Property market picking up

[Super Joe]

Joe, I think you are glossing over the fact (possibly deliberately, I don't know) that there are few forced sellers, because primarily there are few mortgages and therefore no foreclosure pressure. If you own outright, you can elect to sell or not, rent or not. I would expect that there are very few actual forced sales, which is why there is no out and out panic and rush for the exits. That doesn't mean there isn't a substantial supply overhang.

I know I only touched on that this time, but that has been my main point since the slump started in 2008, this is what I posted in July 2008 and a couple of times since:
"Re: the over-pricing of resale houses, when I speak to people it has a lot to do with them not being concerned if they sell right away, some aren't even that fussed about moving at all and are just trying for a high price. Looking at the wider picture, if/when it really impacts here the resales people who absolutely have to sell, will have to drop the price. If they don't have to sell will they just sit it out, it’s different here to back home as most foreigners living here do not have mortgages and the rising interest payments."

Re: The 'over-hang/over-supply' will it be at such a level that it will have a dramatic affect?? people were saying on here two and a half years ago it would, but many of the big influx of re-sales that came on the market were not from people that absolutely needed to sell, due to the above. Many had boards up saying "for sale or rent", the rental market increased as you'd expect, and a certain percentage have now given up the idea of selling, partly because the rents more than paid the bills for their 2nd home, partly the initial panick subsiding over the recession/losing their jobs back home etc. And say there is a huge over-hang, will it cause a price crash when most, resales & developers, aren't financial pressure, many of these developers & investment buyers had some profitable years leading it up to it.

My main point is if people have managed to survive this crisis for the past 2.5 years, and they see the signs (albeit crumbs) of an upturn, why would they suddenely take 25-30% off their future nest egg if they're not under any real financial pressure too. And by that I mean at the point of defaulting on debts someone along the lines, those that are in this situations will have to swallow the pill and offer up bargains for others, but I've said that from the beginning. On the other hand, if there is next to zero movement this year then that will put some real pressure on people. So does a serious buyer hold out another year or so, not an easy one, but what you do hear from developers is that once the recovery starts and they get a couple of sales, prices will go back to what they were overnight almost, out of neccessity ie: land and building material costs.

The other factor is, and I sort of understand but don't quite get it, is the amount of people who do not want a resale even when it's 1m Baht cheaper, they still want that new house where they can choose the bathroom tiles, design the kitchen layout, extend the pool a metre etc etc. So resales (and condos) do not have as full an impact on the overall market as they would in the West.

This is all just my honest opinion, which is worth about as much as next door's cat

SJ

[tonymaroni]

One of the most important things to understanding the market in Hua Hin is what type of market is it.

We do not have a traditional House marketplace. IE a market driven by supply and demand.

We have basically a second home market. Owners who do not use the home as a primary residence. Farangs and Thai who are here a few weeks or months of the year.

So all the data from Bangkok about sales, prices etc. we can discard. Bangkok is a primary residence community and marketplace. All the info about financing we can discard as well. Most farangs pay cash. Most of the financing is for Thais and the mortgage rates for them is still nominal for a wealthy Thai second home or condo buyer.

I doubt if there are many prospective buyers waiting for prices to drop before they purchase. Thai owners would sooner die than lower their price for a home or unit that has not even been looked at by a prospective buyer in years. Farangs are offshore most of the time and also could care less.

So what we have is a permanent oversupply of homes until the worldwide economy recovers.

Second home marketplaces in Thailand are driven by the general economy of the world. When things are good worldwide, Hua Hin house marketplace will be good. The owners are from all over the world it only makes sense to me.

[Super Joe]

So all the data from Bangkok about sales, prices etc. we can discard. Bangkok is a primary residence community and marketplace.
.
All the info about financing we can discard as well. Most farangs pay cash. Most of the financing is for Thais and the mortgage rates for them is still nominal for a wealthy Thai second home or condo buyer.

