Thailand's Bubble Economy Is Heading For A 1997-Style Crash

[caller]

Wouldn't a property crash pile pressure on banks, just as in Spain et al, where lots of debts couldn't be recovered and the properties reclaimed were a fraction of their original perceived value? Or is Thailand's situation different?

[lomuamart]

There was an article in the UK press last year (Guardian or Telegraph) that was along the same lines as the Forbes article in as much as all the factors that led to the 1997 crash were in evidence again now. I can't remember whether I posted it then. Whether I did or not, I can't find it now.
I don't understand all the factors that could lead to another crash but the one main thing the article was going on about was Thailand's foreign currency reserves.
These have been very strong over recent years as the money flowed out of the west (particularly) and into countries like Thailand where returns were better (the Forbes article covers this as well). What's happening now is that money is starting to flow back out and this, combined with Thailand becoming less competitive in export markets, is starting to affect the economy. The Baht has lost value.
I've got no idea whether another crash is around the corner but it does seem that the writing's on the wall and there are plenty of experienced people around the world who are singing off the same hymn sheet.

[Lung Per]

Household/personal debt is very high and should be a major concern of government. Where else on earth do they let so many unsuitable borrowers borrow up to 90% of their income in many cases?

What makes me laugh is when you go to the small towns and villages and you can buy a toaster on credit (full price 1000 baht) on a two year hire-purchase agreement and pay like 60 baht a month or you see a pickup with a scooter on the back advertising a 1 baht down deposit for it doing the rounds in the impoverished villages........... ........completely irresponsible lending imo.

And that's not even without mentioning the amounts borrowed on the informal borrowing business with loan sharks who charge like 10-25% or whatever. Almost no-one actually owns anything apart from an older, corrupt or elite section of society.

Crazy really when you think about it!

Spot on!

[Big Boy]

Wouldn't a property crash pile pressure on banks, just as in Spain et al, where lots of debts couldn't be recovered and the properties reclaimed were a fraction of their original perceived value? Or is Thailand's situation different?

I agree. I know a family who have borrowed the full cost of their home + 500K for improvements etc. They have since had a 300K extension build with loan shark money. They don't have regular 'proper' employment. When (not if) they default on their payments, there is no way the lenders will get all of their money back - they've leant more than the property is worth. This combined with a possible property bubble burst, the country is heading for disaster. I doubt the family I know are the only ones who have been able borrow crazy 'unsecured' money.

[PeteC]

Tell them to make sure to pay the loan shark first....for their own safety.

[Big Boy]

They'll know that already. The only semi permanent work they have is collecting payments for a loan shark

[hhfarang]

Yes, I know a family who borrowed the full price of their (expensive) home purchase and are now attempting to borrow nearly 3 times that much to build an apartment building on a small piece of land they own.

[Big Boy]

I think because land prices have gone absolutely through the roof in this area, they see it as a quick way to get their money back/get out of debt .......................... if somebody will buy it.

[Korkenzieher]

They'll know that already. The only semi permanent work they have is collecting payments for a loan shark

Now there's a warning! Debt collectors loading up. Looks like the know good times are on the way - for them at least!

[Lung Per]

In my wife's village the local shark charges 5%. That is PER MONTH!
Maybe one should go into that business.....

[barrys]

In my wife's village the local shark charges 5%. That is PER MONTH!
Maybe one should go into that business.....

That's cheap by today's (lack of) standards - 5% a month was the rate more than 10 years ago.
The rate now can be anything from 10 - 20% PER MONTH - less if you lodge unencumbered land deeds/car etc.

[Korkenzieher]

6 for 5 over the month has always been a standard practice in Asia, from what I understand - a de-facto 20%. One of 'he who shall not be mentioned' 's main policy successes was getting the money lending business out of the hands of the 20% boys, and into the hands of the 5% crowd, sharp suits and all.

[PeteC]

Stocks and the Baht are taking a beating today. Two factors: the amnesty business and economic issues in the USA and China. Pete

[StevePIraq]

Interesting articles on BBC web site regarding Thai economy, domestic debt now at 80% of earnings

http://www.bbc.co.uk/news/business-23859931

Thailand lowers growth to 3%

http://www.bbc.co.uk/news/business-24982609

[StevePIraq]

Source: http://www.thailand-business-news.com/r ... ngkok.html


Fear of Condo meltdown looms over Bangkok
Several areas in Bangkok and provincial towns are already experiencing a glut housing due to rapid growth during the past few years.

Making matters worse is the surge in speculation, seldom reported, but constantly active beneath the surface. At the same time, a shortage of contractors and construction workers are posing problems for developers. Clearly, that could be a sign of overheating.

For more than two years, our guide has warned of the growing traffic congestion from the Sukhumvit intersection at Onnuj and Sukhumvit 50 to Bang Na junction. Part of this is caused by overbuilding of condos on this stretch. In Sukhumvit 50 alone, a score of projects had come up in the past three years.

Some say there is no serious sign of a bubble in Thailand’s residential market but others are not so sure.

Scores more have followed since then along the corridor with the opening of new BTS Skytrain stations. Gridlock traffic from early morning till night has forced many residents to sell their homes and move further away. The Government Housing Bank’s researchers at REIC, an agency that surveys the property market recently said the area faces an acute oversupply. The signals that give away the seriousness of the problem have come from the ground. Just like the signals that warn of a stock market crash, such as when taxi driver talk about their portfolios and the shoe shine boy giving stock tips, the best indicators come from the builders themselves. One developer who started early in Sukhumvit Soi 52 with four projects has now left the area to build in Khao Yai.

If things are so good, why depart? Clearly the sense of a saturated market and intense competition bodes ill for speculators who had bought in the hope of making a quick profit. Sales have been sluggish for months. To make matters worse, many punters have raised their prices. A studio now sells for almost Bt3.5 million, equal to that of downtown projects. Banks are also cautious, if not nervous, about giving Bt3 million plus to buyers of studio units. If a crash comes they will be holding expensive studios, one reason why the 1997 crash sank so many banks.

While the condo crash is some ways away, the normal gestation period of a meltdown usually takes five years. We are probably midway towards the next one. Why does a property crash take a long time? Like the seven stages of death, punters go through a number of stages before they capitulate. The stages are shock, denial, anger, bargaining, guilt, depression and finally, acceptance. We are somewhere in the middle. Denial seems to run the longest course with punters rejecting there is a bubble. Ultimately the cost of paying for a condo they can ill afford and the probability they would be stuck with it forever sinks in. As punters discover they cannot rent them for outrageous amounts or resell it, depression sets in. This could last a while.

Read the complete overview of Thailand’s real estate market in http://www.nationmultimedia.com/special ... q22013.pdf

Source: http://www.thailand-business-news.com/r ... ngkok.html