Thailand’s Condominium Bubble a Reality or Myth
By Dr. Andrew M. Goodman
14 January 2011
Considerations for the Bangkok Condo Investor
The simple conclusion to all of this is that nobody can actually tell whether one is in the midst of a bubble or not in any given market if one is engaged from a perspective of being in the middle of that market. In other words, bubbles only become clear in retrospect and given the gift of hindsight. All we can say with any certainty is that past trends may be viewed as an indicator of future possibilities, but are not entirely predictive in their own right. As motivational speaker Tony Robbins likes to say, “The past does not equal the future.” But what we can do is look at what has happened, look at markets and economic circumstances, and make reasonable educated predictions based on these circumstances and given reasonable expectations.
With the condominium market in Bangkok, we should take note of the fact that prices have been significantly run up recently, and that this has happened in an otherwise tough economic climate. We should also note that advertising for condos in the city is increasingly hyped by using adjectives such as ‘prestigious,’ ‘distinctive,’ ‘upscale,’ ‘exclusive,’ and other terms not related to the qualities of the property but meant to lure the buyer through an almost primal appeal to ego issues. There is an ever growing segment of the market priced at 7 to 10 million baht or higher per unit, which, given the extremely small proportion of buyers making wages or deriving profits sufficient to purchase the units, would seem to be unsustainable in the longer term.
The proportion of condominium units used only as rental units by their owners should also give one pause to reflect for two reasons. First, the rental revenues or rents are often insufficient to cover the costs of financing the property, meaning that the buyer is relying on capital gains, or property prices increases, to make his/her profits. This model is not a stable one in a climate where assets are already overpriced. Once the market catches up in terms of real value, (i.e. declines) the profits will dry up. The second reason the proportion of condominium units used only as rental units by their owners is a concern relates to the fact that, when a high proportion of a given project becomes occupied by renters, the quality of the units tend to decline over time, because renters do not have a vested interest in maintaining quality in the same way as owners do.
Investment is always a risky enterprise, and advice is often easy to dispense but hard to both follow and (when the consequences are not what one wants) difficult to live with. But there are a few things that can be said. It is always best to invest in something one is able to understand. There is great danger in stepping beyond the confines of what seems reasonable and sensible. It is best to invest in areas where the amount of risk is within the toleration level of the individual or group making the investment. And it is best to spread your risks amongst a basket of asset types so that loss in any one area will not wipe out the individual or investing unit. You may also consider consulting a Thailand condo lawyer for additional advice on legal considerations to add into your investment strategy.
Given these simple guidelines, investing in condo properties in the present urban Bangkok market, beyond the needs for housing choice one may need to make to take care of family and personal needs, would seem to be fraught with a very high degree of risk. We should take note of that, and invest only if we are willing and able to assume that risk. The market may well be dangerously inflated, and a correction may indeed be in the offing. When or if such a correction comes, it would be better to be moderately invested, and even better not to be invested at all.
Related Articles and Documents:
Buying a Condo in Thailand: The Condominium Act
2008 Amendments to the Condominium Act
References
Greater Fool Theory, Investopedia
Daniel Gross, 2007, the Truth About Investment Bubbles
Learn to Invest, Stock Market Speculation in Greek Shares,
Burton G. Malkiel’s work
Bangkok Condo Talk, November 27, 2010
Bangkok Condo Talk, August 24, 2010
Grade property advisers, July 2010
Andrew Campbell, Market View of Bangkok Condo, June 2010, in Ezine Articles
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