Thai real estate prices to crash by 50%?

[stoli]

This question is like flipping a coin and betting on the outcome. Thailand cannot be compared to the 2006 collapse in the US as that bubble was built by the banks lending money to poor people who had no hope of making any payments, and at 0 down payments. The mortgage companies were making so much money making the loan and then selling it. Here, foreigners buying condo's are paying 100% cash for their units. In America, people just walked away from their mortgages. Here, that won't happen.

I started traveling in Mexico to all the resorts in the early 1980's. They were building condo's like crazy, people were buying them, and more condo's were being built. Just like Pattaya today. Every trip to Mexico I kept thinking about the "sure to happen market collapse." Well, it never happened, and I would be very wealthy today if I had bought then in Mexico.

However, at my age today, I would never buy anything anywhere that can not be disposed of in one day, especially when living half a world away from my heirs. Why make them go through the trouble of selling my property here? They have lives, why upset that?

I keep my investment properties in the states, property than can be sold very easily. Rent here is far less than my profit in the US. Just my own thoughts.....

[swissbie]

The thing is, it's worthless to discuss about the thai property market as a whole single matter. It's all about location. I have a land plot with a house in the deep south, in the midst of "rubber land". There is no liquidity in the market, people bought cars and houses when rubber prices had been above 100baht/kg. Now, they are stuck. In theory prices went down sharply, but as some people mentioned already, nowbody wants to admit this as a fact. No one is able to buy, no one wants to sell.. Contrary I'm living in the western outerskirts of Bangkok, near to a planed station of the extension of SRT. First, after the big floods, I wanted to sell this house here, but now, I'm convinced that after the finishing of the red line prices will move up sharply, even if markets in Pattaya and some other places maybe could give way.

[DLang]

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.

The thing is, some naive overseas investor could come in and see it as cheap, and take it for the 30m.

Have seen many townhouses cost 800k 2 years before, be bought for 2.5m with no renovation done, by farangs coming in. Wife has family in the area, word goes out, some properties are offered to the farang at cheap prices (triple what a Thai would pay, but cheap by Western standards), wifey has a new house in her name. Probably even gets a cut of the sale price.

Farang is happy, everyone in the area is so friendly and nice and wai him. Heaven.

[Suradit69]

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

As the author says: "That’s what this site is about. Consider it edutainment."

Amazing the stuff that's available on the Internet and how many people lap it up. The Internet has fathered so many self promoting experts. Probably as fact based as profiles on dating websites.

[wowfactor10]

Most Foreigners already have stopped to invest int Thai Property market.

Reason are the strong BHT

Unfair and unequal Thai real estate laws.

I not for see prices going down but units will remain unsold...

Thailand need adjusts its laws in order to attract foreign investors.

[Suradit69]

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.

"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."

Taking a slightly less exaggerated but still major 25% drop in real estate prices and a more realistic 5 year cycle in prices, if someone has a Baht 10,000,000 property investment and the market price drops to Baht 7.5 million, selling it in farang panic mode immediately(as did so many people in the US a few years ago try to do) would result in a Baht 2.5 million loss and cash on hand of Baht 7.5 million at a time when, presumably, all investment opportunities would be unattractive.

Waiting five years for the market property value to return it to Baht 10 million, assuming the owner is not mortgaged to the hilt and there are no attractive alternatives seems fairly reasonable.

If one took the Baht 7.5 million and, in a down market generally, invested it elsewhere for 5 years, getting back to Baht 10 million would imply a total return of 33%. Not impossible, but maybe overly optimistic. And it's quite possible the property would be generating some income during the waiting period.

I don't think many people & banks in the US and elsewhere who bailed on real estate they held in 2007-2008 found themselves back at even after 5 years. The banks and investors in MBS's needed to be bailed out or went bankrupt for all their knowledge of net present value and investment sagacity.

Here's a list of some of the farang financial/property geniuses in 2006. 75% went bust.

Edited June 5, 2015 by Suradit69

[wowfactor10]

Well lets see if Thailand will set up some program that attracts foreign investors.

What we have currently is its bit poorly for foreigners in Thailand :

Land lease max 30 years.

Business for foreigners 49% and thais 51%.(often used to control house and land too)

Freehold hold condos.max 49% in a building

How about change into this :

Land Plots till maximum size of one rai offer us limited foreign ownership.Make the Investment program based on the Malaysian model..

