loss.

Countries like Japan are still interested in establishing factories where labor is cheaper, so a price or price & currency slide would likely bring in more investment, not less.

Edited June 4, 2015 by Suradit69

[Anthony5]

The last time the property prices collapsed all Thai's did was sit on the property until the price they wanted was achieved.

This time many have bank loan's for property and truck/car. Also many new house and condo projects to compete against in obtained a price

Thailand is in new territory.

Land prices in some areas seem to have topped out.

So maybe Thailand is going to have a large correction.

Land prices never go down, because the people who own the land have no need to sell, since it is free of loans and doesn't make any difference to them if it's sold or not.

The only thing which may see a correction are the condos that are under construction, as their loan payments continue, and there are less buyers.

I posted in another thread recently also, that I was informed last week by someone in a position to know, that currently several well know condo developers in Pattaya are in deer problems.

He named a few of them, but I will not post them here.

[ExpatForever]

Very thought provoking as usual.

As usual?

financial repression

What is "financial repression?

Let's say foreigners start to cool on the idea of investing in Thailand.

Investment flows are cyclical, but the US markets are getting toppy and the bull market is getting long in the tooth. With the dollar so high, long term foreign investments in the US take on an increasing currency rate risk going forward. Europe may be relatively cheap right now, but there's political risk there as the southern parts of Europe (the so called PIGS) seem to be on shaky ground with their debt loads.

If anything investment might move to other parts of Asia, but unless there's a resurgence in commodity prices Australia won't be that attractive for awhile and most of the rest of this region carries much the same risk as would Thailand. The ASEAN economic community integration is likely to be beneficial for trade if anything.

As for condos and retirement homes, the number of western retirees is swelling and many of them are looking for places to settle. Thailand isn't as cheap as it once was, but then few places are. If there's reduced interest in real estate, it might cause a slow down in construction, but that would be ultimately beneficial to price stability.

Investment flows are cyclical, but expecting money, especially Asian money, to suddenly abandon Thailand for the US is pretty far fetched and thinking that real estate prices will plummet by 50% isn't so much thought provoking as it is wildly speculative. As Tommy said, Thais tend not to panic and sell at any price like westerners do. They'd rather sit on property and wait for prices to come back to their asking price. Increased amounts of personal and investor debt could exacerbate the situation this time around, but I doubt it will be anywhere near as bad as you seem to hoping for and even when lender foreclose on non-performing loans, they don't try to dump property at a loss.

Countries like Japan are still interested in establishing factories where labor is cheaper, so a price or price & currency slide would likely bring in more investment, not less.

In the article I linked to they talk about financial repression

[Gsxrnz]

Thais (especially the Chinese Thais) have no concept or understanding of NPV. They'll sit on a piece of land or condo for 20 years and if they double their money they think they're on a winner.

Somehow the Thais seem to fly in the face of the supply demand theory, and unfortunately the short/medium effects of real estate pricing are skewed because of it.

And the Europeans seem to be buyers or sellers based on the relative strength/weakness of their domestic currency, further skewing the price/supply/demand curve.

The answer is to rent. Let the owner take the risk and you pay your meagre rent.

I'm paying a rental on a commercial property of 28K baht per month. The landlord is convinced the property is worth 30M and that's his sale price. If he is happy with a return of 1.12% p.a., who am I to complain.

[CarolinaJames]

Why do you think all land is debt free? My wife has loans on a land in a few locations?

I would think more people would take loans out with the land as collateral when household revenues decrease.

[Anthony5]

Why do you think all land is debt free? My wife has loans on a land in a few locations?

I would think more people would take loans out with the land as collateral when household revenues decrease.

Of course there will be a few that have borrowed on the land, but the majority owns the land since generations and they just live the easy life.

The plot I built my house on I bought for 900.000 Baht 7 years ago from people who owned one big 17 Rai plot, and they needed some money to support their daughter.

They made a title deed for 1 Rai, and kept the other 16 Rai as 1 plot. They have their house on the far side of the plot and own a maybe 20 year old toyota pick up.

Last year some guy offered them 3.5 Million for a Rai right behind my place, as he wanted to buy my house and extend the land area.

They weren't interested. Whenever I ask them if they want to sell 1 or 2 Rai, all they do is smile.

I know many people in the area that are in the same situation.