I think the Bangkok market is a bit more diverse than that, last months condo data from Bangkok shows around 30% of the units taken up are not primary residences, and that there were 29,000 units sold in the last 5 months of July to November. Presumably the majority of the 8,700 investment buyers would be wealthy Thais and Asians who's economies have generally escaped the problems, they can't be much different to the one's who invest here!?

I agree we can discount 'financing pressures' as a big factor on the market here, or being the primary cause of any future price crash, that's what I've been posting about for the last 2.5 years. But the 'info about financing' in general in these property threads (buyer and developer) is one of the most relevant factors in why I don't believe there will be a serious price crash which many perspective buyers are hoping to take advantage of, even more so now the Baht is so strong.

SJ

[hhfarang]

The other factor is, and I sort of understand but don't quite get it, is the amount of people who do not want a resale even when it's 1m Baht cheaper, they still want that new house where they can choose the bathroom tiles, design the kitchen layout, extend the pool a metre etc etc. So resales (and condos) do not have as full an impact on the overall market as they would in the West.

SJ, I think you are correct in your reasoning for foreign buyers, but with Thais (Bangkok Thais buy and own a lot of property here) there seems to be a stigma or even a superstition about buying used. They seem to always prefer something no one has lived in before... maybe because of ghosts???

[PeteC]

There's a good strategy. Get some professional haunters into a hi-so Thai neighborhood and watch them flee....at discount prices. Pete

[STEVE G]

There're also some bizarre "feng shui" type rules related to property that affects the price in Asia that most of us Westerner are completly oblivious to such as buying on outside corners instead of inside ones and that sort of thing.

[Korkenzieher]

I don't believe there will be a serious price crash which many perspective buyers are hoping to take advantage of, even more so now the Baht is so strong.

SJ

Borrowing briefly from the world of finance, the purpose of a (functioning) market is price discovery. I don't think that anyone would dispute there is no real functioning market in property, not just in Hua Hin but perhaps Thailand wide. I think you could extend this to Spain, Ireland, Bulgaria and so on without stretching the point too far. It is impossible to say exactly what the correct price for many properties is, and therefore, as SuperJoe points out, many owners will wait for the market to come back to them rather than take a hit.

But the problem here is the new-build market. All property markets are episodic and new-build has more pricing flexibility than resale. Land is basically a flexible input cost - in reality it has no pre-scribed value. In Spain, before the boom of the late '90's, the price of a newly built house was always less than that of an existing development because the implicit value of the land was flexible in effect down to as near zero as the land-bank owner/seller wanted to make it. You and I might not be able to buy the land for nothing, but for the owner of the land to develop it, he can do so effectively for free.

So you end up with a dilemma - and that is, that a developer can consistently price his new-build stock at a level where an existing owner has to take a hit in order to make a sale. That tail-selling model continues until demand substantially overwhelms supply. That could take a long, long time. In Spain, it only changed when hot pre-euro money was chasing property. I don't see anything equivalent to that on the horizon at this time.

[Super Joe]

But the problem here is the new-build market. All property markets are episodic and new-build has more pricing flexibility than resale. Land is basically a flexible input cost - in reality it has no pre-scribed value. In Spain, before the boom of the late '90's, the price of a newly built house was always less than that of an existing development because the implicit value of the land was flexible in effect down to as near zero as the land-bank owner/seller wanted to make it. You and I might not be able to buy the land for nothing, but for the owner of the land to develop it, he can do so effectively for free.

So you end up with a dilemma - and that is, that a developer can consistently price his new-build stock at a level where an existing owner has to take a hit in order to make a sale. That tail-selling model continues until demand substantially overwhelms supply. That could take a long, long time. In Spain, it only changed when hot pre-euro money was chasing property. I don't see anything equivalent to that on the horizon at this time.

I can see how that scenario works in certain places, even Bangkok, Phuket & Samui to some extent, but I believe the criteria in Hua Hin makes this unlikely because raw land is so dis-proportionately low against the property price. Land costs, (excl. infrastructure obviously), per house plot is typically 6-12% of the property value for the huge 4M-10M Baht range, 4-8kms out of town. Give or take, depending how long ago it was bought it etc. The swimming pool or quality furniture package would be around the same value to give it some perspective.

