Prasarn wary of property bubble

[webfact]

Prasarn wary of property bubble
By WICHIT CHAITRONG 
THE NATION

 

Prasarn

 

BANGKOK: -- FORMER CENTRAL BANK governor Prasarn Trairatvorakul has expressed concern over the potential oversupply of property projects that could trigger the next economic crisis and he was also worried about rising risk in the thrift and the credit cooperatives business.

 

The property sector bubble 20 years ago played a significant role in creating the Asian financial crisis of 1997, which forced Thailand to seek financial support from the International Monetary Fund and other countries. 

 

Some people are worried the crisis could repeat itself given that Thailand has experienced slower economic growth in recently years, lagging behind other countries in the region. 

 

Prasarn said the risk is there and we often do not know when it would happen. However, Thailand has learned its lessons and many policies have been improved. The fixed exchange rate regime has been abandoned and the country has adopted the managed floated regime, which provides automatic adjustment to capital inflows and outflows. 

 

In the past, the high exchange rate and the high interest rate drew massive capital inflows, as investors sought high returns on investments. A part of the huge inflows ended up in the property sector, leading to a bubble that burst later. 

 

This time around, central banks around the world have injected massive liquidity into the markets and kept interest rates at a historic low. This creates a spillover effect, causing money inflows into Thailand. The Bank of Thailand (BOT) is also keeping interest rate low to accommodate economic growth.

 

“Those who have large amounts of cash in hands do not know what to do, so they put it in the property sector,” said Prasarn, who is also an adviser to the Central Group.

 

So many condominium projects as well as mixed-use property projects comprising living quarters, hotel and shopping centre, are springing up, while demand may not be as expected by developers, said Prasarn.

 

Veteran bankers are well aware of the risk from lending to the property sector but the young generation of bankers may not be aware of the risk, he said. However, Prasarn is relieved that major commercial banks have a large loan loss reserve. He did not see systemic risks in the financial market. But many thrift and credit cooperatives faced issues of fraud and increasing risk of loan defaults. According to the Cooperative Auditing Department, thrift and credit cooperatives had 3.6 million customers in 2015 with total assets worth Bt Bt2 trillion. 

 

“The assets of thrift and credit cooperatives have increased sharply, but governance has not improved much and nobody is seriously taking care of this issue,” he lamented. 

 

He recounted that when he was central bank governor he had urged cooperatives to become members of the National Credit Bureau but only a few of them heeded his advice. As a result, many cooperatives do not have adequate information, increasing the risk of loan defaults.

 

“To prevent another crisis, this issue must be fixed at an early stage, or nipped in the bud,” he added. 

 

Source: http://www.nationmultimedia.com/news/business/EconomyAndTourism/30319081

 

-- © Copyright The Nation 2017-06-26

[trogers]

Easy to check if demand is expected by developers. Make it compulsory for them to declare unsold inventory after one year from completion of construction.

[alant]

there are hundreds, nay thousands of unsold (now not so) new properties in east ChiangMai. A property crash would be no surprise to me. 

Edited June 26, 2017 by alant

[williamgeorgeallen]

14 minutes ago, alant said:

there are hundreds, nay thousands of unsold (now not so) new properties in east ChiangMai. A property crash would be no surprise to me. 

a crash is less likely in thailand as mortgages are hard to get people are not over extended borrowing against property. more and more developers may fold as selling condos becomes more difficult.

[mikebell]

As a microcosm of the housing picture our estate has 62 houses with only 2 defaulters on Maintenance fees in the last six years.  (Both Thais.)

Despite the estate having 1.5 million in the bank; being well run by a Committee of 8 (4 farangs/4 Thais) there are 18 houses up for sale.

As police corruption continues to bite, more and more farangs are seeking pastures new.

[trogers]

2 hours ago, williamgeorgeallen said:

a crash is less likely in thailand as mortgages are hard to get people are not over extended borrowing against property. more and more developers may fold as selling condos becomes more difficult.

Still the same NPLs, whether from buyers or from developers...

[williamgeorgeallen]

11 minutes ago, trogers said:

Still the same NPLs, whether from buyers or from developers...

very different situation. developers going bust, not mass foreclosures or defaults. condo prices will take a bit of a hit but mostly projects simply wont get finished.

[natway09]

And well he may be concerned . It  would be good to see actual accurate numbers on unoccupied  & (or) unsold

apartments in greater Bangkok.

If you check out the "Apartments for Sale" it will confirm that 40% of demand is artificially generated by developers or

entrepreneurs who are giving some money a wash

[trogers]

8 minutes ago, williamgeorgeallen said:

very different situation. developers going bust, not mass foreclosures or defaults. condo prices will take a bit of a hit but mostly projects simply wont get finished.