For land plots bigger then one rai offer us a standard 99 years lease.

Any business for foreigners in Thailand make it 100% foreign freehold, companies can not be used to control houses and land.

Make Condominiums in Hua hin,Pattaya,Phuket,Chiang mai ,Bangkok 100% foreigner free hold,now there many buildings only half sold.

These changes might bring back some foreign investments.

[KarenBravo]

Yes, Thailand wants foreign investment, but, not small fry like house buyers.

They want multi-nationals to set up factories.

Allowing foreigners to buy land is a sure vote-loser. Thais don't want foreigners buying bits of the sacred land that is Thailand.

If investment is done through the BOI, the rules are different.

Edited June 5, 2015 by KarenBravo

[slipperylobster]

Going down fifty percent...and you can now own land.

Stand in line at any 7 eleven and get your stamps, for even bigger discounts.

(Right next to the line for 90 day Reporting

[joshstiles]

yes folks...... trolling fear mongering is alive and well on this site

[off road pat]

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.

Don't agree with this,....The Chinese and East Europeans have discovered Thailand, and that will bring in a whole lot more tourists and investors.....A lot of businesses are been taken over or new are created by Chinese in Chiang Mai.....and is seems like snowballing....

A lot of big money is buying businesses on the best locations, that the Thais can not or would not buy....

they going to have a large correction for sure....but upwards....!

For instance , all the best beaches on Koh Samui have foreign owed resorts on land that was far to expensive for normal rich Thai investors.

A lot of Black money from criminal organisations is invested in those resorts....some of those resorts have cost so much to build that they can never make that money back in a reasonable time....and they don't care because they have unlimited resources.... it's just a way or investing and laundering there illegal money....

The same thing is starting to happen in Chiang Mai.....

Best regards, Off Road Pat

Of course I could be wrong....!!!???

[Robert24]

Well lets see if Thailand will set up some program that attracts foreign investors.

What we have currently is its bit poorly for foreigners in Thailand :

Land lease max 30 years.

Business for foreigners 49% and thais 51%.(often used to control house and land too)

Freehold hold condos.max 49% in a building

How about change into this :

Land Plots till maximum size of one rai offer us limited foreign ownership.Make the Investment program based on the Malaysian model..

For land plots bigger then one rai offer us a standard 99 years lease.

Any business for foreigners in Thailand make it 100% foreign freehold, companies can not be used to control houses and land.

Make Condominiums in Hua hin,Pattaya,Phuket,Chiang mai ,Bangkok 100% foreigner free hold,now there many buildings only half sold.

These changes might bring back some foreign investments.

I like your idea, you can even add the Portuguese model where you can gain citizenship if you invest in property in their country:)

But realistically it will take quite a lot for Thailand to adopt something like this. Likelihood of this happening in the next 20 years - near zero IMHO.

[GOLDBUGGY]

I don't think that you will see a Natural Real Estate Bubble Burst in Thailand and for many good reason. But I do say this with a Grain of Salt in my mouth as an important factor in all this is the stability of the present government. But so far they have been investor friendly, so for the time being we can ignore this. Because it is a No Brainer as to what would happen to the Real Estate Market if a government refused Foreign Investment, Annexed all land owned by Foreigners, and then kicked them out.

On the positive side Thailand is considered a good place to Retire, although many would disagree with this statement. It has good infrastructure, offers low cost housing (compared to the Southern Coast of France or Spain) good medical facilities, and is affordable. All important factors to Retirees. Since we are perhaps only half way to the Baby Boomers Retirement there is still a lot of room for growth here. The Russian Market has cooled off, because of low currency problem, but a new Chinese Market has opened up, which could be huge.

Mortgages are more difficult to get in Thailand for Foreigners and thus you are not going to see much speculation in the Real Estate Market as one might expect. Thais are different when it comes to this. The Condo Builders will simply stop building and wait until the Market improves. Thai Property Owners will just hold their property longer, and refusing to sell at a loss. So even though housing sales could drop off, in Thailand it does not automatically mean lower housing prices.

In order to have a Bubble Burst in Real Estate, you first need to see a Real Estate Boom. I have not seen this in Thailand or at least in Pattaya. Over the past 5 years the housing and rental property has pretty well stayed the same. I had a neighbour from a place I was renting who has had his property up for sale for the past 3 year, with still no success. His asking price is what he paid for his place 8 years ago.