[elgordo38]

The last time the property prices collapsed all Thai's did was sit on the property until the price they wanted was achieved.

This time many have bank loan's for property and truck/car. Also many new house and condo projects to compete against in obtained a price

Thailand is in new territory.

Land prices in some areas seem to have topped out.

So maybe Thailand is going to have a large correction.

I can see fiat currency which is the baht dropping but they are not making any more land and the last time I looked the population was still climbing. They got to live somewhere. A lot of people still remember 1997. When I lived in Mexico I bumped into millionaires that did not have a peso in their pocket but they had lots of land. They had been through the 1994 crisis and watched the peso devalue just like the baht but land hey pick some up and run it through your fingers its real. Fiat money well in the last 100 years it has lost 97% of its value. Make your own educated guess.

[ExpatForever]

Thais (especially the Chinese Thais) have no concept or understanding of NPV. They'll sit on a piece of land or condo for 20 years and if they double their money they think they're on a winner.

Somehow the Thais seem to fly in the face of the supply demand theory, and unfortunately the short/medium effects of real estate pricing are skewed because of it.

And the Europeans seem to be buyers or sellers based on the relative strength/weakness of their domestic currency, further skewing the price/supply/demand curve.

The answer is to rent. Let the owner take the risk and you pay your meagre rent.

I'm paying a rental on a commercial property of 28K baht per month. The landlord is convinced the property is worth 30M and that's his sale price. If he is happy with a return of 1.12% p.a., who am I to complain.

Well put. That sums up Thai landlords like nothing I've ever read before.

[sanuk711]

Thais (especially the Chinese Thais) have no concept or understanding of NPV. They'll sit on a piece of land or condo for 20 years and if they double their money they think they're on a winner.

Somehow the Thais seem to fly in the face of the supply demand theory, and unfortunately the short/medium effects of real estate pricing are skewed because of it.

And the Europeans seem to be buyers or sellers based on the relative strength/weakness of their domestic currency, further skewing the price/supply/demand curve.

The answer is to rent. Let the owner take the risk and you pay your meagre rent.

I'm paying a rental on a commercial property of 28K baht per month. The landlord is convinced the property is worth 30M and that's his sale price. If he is happy with a return of 1.12% p.a., who am I to complain.

Well put. That sums up Thai landlords like nothing I've ever read before.

Oh yes those Chinese Thai's-----their so stupid its a wonder they can tie their shoelaces every morning------ God I bet they just sit there all wishing they were just as smart as the farang pensioners here who's main concern is to work out what exchange rate their pension can get them this month ....gsxrnz when doing your maths of 1.2%--- "the landlord is convinced the property is worth 30M"....that's not what he paid for it, therefor his return is higher, also your rent will rise each year & if the property values up...there is that return to add in also.

Has anyone read the full article ?? its states that the Thai baht is 40% under valued---if its correct what will that do for condo prices? (or your pension) Then the article recommends stock-shares etc.

Look I am just the owner --(user faugt---or however its pronounced ) of a small house in Issan---which means I havent paid a penny in rent or any other fees for last 11 years, I'll just stick with those silly Thai Chinese & their outlook on bricks & mortar, you guys go read the article on investing by Harald B. & go make a killing ---those Thai Chinese are probably too stupid to understand the complexity's of it all that us farangs can just take in after a few changs..........

[chicowoodduck]

The last time the property prices collapsed all Thai's did was sit on the property until the price they wanted was achieved.

This time many have bank loan's for property and truck/car. Also many new house and condo projects to compete against in obtained a price

Thailand is in new territory.

Land prices in some areas seem to have topped out.

So maybe Thailand is going to have a large correction.

Land prices never go down, because the people who own the land have no need to sell, since it is free of loans and doesn't make any difference to them if it's sold or not.

The only thing which may see a correction are the condos that are under construction, as their loan payments continue, and there are less buyers.

I posted in another thread recently also, that I was informed last week by someone in a position to know, that currently several well know condo developers in Pattaya are in deer problems.

He named a few of them, but I will not post them here.

Believe it when I see it.....load of rubbish...IMHO.....?

Name and shame and we will go from there...?

[chrisinth]

One hears about this all the time, but one doesn't see it................

There seems to be a lot of people who truly believe that the real estate/property markets are aimed only at foreigners. Unless you are living in one of the commercial areas (Pattaya, Phuket, even Bkk) I would dispute that vigorously.