And the unsold stocks would not be foreclosed?

[williamgeorgeallen]

1 hour ago, trogers said:

And the unsold stocks would not be foreclosed?

yes but that would not cause the mass of condo owners to walk away as their values dropped below the value of their mortgages.

[trogers]

1 minute ago, williamgeorgeallen said:

yes but that would not cause the mass of condo owners to walk away as their values dropped below the value of their mortgages.

Would depend on the magnitude of the fall in value, and not much principal would have been paid off within 5 years in a 30-year mortgage.

[williamgeorgeallen]

5 minutes ago, trogers said:

Would depend on the magnitude of the fall in value, and not much principal would have been paid off within 5 years in a 30-year mortgage.

i dont know the figures but most of the condos are purchased for cash and not through mortgages.

[timendres]

Bubbles deflate in interesting ways. The 2008 crash in the US highlighted the banking crisis. However, what ensued was of equal magnitude. As construction and sales stalled, many related businesses began to fail, which in turn affected more businesses. This can come back at the banks from venues beyond mortgages. Housing has many, very long tentacles.

[Prbkk]

In Bangkok, developers continue to throw up new condos , matchbox size, in the outer BTS corridors. They are pretty "cheap and cheerful". At the top end, they don't seem to have much trouble selling even at 2, 3, 400,000 psqm. That said, there are still units in some of the upmarket condos that have never been occupied....some approaching 20 years old.

[trogers]

4 hours ago, williamgeorgeallen said:

i dont know the figures but most of the condos are purchased for cash and not through mortgages.

Not for most of those units in the outskirts of Bangkok and surrounding provinces. If not, developers would not be lamenting about the high rejection rate of mortgage applications.

[GreasyFingers]

8 hours ago, mikebell said:

Despite the estate having 1.5 million in the bank; being well run by a Committee of 8 (4 farangs/4 Thais) there are 18 houses up for sale.

That is a very high 'for sale' ratio, 18/64. Will be interesting how the values go.

[fruitman]

12 minutes ago, trogers said:

Not for most of those units in the outskirts of Bangkok and surrounding provinces. If not, developers would not be lamenting about the high rejection rate of mortgage applications.

 

There will be a shuffle in condo-values i guess...the capital will flow from the subs without skytrain/malls to the condo's directly at the new skytrainlines.

 

Also i guess the new condo's with a (river) view will be more popular than the ones downtown in the smog.

 

Mostly the newly built condo's are sold to investors who'll sell them after some years for double prices. They buy of the buildingplans and get a discount if they take several of them.

 

 

[GreasyFingers]

From the quotes above most of you seem to be in the 'city' market. Up here there are a lot 'up market' subdvisions with vacant land for sale. The developers all say that most of them are sold, at high prices, but no one is building houses on them. After a lifetime in property in OZ this seems very strange. The next 12 months will be interesting for condos and here.

[trogers]

8 minutes ago, GreasyFingers said:

From the quotes above most of you seem to be in the 'city' market. Up here there are a lot 'up market' subdvisions with vacant land for sale. The developers all say that most of them are sold, at high prices, but no one is building houses on them. After a lifetime in property in OZ this seems very strange. The next 12 months will be interesting for condos and here.

Buildings depreciate. Land don't. The buyers are hoarding land since there is no property tax worth worrying.

[trogers]

12 minutes ago, fruitman said:

 

There will be a shuffle in condo-values i guess...the capital will flow from the subs without skytrain/malls to the condo's directly at the new skytrainlines.

 

Also i guess the new condo's with a (river) view will be more popular than the ones downtown in the smog.

 

Mostly the newly built condo's are sold to investors who'll sell them after some years for double prices. They buy of the buildingplans and get a discount if they take several of them.

 

 

Only dumb investors would expect capital appreciation when the developer still has a sales office in the project pushing resale units, years after construction completion...

[GreasyFingers]

6 minutes ago, trogers said:

Buildings depreciate. Land don't. The buyers are hoarding land since there is no property tax worth worrying.

Well that is not my experience. To admit I was stupid there was a time in a subdivision when prices were depressed and I could have bought resale land for $16000 (purchased for $22000) when I knew the developer could not develope and market a new block for under $27000 so land can depreciate.

 

But your point of no land tax (and services charges as in OZ) obviously plays a part.

[Joebuzz]

9 hours ago, mikebell said:

As a microcosm of the housing picture our estate has 62 houses with only 2 defaulters on Maintenance fees in the last six years.  (Both Thais.)

Despite the estate having 1.5 million in the bank; being well run by a Committee of 8 (4 farangs/4 Thais) there are 18 houses up for sale.

As police corruption continues to bite, more and more farangs are seeking pastures new.

