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Building Bubble in Pattaya?

history

image dsc20160.jpgThere was a big building boom happening all over Thailand before the bubble burst in 1997. Since then, new construction slowed greatly in and around Pattaya. It took a few years for builders to have another go at it. Most building after the crash was by order, with few spec houses being built (ie. houses built before a customer is found). Some rather famous builders finally stepped up to the plate sometime after 2000 and came in and finished out some nice luxury developments (of spec houses). They hit the nail right on the head. The market was ready, the houses sold and huge profits were made. These profits have driven developers into the area like flies on a carcass. Now, at the present, we are in full blown building mode. There are many large developments now in process of 100 + homes. Some are building spec houses, some just build a show house and wait for orders. I’m not sure of the count of new developments, but just right around the coolthaihouse there are at least 3 major developments. I would hazard a guess that in and around the Pattaya area there must be 30 + housing developments going on simultaneously, this figure not including condos. Almost all these houses are being designed and built for the expat buyer – there really are relatively few Thai building projects going on.

today

The land prices have been going up in some areas by 20% or more per year. Finished desirable properties which are priced right seem to be selling quickly. At the same time there is a lot of property which goes unsold. Which begs the question, once all these the new properties come on-line, where will all the buyers come from? After all, these developments are basically for the expat community. Can there really be that many expats which are going to arrive and buy real estate here?

The small attractive projects I’ve seen around here have all sold out very quickly. For now at least, developers that produce attractive well priced properties do very will indeed. But what is going to happen when this huge new source of housing supply comes on-line in about a year? Take it for granted that the Pattaya area will continue to be a popular destination spot for tourists and expats alike for many years to come. Assume also for a moment that the foreign population will continue to grow here in the future. Is the expectation is that it will double in the next few years? In my estimation the building which is going on now will take many years to fill out.

future

Depends on who you talk to. Real estate pundits predict a rosy future – after all that is there source of income. There may come to pass law changes which allow for the creation of a casino complex in the area, which would be a boon economically. (Rumor has it that the casino measures will get pushed through within the next couple of years. The government is tired of seeing casino money go to Cambodia). While it would bring in a lot of local workers, this would not fill in the tremendous number of houses that will be going on-line. Just because someone comes here to gamble doesn’t mean he is going to buy a house. And generally speaking the houses going up are not built for the local population, so the workers migrating here won’t be the ones filling them out.

interesting observations

First off, everyone is into building these days. Every third expat you meet is into some kind of building project. And the number of big money Thai developers is growing all the time.

The value of land has been appreciating for the last few years very rapidly. While a lot of development has come into the area, once you get out of Pattaya proper, the areas are not that densely populated. Take Jomtien beach area for example, which sits just south of Pattaya.

image dsc20213a.jpg Here is a shot of the more densely populated part of Jomtien, looking away from the beach. There are several large condo projects here. Immediately to the left is a condo project recently completed. To the right of it is a smaller project nearing completion.


image dsc20153.jpg Moving down the beach, (but still right on the beach road) there are several vacant land plots. Land adjacent to the beach would go probably go for 10 + million per rai.

image dsc20154.jpg Next door there is a spec housing development nearing completion.

image dsc20155.jpg Further down, there is a basically vacant large shop house complex which is starting to see some local businesses move in slowly.

image dsc20156.jpg Here is one of the many units which are for sale.






image dsc20159.jpg image dsc20158.jpg Then further down the beach there is this vacant condo development.









image dsc20163.jpg Futher down there is this dumpy looking shophouse just up from the beach. Many of the units are trashed out, certainly not indicative of the super high land price they sit on.







image dsc20164.jpgThese land plots would be inland about 1 kilometer, where land is currently worth anywhere from 3 to 6 million per rai. Land which is priced in this category is suitable for dense housing developments, condos or high end luxury houses. There is a 10 + rai plot which sits on a main road near here priced at 50 M +. It has a sign indicating an urgent sale, but has been on the market at least a year. It is designed for a big condo development, but for now at least – no buyers. image dsc20166.jpg image dsc20162.jpg

Here is the point, the land value continues to hold a high value, but development has slowed down. There are plenty of undeveloped plots available, but it all carries a hefty price tag. What you might expect, is that as land sits unused or underutilized one would be able to go in and ‘find a good deal’ (ie. that the laws of supply and demand get applied). Generally, from my experience this isn’t the case. If the land is, in a particular area, is deemed to be worth about 4 M per rai, the owners may discount a bit, say to 3.8 million. But even if they need to wait 100 years to sell, they probably won’t take 3.5 million. Maybe they are super rich landowners. Or maybe they don’t have a penny in the bank. It is just not that normal to see a fire sale on property here. It isn’t the same type of buying and selling activity which you see overseas. So, there is a lot of potential supply of land which won’t really start to trade until the demand comes in.

If it is such a hot market why don’t these kind of plots get bought and developed? First off, the area isn’t all that attractive. Buyers have gone elsewhere where the prices are cheaper and it makes more sense to build (ie further inland). It is just interesting the land prices don’t adjust down, they will just stay in the static overly priced area (in apparent violation of that most famous of laws: supply and demand).

The other factor which probably comes into play with several large vacant developments is that banks here have a tendency to hold on to foreclosed properties until it can be unloaded at a price which covers the investment. They have incentives not to ‘take the hit’ – so this accounts for some of the vacant properties you see around.

conclusion

One should consider the supply demand factors before deciding to do a large real estate development here. The area is sure to grow for years to come, but the appearance to some is that the development is getting far ahead of the growth. There is minimal planning here and there seems to be a feeding frenzy to build up as many properties as fast as possible and ‘sell the dream’ — getting as many expats as possible to buy into properties. It is the ever repeating boom and bust cycle powered by a growth economy. In my own estimation this bubble may not totally pop, but I would at least look for some of the air to leak out within the next couple of years. Anything which slows the massive amount of building to a manageable pace cannot, in the long run, be bad for the area.

disclaimer

The preceding is my own personal musings and observations on the building craze currenty going on in Pattaya, Thailand.

5 Comments

  1. Nice articl. To my mind though talk of casinos and sports stadiums for the asian games is premature whilst Pattaya first road still floods regularly. The infrastructure it seems cant cope with the curreent developement.

    Richard

  2. I haven’t been following the news on the casino proposal… but a Thai aquantance who claims to know Mr. Big himself (taksin) says with a wink — it will come to be in a couple of years! Anyone know the skinny on the casino rumors???

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