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Construction Boom On Sukhumvit Road

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I don't know how cash rich they are - most Asian countries have a few holding the majority of the money. China has an average income of $5000USd per capita per annum. Not exactly cash rich. More likely, a few wealthy groups lending money on very long loans (you know, the less you pay on a deposit means a higher accumulation of interest of the period of the loan), which was also part of the reason of the collapse in the US housing market. The Shanghai, Beijing and Hong Kong markets are now on the same way, with most of the original owners now sold out (I have friends that sold all their property in China).

The new government rules in China to halt price inflation on housing sales is something that Thailand should consider, but won't because it is a source of positive income flow into the Kingdom - they will then complain in 5 years when even their top tier managers cannot afford to get even a mortgage on any of these apartments on Sukhumvit.. or they will just have a crack down on Foreigners owning and renting properties in Thailand, putting pressure towards a bear market in the condo sector.

Most Thai people driving their brand new Suzuki Swifts etc, did not pay cash for them - they have them on 20-30 year loans. Just creative accounting, in a society which is from what I have seen just as over-leveraged as Hong Kong or Shanghai.

Edited by TheGhostWithin

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I don't know how cash rich they are - most Asian countries have a few holding the majority of the money. China has an average income of $5000USd per capita per annum. Not exactly cash rich. More likely, a few wealthy groups lending money on very long loans (you know, the less you pay on a deposit means a higher accumulation of interest of the period of the loan, which was also part of the reason of the collapse in the US housing market. The Shanghai, Beijing and Hong Kong markets are now on the same way, with most fo the original owners now sold out (I have friends that sold all their property in China) and the new government rules in China to haltprice inflation on housing sales is something that Thailand should consider, but won't because it is a source of positive income flow into the Kingdom - they will then complain in 5 years when even their top tier managers cannot afford to get even a mortgage on any of these apartments on Sukhumvit.. or they will just have a crack down on Foreigners owning and renting properties in Thailand, putting pressure towards a bear market in the condo sector.

Most Thai people driving their brand new Sizuki Swifts etc, did not pay cash for them - they have them on 20-30 year loans. Just creative accounting, in a society which is from what I have seen just as over-leveraged as Hong Kong or Shanghai.

Don't quite agree as Asia is not only China. Countries like Malaysia, Singapore, Thailand and to a lesser extent, Indonesia have a large middle class (but please, let's not get into having to quote figures and all. We can just easily see that all around us). In Malaysia for eg, the maximum margin of financing is 90% but in most cases, the banks will only loan 70-80%. Bear in mind also that in many instances, the parents help out with the deposits. Thus, leverage is no where near as high as in the UK or US.

I guess that your friends that sold all their properties in China are basically taking profit while they can, in case the market crashes. There was a podcast on Money Talk with David Kuo not so long ago where the guest speaker made a very compelling case as to why boom and bust is unlikely in Asia including China, for pretty much the same reasons that I have mentioned above.

The main reason for the collapse of the US housing market is because the (criminal) banks lent money to people WHO COULD NOT AFFORD TO REPAY. In Asia, I don't believe that any house buyer would take a loan from a loan shark (I presume this is whom you mean by "a few wealthy groups lending money on very long loans") except maybe some poor rural folk (but that won't have any impact on property prices). Thus all mortgage loans will be through banks and licensed finance companies which vets the applicants thoroughly - which is why there was no housing collapse in Asia.

Interesting point you made about Thais taking out 20-30 year loans on cars - can you point me in the direction of some of these lenders? Considering that a car is normally expected to last 10-15 years, I reckon I can make a good living doing consultancy work for them on the Finance 101.

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Most new condos are empty.

I see many condos which are built in the last years, occupied at most at 20%.

There are lots of Thais with money who invest like crazy. They are told by agents condo prizes go up every year 10-15% and you can also rent out for 8% per year.

As the rich are not much better educated than a rice farmer, they believe this crap and let the bubble grow.

Crazy prices for crappy apartments. And after 5 years, they will look like slums. Recently saw a new luxury condo at prime location where the pool was unusable due to negligence for already 6 months.