Whereas resales have more flexibility imo as most were purchased in the peak period of 2004-mid 2007 and have appreciated well in excess of this 6-12%, (sure they've had to reduce but that applies to new builds too), then on top of that there's the gain of 20% upto 50% (literally), on the exchange rate if they're relocating back to Europe/N.America.

About developers with their own, effectively cost-free land, influencing the market, there's a couple of factors to consider imo:
1) The value of their land and more has already been 'offered up' in the 10-20% reductions that many sellers have introduced.
2) It seems to be a small number that develop on their own land, most are poor farmers/working class people, although some developers would have bought land years back v.cheap.
3) Thais rarely ever drop their land prices, or any other prices come to that, they will wait forever and a day to get their price.
I may be wide of the mark with this I don't know, but even the shrewder Thais who see the sense in treating the land as a zero cost for the sake of the bigger picture, they would need to do this just to be on a par with current reduced prices.

I'm not deliberately trying to disagree with you, and apologies for that, it's just how I honestly see it, I don't disagree with your overall view that it's going to be flat for a very long time, and that there has to be substantial price reductions, I just believe that the majority of that reduction has already been introduced (not by all yet), and that theres not much more left to come, bar some forced resales.

SJ

[Korkenzieher]

I'm not deliberately trying to disagree with you, and apologies for that, it's just how I honestly see it.

Oh don't worry SJ, I don't see it as disagreement - your analysis (as I say from more adjacent to the coal face) is interesting . Obviously I am relatively bearish on the property market in Hua Hin and similar areas - but that doesn't make me right, or even cause me to believe I am right. The differing perspectives are, in the end, what come together to make discourse interesting. My bearishness is in itself less to do with the property market itself, and you will always get some background level of people turning up looking to buy.

I tend to take (with all analyses) an approach which looks upstream using feedback systems (aka Reciprocity [Soros]) and downstream using the law of Unintended Consequences. The headwinds that one sees for the Thai property market are therefore somewhat different to those in say Spain or Ireland (specifically, since the 2006 coup - land rights, continuing political instability, baht exchange rate, succession of the 'High Institution', anti-Farang xenophobia and global economic situation). I've been bearish in the main since certainly mid 2007 if not earlier.

However, and clearly, any nascent recovery has to work its way through the current oversupply and any analysis has to take that into account. You may well be correct on the difference in land valuation in Thailand compared to (for instance) Spain - I'm not that close to it - but I cite it as one potential 'gotcha' facing sellers. In another place, I have also posed the question, 'at what level does it become cost effective to buy a house just for the pull down value as the land price differential increases'.

I'll confess not to have too many answers - just some interesting questions!

[hollister]

Althought farang usually need to pay their thai property in cash they still might at some point need that money back home - thus getting under pressure to sell.

Also a rarely used property far away from home will go up for sale before they risk losing their family home which might be heavily mortgaged.

I agree with another poster who said a property with a lack of interior design won´t sell well. The most common mistakes in Thailand are
- extremly small plots
- high walls surrounding the plot
- horrible tiles
- facing wrong direction

[kendo]

I was amazed at the amount of new propertys that are under construction driving down from bangkok especialy on the Rama 2 road.

Kendo.

[fft100]

driving around HH on a regular basis, i am surprised to see so much building work, and new estates that seem to pop up out of nowhere. Are these being built for Thais or Foreigners ?

I assume that most independent builders are now only building to order (SJ any comments ?), but even so, it looks as though the existing overhang has no near term prospect of being cleared.

If the overhang was cleared, could the towns infrastructure (water, roads, electrcity, sewage ) handle it !

[Andreas]

I decided it was time for me to retire and I started to look for property in Thailand about 6 months ago. I had been to Hua Hin before and I really like the town, it is a a good combination of tourism, proper Thai and you can find just about anything in the town. The fact that Bangkok is only 2 hours away helped me as well.
When searching for property I found huahin property search and both Colin and Anders really helped me a lot. So now I am happy in my new house and my new home country.

Andreas