Up where I am living (Phitsanulok), there is a new Moo ban going up, another area being land filled, on average every month. Hundreds of homes, often being sold before construction is complete, and the vast majority of the buyers are Thai.

The reason I'm up to date on it is that we are house hunting at the minute here. I would guess the average price for a new house is about 2.2 million, going up as high as 15 million (in the Moo Bans).

It appears to be an extremely healthy market here 'in the sticks', perhaps nobody has been informed of the pending disasters on the horizon...............

Edit: Just as an aside, we were looking at some modern townhouses done out as condos. They are going for 4 million each. I was taken back a bit with that.

Edited June 5, 2015 by chrisinth

[HerbalEd]

You're doing a lot of guessing and supposing here.

[masuk]

The last time the property prices collapsed all Thai's did was sit on the property until the price they wanted was achieved.

This time many have bank loan's for property and truck/car. Also many new house and condo projects to compete against in obtained a price

Thailand is in new territory.

Land prices in some areas seem to have topped out.

So maybe Thailand is going to have a large correction.

I never cease to be amazed at the condos going up around me in Chiang Mai. Three have recently been completed and about to open, at least 8 under construction within about a 500 metres radius.

Many do not appear to have provision for tenant's cars which will add to the general chaos on the sois. More well-thought out town planning?

At least some appear to have been well-designed, and not some plan borrowed from Moscow.

[Guest]

Very thought provoking as usual.

As usual?

financial repression

What is "financial repression?

Let's say foreigners start to cool on the idea of investing in Thailand.

Investment flows are cyclical, but the US markets are getting toppy and the bull market is getting long in the tooth. With the dollar so high, long term foreign investments in the US take on an increasing currency rate risk going forward. Europe may be relatively cheap right now, but there's political risk there as the southern parts of Europe (the so called PIGS) seem to be on shaky ground with their debt loads.

If anything investment might move to other parts of Asia, but unless there's a resurgence in commodity prices Australia won't be that attractive for awhile and most of the rest of this region carries much the same risk as would Thailand. The ASEAN economic community integration is likely to be beneficial for trade if anything.

As for condos and retirement homes, the number of western retirees is swelling and many of them are looking for places to settle. Thailand isn't as cheap as it once was, but then few places are. If there's reduced interest in real estate, it might cause a slow down in construction, but that would be ultimately beneficial to price stability.

Investment flows are cyclical, but expecting money, especially Asian money, to suddenly abandon Thailand for the US is pretty far fetched and thinking that real estate prices will plummet by 50% isn't so much thought provoking as it is wildly speculative. As Tommy said, Thais tend not to panic and sell at any price like westerners do. They'd rather sit on property and wait for prices to come back to their asking price. Increased amounts of personal and investor debt could exacerbate the situation this time around, but I doubt it will be anywhere near as bad as you seem to hoping for and even when lender foreclose on non-performing loans, they don't try to dump property at a loss.

Countries like Japan are still interested in establishing factories where labor is cheaper, so a price or price & currency slide would likely bring in more investment, not less.

I had to double check to see if I was still on the Thai Visa site !!

Kudos to you, what a well written and insightful piece.

Made my day .. thanks.

[Guest]

Thais (especially the Chinese Thais) have no concept or understanding of NPV. They'll sit on a piece of land or condo for 20 years and if they double their money they think they're on a winner.

Somehow the Thais seem to fly in the face of the supply demand theory, and unfortunately the short/medium effects of real estate pricing are skewed because of it.

And the Europeans seem to be buyers or sellers based on the relative strength/weakness of their domestic currency, further skewing the price/supply/demand curve.

The answer is to rent. Let the owner take the risk and you pay your meagre rent.

I'm paying a rental on a commercial property of 28K baht per month. The landlord is convinced the property is worth 30M and that's his sale price. If he is happy with a return of 1.12% p.a., who am I to complain.

Well said, and so true.

[morrobay]

In one of the papers today : Property Tax Back On The Table . If this goes into effect there are going to be alot of condos on the market.

[Guest]

Thais (especially the Chinese Thais) have no concept or understanding of NPV. They'll sit on a piece of land or condo for 20 years and if they double their money they think they're on a winner.

Somehow the Thais seem to fly in the face of the supply demand theory, and unfortunately the short/medium effects of real estate pricing are skewed because of it.