So although I don't see Real Estate crashing 50% in Thailand, I do see other possibilities which can have almost the same effect. This would be the crashing of the Thai Baht. So although housing prices may stay the same, it would still be far cheaper to buy from outside of Thailand or Foreign Investment. Foreigners, who also own property here would also feel the effects of this, when they paid for their property in Foreign Currency.

[MAJIC]

To my knowledge property has been increasing in price unabated for the last 15 years,in spite of two military coups,a Tsunami,bird flu,several governments collapsed or ousted.And many other pitfalls that would have sent panic through the stock markets and money markets,in most countries in the world,but for some unknown reason? Thailand remains unaffected. There doesn't seem any reason for concern in this market either!

[WorkingTourist]

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.

In Chiang Mai I normally pay 20-35k/month for condos worth 4-6m, so you’re either incredibly lucky or your landlord is completely delusional.

However, if the landlord is debt free, the 28k/month you pay should be plenty to cover wear/tear and CAM fees, so they have a (more or less) guaranteed fixed income from you, and the withholding tax actually decrease for each extra year of ownership.

I have an old condo myself (not in Thailand though) which I rent out for 3-4% of the assumed market value, partly though because I know the renter, so he gets a discount, but it’s still enough to keep me happy, and I have enough experience with equity investments to know that nothing is as risk free as this rental income

Edit: Worth mentioning though that the condo I rent out has gone up 5-6 times in value since I bought it, so the rent is actually > 20% of my original purchase price.

Edited June 6, 2015 by WorkingTourist

[blackcab]

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.

In Chiang Mai I normally pay 20-35k/month for condos worth 4-6m, so youre either incredibly lucky or your landlord is completely delusional.

However, if the landlord is debt free, the 28k/month you pay should be plenty to cover wear/tear and CAM fees, so they have a (more or less) guaranteed fixed income from you, and the withholding tax actually decrease for each extra year of ownership.

I have an old condo myself (not in Thailand though) which I rent out for 3-4% of the assumed market value, partly though because I know the renter, so he gets a discount, but its still enough to keep me happy, and I have enough experience with equity investments to know that nothing is as risk free as this rental income

Edit: Worth mentioning though that the condo I rent out has gone up 5-6 times in value since I bought it, so the rent is actually > 20% of my original purchase price.

He's renting a commercial property.

[angiolo]

here in Mae Sai there are numerous houses built and being built but only a few have been sold , mainly those with shops below . Can be long term investment maybe ?

[SantiSuk]

I bought a condo in On Nut Bangkok nearly 3 years ago. I paid a price that is 5-10% higher than a few remaining same units that are being marketed at a discount and still unsold. Bangkok condos topped out 3 years ago?

[BlackJack]

A bubble is when there are few houses or condo s and lots of people chasing to buy them thus pushing up the price. The opposite is happening in thailand where there is a glut of properties that are not selling

[WorkingTourist]

A bubble is when there are few houses or condo s and lots of people chasing to buy them thus pushing up the price. The opposite is happening in thailand where there is a glut of properties that are not selling

I would add that for this (high demand) to become a bubble, people should be willing to pay the high prices, not because any rational calculation shows that this is the fundamental value of the thing, but because they believe they can easily sell (with a profit) in just a few months/years.

[OnMyWay2]

A bubble is when there are few houses or condo s and lots of people chasing to buy them thus pushing up the price. The opposite is happening in thailand where there is a glut of properties that are not selling

That's what happens at the end of the bubble. They end up building too many properties to satisfy the (artificial) demand.

Then prices start to fall.

[Dixie Normus]

Yes, Thailand wants foreign investment, but, not small fry like house buyers.

They want multi-nationals to set up factories.

Allowing foreigners to buy land is a sure vote-loser. Thais don't want foreigners buying bits of the sacred land that is Thailand.

If investment is done through the BOI, the rules are different.

What Votes??

[Robert24]

A bubble is when there are few houses or condo s and lots of people chasing to buy them thus pushing up the price. The opposite is happening in thailand where there is a glut of properties that are not selling

That's what happens at the end of the bubble. They end up building too many properties to satisfy the (artificial) demand.

Then prices start to fall.

if you look at new completions, don't you think supply has exceeded demand since quite a long time (i.e. at least for 2 years)?