Never buy a condo here - you will lose big $$.

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I don't know how cash rich they are - most Asian countries have a few holding the majority of the money. China has an average income of $5000USd per capita per annum. Not exactly cash rich. More likely, a few wealthy groups lending money on very long loans (you know, the less you pay on a deposit means a higher accumulation of interest of the period of the loan, which was also part of the reason of the collapse in the US housing market. The Shanghai, Beijing and Hong Kong markets are now on the same way, with most fo the original owners now sold out (I have friends that sold all their property in China) and the new government rules in China to haltprice inflation on housing sales is something that Thailand should consider, but won't because it is a source of positive income flow into the Kingdom - they will then complain in 5 years when even their top tier managers cannot afford to get even a mortgage on any of these apartments on Sukhumvit.. or they will just have a crack down on Foreigners owning and renting properties in Thailand, putting pressure towards a bear market in the condo sector.

Most Thai people driving their brand new Sizuki Swifts etc, did not pay cash for them - they have them on 20-30 year loans. Just creative accounting, in a society which is from what I have seen just as over-leveraged as Hong Kong or Shanghai.

Don't quite agree as Asia is not only China. Countries like Malaysia, Singapore, Thailand and to a lesser extent, Indonesia have a large middle class (but please, let's not get into having to quote figures and all. We can just easily see that all around us). In Malaysia for eg, the maximum margin of financing is 90% but in most cases, the banks will only loan 70-80%. Bear in mind also that in many instances, the parents help out with the deposits. Thus, leverage is no where near as high as in the UK or US.

I guess that your friends that sold all their properties in China are basically taking profit while they can, in case the market crashes. There was a podcast on Money Talk with David Kuo not so long ago where the guest speaker made a very compelling case as to why boom and bust is unlikely in Asia including China, for pretty much the same reasons that I have mentioned above.

The main reason for the collapse of the US housing market is because the (criminal) banks lent money to people WHO COULD NOT AFFORD TO REPAY. In Asia, I don't believe that any house buyer would take a loan from a loan shark (I presume this is whom you mean by "a few wealthy groups lending money on very long loans") except maybe some poor rural folk (but that won't have any impact on property prices). Thus all mortgage loans will be through banks and licensed finance companies which vets the applicants thoroughly - which is why there was no housing collapse in Asia.

Interesting point you made about Thais taking out 20-30 year loans on cars - can you point me in the direction of some of these lenders? Considering that a car is normally expected to last 10-15 years, I reckon I can make a good living doing consultancy work for them on the Finance 101.

Thanks for the response - I did not realise that banks in TH only loan up to 80-90% of the value of the property. This of course is a good thing.

In regards to the companies doing long term loans on vehicles, I will need to check with my partner once she is home, as it is her friends that dabble in this type of thing. For me, in a country whereby I feel I am walking on a carpet which could be pulled from under me at any time depending on who decides to target you today, I deal mostly in cash - or with banks at home in New Zealand (I travel between the two countries at various times of the year).

You are correct that they could not afford to pay, which lead to sub-prime defaults. The reason they could not afford to repay, was the rise of unemployment, which lead to an increase of defaults. The saturation of foreclosed properties has lead to a 40+% drop in prices in many areas, with inventories which will take years to clear. In this case, it is vacancies which may well take years to fill, unless you are willing to compremise and rent at a lower than market value price (assuming the comments on empty condos are true).This in itself, where market supply substantially outstrips demand, is an indicator of a bubble - no matter what the real estate body says. I am addicted to Bloomberg, so unfortunately only have access to what Americans see as important - USA, China, and Europe. I do wish there was more data on Thailand than constant reporting of Red shirt protests and the US$205,000,000 net outflow last week alone.

Googling "Thailand SET election" reveals a large number of websites explainign a decline in properties, and stocks, for a number of reasons - mostly due to political instability. Bubbles are not always formed as a direct result of market saturation. Watch would would happen if gpvernments started charging people tax on gold purchases :)

I really would love an apartment in Sukhumvit.. but apartments there cost the same price as here in NZ - and do not meet the same building standards, though have to admit they are nicer in terms of faciltiies.