And the Europeans seem to be buyers or sellers based on the relative strength/weakness of their domestic currency, further skewing the price/supply/demand curve.

The answer is to rent. Let the owner take the risk and you pay your meagre rent.

I'm paying a rental on a commercial property of 28K baht per month. The landlord is convinced the property is worth 30M and that's his sale price. If he is happy with a return of 1.12% p.a., who am I to complain.

Well put. That sums up Thai landlords like nothing I've ever read before.

Oh yes those Chinese Thai's-----their so stupid its a wonder they can tie their shoelaces every morning------ God I bet they just sit there all wishing they were just as smart as the farang pensioners here who's main concern is to work out what exchange rate their pension can get them this month ....gsxrnz when doing your maths of 1.2%--- "the landlord is convinced the property is worth 30M"....that's not what he paid for it, therefor his return is higher, also your rent will rise each year & if the property values up...there is that return to add in also.

Has anyone read the full article ?? its states that the Thai baht is 40% under valued---if its correct what will that do for condo prices? (or your pension) Then the article recommends stock-shares etc.

Look I am just the owner --(user faugt---or however its pronounced ) of a small house in Issan---which means I havent paid a penny in rent or any other fees for last 11 years, I'll just stick with those silly Thai Chinese & their outlook on bricks & mortar, you guys go read the article on investing by Harald B. & go make a killing ---those Thai Chinese are probably too stupid to understand the complexity's of it all that us farangs can just take in after a few changs..........

I believe if you factor in inflation and the weak currency, his nominal percentages are close enough.

You have missed the point, and like may home owners do not understand the utility curve and why real estate returns lower percentages than many other investments.

I will give you a hint.

A stock has to outperform the equivalent value in property becuase you can not live in X# shares of Apple.

The point he is making is sound, please go grind your "homeowner" ax elsewhere.

[wprime]

One hears about this all the time, but one doesn't see it................

There seems to be a lot of people who truly believe that the real estate/property markets are aimed only at foreigners. Unless you are living in one of the commercial areas (Pattaya, Phuket, even Bkk) I would dispute that vigorously.

Up where I am living (Phitsanulok), there is a new Moo ban going up, another area being land filled, on average every month. Hundreds of homes, often being sold before construction is complete, and the vast majority of the buyers are Thai.

The reason I'm up to date on it is that we are house hunting at the minute here. I would guess the average price for a new house is about 2.2 million, going up as high as 15 million (in the Moo Bans).

It appears to be an extremely healthy market here 'in the sticks', perhaps nobody has been informed of the pending disasters on the horizon...............

Edit: Just as an aside, we were looking at some modern townhouses done out as condos. They are going for 4 million each. I was taken back a bit with that.

I agree with your sentiments about the impact of foreign-targeted properties (I would even assert that BKK wouldn't be directly influenced by foreign property owners pulling out to a noticeable degree) but there's a secondary effect. A slowing of the economy can cause investors (both foreign and domestic) to pull out of projects causing people to lose jobs, leading to loan defaults against properties effecting forced sales. These effects can be far-reaching even to the country-side. Additionally land prices in Thailand (much like the developed world) are inflated through loans. A mass of defaults will be heavily deflationary collapsing property prices leading to further defaults.

That being said, Thailand's economy is sufficiently self-reliant and diversified such that the circumstances required to cause such a collapse in Thailand would mean half the world's economies would have already collapsed (something we can safely dismiss). I wouldn't however expect significant growth over the next few years in any areas other than those dominated by cash-rich sectors of society.

[Anthony5]

The last time the property prices collapsed all Thai's did was sit on the property until the price they wanted was achieved.

This time many have bank loan's for property and truck/car. Also many new house and condo projects to compete against in obtained a price

Thailand is in new territory.

Land prices in some areas seem to have topped out.

So maybe Thailand is going to have a large correction.

Land prices never go down, because the people who own the land have no need to sell, since it is free of loans and doesn't make any difference to them if it's sold or not.

The only thing which may see a correction are the condos that are under construction, as their loan payments continue, and there are less buyers.

I posted in another thread recently also, that I was informed last week by someone in a position to know, that currently several well know condo developers in Pattaya are in deer problems.

He named a few of them, but I will not post them here.

Believe it when I see it.....load of rubbish...IMHO.....?