As BlackJack mentions, this is not typical for a bubble. Typical symptoms for a property bubble are: 1) lack of supply 2) Demand very high, i.e. new developments sold out within 2 days of launching sale (based on plan) 3) huge price increases in a short time frame 4) lax policy from banks and creditors in granting mortgages 5) huge increase in outstanding mortgage debt.

So which of the above symptoms does the current property market show in Thailand?

[blackcab]

Sansiri The Line (near JJ market) sold out in one day earlier this week. That's a little over 800 units.

I admit that is the exception and not the rule though. It might have something to do with the fact that they simultaneously held sales in Thailand, Singapore and Hong Kong.

Edited June 7, 2015 by blackcab

[WorkingTourist]

Sansiri The Line (near JJ market) sold out in one day earlier this week. That's a little over 800 units.

I admit that is the exception and not the rule though. It might have something to do with the fact that they simultaneously held sales in Thailand, Singapore and Hong Kong.

For upmarket projects, is it really the exception?

I don’t follow the BKK real estate market closely, but I seem to read about a lot of upmarket projects that sell out quickly.

What would be interesting to know is if people purchase these projects to use them themselves or to rent them out. I see many projects (incl. this one) have “Expected rental yield of 6% p.a.” among its bullet points, which is a little bit concerning, i.e. that they’re marketing it to investors.

But if I were to buy a holiday/work residence in BKK, I would not be happy with most of what’s on offer, so while 2-300,000 THB/sqm. might seem crazy expensive, it’s not really that expensive for an affluent foreigner or Thai, and if most of the other condos (that sell for less) would mean a downgrade of your living standard, then why settle for cheaper if you can (easily) afford the best?

[BlackJack]

Many and I say many projects advertise that they are sold out or have a remain few. However from experience there is a huge project being built next to me and they advertise d that is was 90% sold when in fact only 10% were sold. False advertising is all around. Also they use this tactic to sell off the properties that aren't so good or the views not the best. Then release the better ones later. Also most developers keep many units.for themselves. So that they have high voting rights at AGMs. It's all smoke as mirrors.

[WorkingTourist]

Many and I say many projects advertise that they are sold out or have a remain few. However from experience there is a huge project being built next to me and they advertise d that is was 90% sold when in fact only 10% were sold. False advertising is all around. Also they use this tactic to sell off the properties that aren't so good or the views not the best. Then release the better ones later. Also most developers keep many units.for themselves. So that they have high voting rights at AGMs. It's all smoke as mirrors.

I don’t think they would advertise “sold out” if there are actually units left. That doesn’t make any sense. However, it is true that some developers will sell units in batches, this isn’t limited to Thailand. Sometimes it’s done to be able to adjust the price (if demand was high for the first batch), and often it’s done when subsets of the project have multiple completion dates.

As for keeping units to have a majority on the AGM; if the developer could sell the units, I’m sure they would, as their business model is to build and sell condos. However, for buildings targeted at foreigners, it can be a problem to sell the units that can only be in a Thai name.

[Asiantravel]

Many and I say many projects advertise that they are sold out or have a remain few. However from experience there is a huge project being built next to me and they advertise d that is was 90% sold when in fact only 10% were sold. False advertising is all around. Also they use this tactic to sell off the properties that aren't so good or the views not the best. Then release the better ones later. Also most developers keep many units.for themselves. So that they have high voting rights at AGMs. It's all smoke as mirrors.

I don’t think they would advertise “sold out” if there are actually units left. That doesn’t make any sense. However, it is true that some developers will sell units in batches, this isn’t limited to Thailand. Sometimes it’s done to be able to adjust the price (if demand was high for the first batch), and often it’s done when subsets of the project have multiple completion dates.

As for keeping units to have a majority on the AGM; if the developer could sell the units, I’m sure they would, as their business model is to build and sell condos. However, for buildings targeted at foreigners, it can be a problem to sell the units that can only be in a Thai name.

I believe what blackjack is referring to is the practice of selling units to people connected to the developer.In other words the next best thing to a man of straw and it's not an arms length transaction. I have heard this happens a lot in Thailand. It looks better to be able to say there has been a transfer to someone rather than not at all.

[mango66]

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.

I know which ones are going down,

as you can get everyday emails,

sold out, just last unit direct from developer stillö available !

Like S Zen....

[mike324]

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 !).

I have to partially disagree with the point that land is highly overvalued here. I think it depends on the location, but in my opinion land in Bangkok and big cities are at about the right price if not undervalue, but overvalue for the ones that are located in in the suburbs.