My new pasture has clean beaches and food I can trust.  Fishing is great too.  I really DID want to retire there but alas, the place doesn't hold a candle to where I am now.

[Prbkk]

1 hour ago, trogers said:

Buildings depreciate. Land don't. The buyers are hoarding land since there is no property tax worth worrying.

For some of the 'original' BKK condo developments, the value of the land on which they sit is greater than the sum total value of the condos. In some cases by a significant margin if they are in a prime spot. 

Imagine being part of a process to get 100% agreement to sell to a developer.....the 'theatre' would be superb.

[Chris Lawrence]

1 hour ago, GreasyFingers said:

Well that is not my experience. To admit I was stupid there was a time in a subdivision when prices were depressed and I could have bought resale land for $16000 (purchased for $22000) when I knew the developer could not develope and market a new block for under $27000 so land can depreciate.

 

But your point of no land tax (and services charges as in OZ) obviously plays a part.

Spencers Theory. Willing buyer willing seller.

[trogers]

25 minutes ago, Prbkk said:

For some of the 'original' BKK condo developments, the value of the land on which they sit is greater than the sum total value of the condos. In some cases by a significant margin if they are in a prime spot. 

Imagine being part of a process to get 100% agreement to sell to a developer.....the 'theatre' would be superb.

I know. I bought into such a condo. Only worth if the building is not high-rise.

[Chris Lawrence]

"In the past, the high exchange rate and the high interest rate drew massive capital inflows, as investors sought high returns on investments. A part of the huge inflows ended up in the property sector, leading to a bubble that burst later. 

 

This time around, central banks around the world have injected massive liquidity into the markets and kept interest rates at a historic low. This creates a spillover effect, causing money inflows into Thailand. The Bank of Thailand (BOT) is also keeping interest rate low to accommodate economic growth.

 

“Those who have large amounts of cash in hands do not know what to do, so they put it in the property sector,” said Prasarn, who is also an adviser to the Central Group."

 

I don't think this is a sound statement?

 

The Bank don't keep interest rates low the market does.

 

Property you hope for a return via income from the property and potential growth. The price you pay should reflect that except if you are a owner occupier.

 

People are looking to get a return above bank rates. I can get under 2% I think at the moment but I have achieved over 9.5% in my super fund for the year.

 

So it comes back to where people see safety for their hard earned monies.

 

Not quite sure what the Thai market is doing, but I know Auntie up in Chiang Rai has made some money over the last few years. She sticks to specific property in good location, has demand, and great return. Position, Position, Position.

 

There are some unsettling things happening in Thailand at the moment, that may put the handbrake on. 

[Hereinthailand]

A person would have to be blind to not see the crazy run up of prices on land the last 3-4 years, there is no justification for it no matter how you slice it. Its nothing but easy loans made by banks to gov. employees for speculation and its going to turn out bad soon. How can people expect to pay 2 mil or more baht for one rai of crap land ??? on their meager salaries which I havent seen increase much in the years I have lived here. The banking system here is nothing but a shell game supported by gov. funds and they are fresh out of spendable money. I just shake my head and laugh when people offer me rice fields for 5-10 times the price of good land back home. They can throw out all the numbers they want but the reality is this situation is going to end bad, worse than 97.

[fruitman]

3 hours ago, trogers said:

I know. I bought into such a condo. Only worth if the building is not high-rise.

After the London-inferno from last week i think many people will be hesitant to buy a highrise condo from now on.

 

I think it's not wise to buy a high-end condo right now in the heart of Siam-area. The ones at the new skytrainlines have more potential for making profit.

 

[Prbkk]

5 minutes ago, fruitman said:

After the London-inferno from last week i think many people will be hesitant to buy a highrise condo from now on.

 

I think it's not wise to buy a high-end condo right now in the heart of Siam-area. The ones at the new skytrainlines have more potential for making profit.

 

My understanding is that there has been a huge, sudden increase in fire services testing right across Bangkok....do very little , or nothing, for a decade or longer, but when disaster strikes on the other side of the world, fly into action. So fire testers/consultants will be busy for the next couple of months and then we will revert to the usual inaction.

[fruitman]

1 hour ago, Prbkk said:

My understanding is that there has been a huge, sudden increase in fire services testing right across Bangkok....do very little , or nothing, for a decade or longer, but when disaster strikes on the other side of the world, fly into action. So fire testers/consultants will be busy for the next couple of months and then we will revert to the usual inaction.

I see, well it's wise to test a lot but they still dont have the 300 firetrucks which are rotting on a field.

 

And for the rest of BKK i wonder how fast the firetrucks (the big one with the superlong ladder) can reach a destination if even ambulances with wailing lights cant get through.

 

Dubai has had a lot of skyscrapers on fire the last years and they are not even old. Well i'm happy to not live in a condo.