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........ The main reason for the collapse of the US housing market is because the (criminal) banks lent money to people WHO COULD NOT AFFORD TO REPAY ......

That's a cop out. I blame greedy avaricious borrowers as much as the banks. This generation needs to accept responsibility for reckless behaviour, not hunt around for scapegoats.

[No I'm not a banker - I hate banks]

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Sometimes building the building is enough to make money for certain groups. And if you can sell units from fancy brochures even better. Works great when economy is growing, just make sure you move money out of the country when the bubble bursts.

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........ The main reason for the collapse of the US housing market is because the (criminal) banks lent money to people WHO COULD NOT AFFORD TO REPAY ......

That's a cop out. I blame greedy avaricious borrowers as much as the banks. This generation needs to accept responsibility for reckless behaviour, not hunt around for scapegoats.

[No I'm not a banker - I hate banks]

Not quite sure what you mean by cop out. It is universally accepted that the subprime trailer park mortgages were the root cause of the subsequent crisis.

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Many people are buying property because interest rates are so low they see no point leaving their money in the bank. So there is demand for all this new property even though most of it is empty. It is a global trend and it is primarily driven by the same force everywhere - low interest rates.

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So there is demand for all this new property even though most of it is empty. It is a global trend and it is primarily driven by the same force everywhere - low interest rates.

Not sure how widespread your global trend is, in the UK, which also has a low interest rate, property prices are being reduced, maybe to a more realistic price, I don't know. The growing market is in rental properties, where there is an upward trend in rental prices.

What I don't understand is why Thai investors prefer to leave properties empty rather than accept a realistic rent, surely some income would add value to their investment.

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Not sure how widespread your global trend is, in the UK, which also has a low interest rate, property prices are being reduced

I see this happening in Thailand, HK, China, Malaysia, Australia and Canada. In some other markets like the UK and the US banks went crazy over the lats few years lending 100% or more of property value and lending money to anyone who asked so in those markets the property bubble grew much more quickly and is now deflating. In other markets, especially Asia, banks were more cautious and the property bubbles have grown more slowly and are still inflating.

why Thai investors prefer to leave properties empty rather than accept a realistic rent, surely some income would add value to their investment

I think its a combination of things; buying property and leaving it as a bare shell saves on the fitting out cost and makes more sense if you plan to flip the unit. The future buyer may not like your interior design. For every $ spent fitting out an apartment you probably only get 50cents back when you sell. You may be able to buy 4 units as bare shell compared to 3 units fully decorated. Also leasing out property is a hassle, finding the tenants, collecting the rent, doing maintenance, etc. Then when it comes time to sell an empty unit may be easier to sell. It depends on the buyer of course, an investor looking for yield will be happy with a tenant, but someone who plans to live there will prefer an empty place they can decorate the way they like.

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Many people are buying property because interest rates are so low they see no point leaving their money in the bank. So there is demand for all this new property even though most of it is empty. It is a global trend and it is primarily driven by the same force everywhere - low interest rates.

A low interest rate is better than losing your capital.

The calculation, agents tell their clueless customers, goes like that:

You buy an overpriced condo for x millions Baht. This condo will rise in value approx 10-15% per year.

Additionally you can rent out that condo for 8% per year of the price you paid.

Reality is: After 5 years, the condo is worthless and cannot be sold at all for a reasonable price. Renting out that condo is also extremely difficult as your calculated rent, based on what you paid, would be in the range 40-80000 Baht/pm. Few Thais will rent for that, they prefer to buy. And very few Farangs have the money to rent in that price range.

Result: These "luxury" condos decay more and more, unoccupied. Then comes the "face-loss" factor, where Thai owners don't go down with price/rent, because "I paid so much, I need to recover my investment". More loss.

Any 0.6% Kasikorn savings account is a better investment than buying a condo.

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In neighborhoods just off Sukhumvit one can already see hand-written "for sale" signs as people try to flip units in nearby buildings which aren't yet completed.

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