Beyond the hype
source: The Nation

A veteran real-estate valuer warns of the dangers of the current rampant speculation in the condo sector

Sopon Pornchokchai, president of Thai Appraisal Foundation (TAF) and the Agency for Real Estate Affairs (AREA), is a veteran property valuer and market researcher who likes to blow the whistle before it is too late.

Back in the 1990s, Sopon, who got his PhD in urban planning from the Asian Institute of Technology and property-valuation training from the LRTI-Lincoln Institute of Land Policy based in Boston, issued several warnings on the Thai property market but they were mostly ignored. Subsequently, the economic bubble burst in 1997 when Thailand had to devalue its currency.

In other words, Sopon, 49, witnessed the collapse of the Thai real-estate market at close range. His first warning came in 1991 when AREA reported on research indicating that if all planned office buildings in Bangkok were built, a situation of oversupply would last until 2006. Another 1991 report showed that land prices in the Bangkok metropolitan area had increased 21.5 times from 1985 to 1991. In 1993, he warned in another research note that 23 per cent of the buyers of housing units at the annual home fair were speculators. In 1994, his research showed that only 35 per cent of condominium buyers actually moved into their units. In the following year, he found that 300,000 housing units were vacant as construction was complete but the units were unoccupied.

In 1996 and 1997, his findings showed that 17 per cent and 40 per cent of housing projects would fail, respectively. In the following year, the total number of vacant housing units rose to 350,000, according to a subsequent comprehensive survey.

"It's all about ignored available warnings which were, however, based on our independent surveys. Key findings came from extensive field surveys and repeat surveys. We used no inside information, and ensured that our data was unbiased. There's no conflict of interest either since we're neither a real-estate broker nor a developer.

"Based on the Thai real-estate market's cycle, we're now [2007-2008] in the slowdown stage. Following the 1997 collapse and ensuing economic crisis, the real-estate sector, which helped trigger the crisis [due to over-investment] started to recover in 2001 and peaked again around 2004.

"So, we should be careful. Developers and investors will have to consider the feasibility of each of their projects more thoroughly as banks and other financial institutions have tightened their credit policy on the sector. At present, there are about 200,000 housing units which are unoccupied, representing 5 per cent of the total housing stock of about 4 million units. "The ratio is rather small compared to the years prior to the 1997 crisis when unoccupied units were much higher as a percentage of the total stock. However, speculation in the condo sector is currently exorbitant. In the first eight months of the year, we've found that a third of the 24,000 units in medium and high-end segments are speculative," said Sopon, who started his career in real-estate valuation in 1982.

In 1991, he set up AREA, which today has a total of 150 independent property appraisers whose task is to assess a property's value based on its utilisation and economic life.

"Our job is also related to the valuation of a business enterprise based on its income stream. As for the immovable property, the physical life is usually 50 years or longer in Thailand, depending on the quality of construction as well as maintenance. However, the economic life of a property may be shorter as some buildings may no longer have any economic value after a number of years.

"In more developed nations, demolition is not unusual when it's found a building is no longer of economic value, but in Thailand that hasn't been the case. However, there've been talks about tearing down some ageing flats in the Din Daeng district of Bangkok due to safety reasons since several of these buildings are 40 years and older and the quality of maintenance has been inferior during the past years," said Sopon.

In 2005, AREA - currently one of the country's largest real-estate information centres - was given an award highlighting its ethical standards from the Thai Chamber of Commerce and also became a member of the United Nations' Global Compact on Good Governance.

Sopon is also an adviser to the Appraisal Foundation in Washington DC and the country representative of the Chicago-based International Association of Assessing Officers.

Will the prices go down if there is a crash? It seems to me that lowering prices is against all thai logic. They would rather let the bank take the property away than sell without a profit.

Most people are predicting that the Thai economy will improve after the general election. This confidence will probably also be seen in the property market, thus resulting in stronger prices. The problem in Thailand, as Dragon Man suggested above is the amount of empty and uncompleted properties esp. in BKK

WELLLLLLLLL I guess the economy improving after the election would depend on who wins. From what i have been seeing in the newspaper and from what most of the people around here are saying is that the Army will not abide by a government controlled by the PPP. Even though they are saying that there will be another coup if PPP win most are planning on voting for PPP or placing a no vote on the ballot. It will be very interesting on election day.