Name and shame and we will go from there...?

OK, you got me there, I knew you would not believe so I will go against forum rules and name and shame them on here.

The developers that are in big shit are:

Oops

Edited June 5, 2015 by Anthony5

[KarenBravo]

Though I no longer dabble in property any more, in the past, I have bought land, a house and a condo.

Each time I made the purchase, people would suck their teeth and exclaim that I had bought at the "wrong time", when the market was at a peak.

When I sold those same properties for over 100% profit, those same people would say that I had "been lucky".

My purchases were during the period from 1987 to 2000.

Frankly, I wouldn't buy property now unless you wanted to use it, though, empty land is different and much easier to sell.

[MockingJay]

Condos in previously overpopulated areas, especially where developers counted on Russians, might go down to some extend, but would never drop by 50%. Who gave you that crazy number? Prices for detached houses and land plots in preferrable locations will remain stable, while prices in gated communities might suffer a bit, but it all will get back to normal in the long run. Thailand and wide parts of SEA are a relatively safe haven while Europe and the states are - for starters - tumbling towards civil war and later WW3 against China and Russia. You should worry more about the derivates bubble hanging over the global economy and all those gamblers at Wall Street and buy some survival books, you might need 'em. There are "interesting" times ahead, that's for sure.

[peterrabbit]

The small condo market (30-40m) in Pattaya is definitely overpriced by 50%. They have built and are still building far too many for the local market and since the Russian rouble tumbled there are not enough buyers. There will be many unsold new units for many years to come. Also the Thais who have brought them as investments/rentals will get stung by falling prices and rental values.

[Robert24]

Well a crash is a price correction in a very short time frame. A 50% crash in Thai real estate may be theoretically possible but highly unlikely. Much more likely would be at some point a price correction or in a worst case scenario a pro-longed price correction with very little liquidity similar to what happened in Spain. Volume/liquidity dries up and prices start to drop. Property developers go bankrupt. NPLs start swelling, some banks get into trouble and the government will have to bail out some banks. This is a more realistic scenario for severe price correction.

The question is more what would trigger a price correction. Certainly a severe economic downturn could be a trigger, a significant increase in interest rates. Foreign investors in real estate are not a big part of the market. Much more important are foreign investors in manufacturing in Thailand. Should they stop investments or even move somewhere else, you may see an impact on Thai economy which may trigger real estate to go down.

My view is now the market is rather expensive and you may well see a correction at some point. I would only buy now if you have a very long term view. A good idea is to keep some cash on the side so should there be a price correction, you can buy something at a low price.

[jeffreysearch]

Yes totally agree with -wprime,, the most sensible comment here so far .. but as the world is slowing .. it will be interesting to see the effects of a higher currency ( Baht) on exports.. as the Japanese yen depreciates against the USD..( some analysts are predicting 1.45/ USD.. it will put a lot of pressure on China/ Sth Korea etc to devalue too.. as to make there exports competitive in the region .. if China devalues ... expect the region to follow ... it only makes sense really ...you dont want to be the most expensive neighbour in the region ..

[Robert24]

Thais (especially the Chinese Thais) have no concept or understanding of NPV. They'll sit on a piece of land or condo for 20 years and if they double their money they think they're on a winner.

Somehow the Thais seem to fly in the face of the supply demand theory, and unfortunately the short/medium effects of real estate pricing are skewed because of it.

And the Europeans seem to be buyers or sellers based on the relative strength/weakness of their domestic currency, further skewing the price/supply/demand curve.

The answer is to rent. Let the owner take the risk and you pay your meagre rent.

I'm paying a rental on a commercial property of 28K baht per month. The landlord is convinced the property is worth 30M and that's his sale price. If he is happy with a return of 1.12% p.a., who am I to complain.

His return is likely a lot higher than the 1.12% because he would have bought the property for a lot less than what he is trying to sell it for now.

And he actually may not sell it at 30m unless there is a lot land that comes with the property. Just saying.....

[fred Kubasa]

50 % unlikely but 25 % to 30 % VERY likely as, along with other asset values in Thailand,

land is highly overvalued. The Thai stock market can, probably will, suffer the same fate as,

little by little, investors are finding the data supplied by Thais is not necessarily lies

but more so auditing and reporting staffs are incompetent, ( left page = credits, right page =

DEBITS !).