Bangkok’s Big Housing Boom (& Bust)

Bangkok is not only Thailand's Capital but also by far its biggest and most economically important city starting in the mid-1980s economic exuberance and cheap foreign funds set off a real estate bubble in Bangkok land prices on average Rose 25.5 times in just six years everyone and their mother set up a real estate development company in 1995 over 150 000 new housing units entered the Bangkok metro area housing market at that time there were already an estimated 300 000 vacant units in this video we're going to look at what caused bangkok's big housing boom and bust bangkok's Roots date as far back to the 15th century famously the kingdom of Thailand was never colonized by European power in order to avoid such a fate the country's leaders Consolidated the country's people in the Hinterlands and centralize its governance out of its capital city as a result Bangkok is Thailand's primary hub for culture economy governance and more government policies have consistently favored Bangkok over secondary cities like Chiang Mai and the provinces to the consternation of many throughout the 1960s bangkok's biggest economic driver was the American presence in the Indochina Wars most notably the second Indochina war or the Vietnam War as it is called in the U.S Bangkok served as an American r r spot for soldiers American Financial Aid paid for New Roads and electrification and set the stage for the city's future tourism industry it also created a recreational sex industry targeting foreigners sparing a flow of young women and other migrants into the city throughout the 1960s the City's population exploded from 1.8 million to 3 million the larger metro area grew 42 percent from 3.29 million to 4.69 million this exacerbated a Bangkok housing issue that the Thai government was already worried about prior to World War II Bangkok did not seem to suffer a real housing shortage however Allied bombing during the war at the time the kingdom of Thailand was a Japanese Ally destroyed a great deal of housing around the city investors poured money into constructing Industrial and Commercial buildings on this newly freed up land land started to become more expensive too much for many Bangkok residents to afford many such residents were forced to move into informal settlements slums essentially throughout the city in 1940 surveys found 86 slums but this Rose to 183 in 1950 and 361 in 1960. in 1958 some 46 percent of the City's population at the time lived in squatter housing these residents had a special arrangement with the landowners the landowner knows about the resident and allows them to stay for a small rental fee but the resident has literal rights and must leave within 30 days if the landowner ever finds a more lucrative use for the land so any housing or shelter constructed on the land must be temporary and easily torn down these Arrangements mean the government can't simply legalize all the slums and then invest in upgrading them like what other countries have done because someone else already owns the land and acquiring that land means going through a lengthy procedure that is well-meaning but nevertheless tedious the U.S military left Bangkok in 1973 when the Americans withdrew from Vietnam however the tourist industry continued to thrive furthermore Bangkok started to industrialize following the well-known development path that starts with capital light Manufacturing in my video about Thailand's Auto exports I mentioned how the Thai government passed new policies to encourage the localization of certain vehicle parts policies like these passed in the early 1970s kicked off new investments from automakers factories popped up around Bangkok offering attractive jobs migrants left their Farms back home in the provinces to do this work from 1960 to 1970 bangkok's population increased 3.7 percent each year higher than the country's 2.7 percent National annual growth rate this industrial and Manufacturing boom in turn created an even bigger need for new housing despite this the Thai government has never played a big role in the Bangkok housing market from 1950 to 1972 the government undertook just eight major housing projects producing just 7 346 units of public housing or about 330 units a year they fell far far short of demand when applications opened up for 320 public housing apartments in 1963 20 000 people applied furthermore the quality of the public housing units fell short of expectations tenants complained that there were noisy small poorly lit and lacking adequate ventilation a 1973 tenant survey found that 46 percent of residents had a 1960s era public housing project at the din dang area in Bangkok were not satisfied with their housing in December 1972 the Thai government established the National Housing Authority or NHA the NHA unified what had once been four different government entities in the space their goal was to clear and resettle slums as well as to build and provide housing 1973 was an eventful year in Thailand's history that October a student-led demonstration ended field Marshal tandem kiticorns military regime everyone left including the nha's leaders a new government arose in 1975 prime minister kukra pramog promised to eliminate the Bangkok housing shortage in alignment with this goal the new NHA presented an ambitious Five-Year Plan to build 170 000 housing units for families earning up to five thousand Baht a year the plan later revised down to 120 000 units started off well the NHA completed 37 188 units in the first two years but then this liberal government was again replaced via another military coup in 1976. in 1978 the government canceled the nha's plan citing Financial pressures furthermore many relocated slum dwellers weren't happy with the small public housing units despite the cheap and subsidized rent and City Central locations the Dwellers transferred their homes to someone else and moved back into the slums going into the mid-1980s the NHA put forward a few small projects but those never gained real traction there was never enough money the early 1980s saw various economic crises affect the Thai economy there was a second oil shock in 1980 and two bought devaluations in 1983 and 1984. by 1985 the Thai government faced a 70 billion Baht trade deficit and carried debts of 350 billion Baht yet despite the lack of resources Thai politicians still wanted to build build they wanted to be seen as doing something to fix the housing shortage which means flashy construction projects and big high-rises however with the exception of Singapore and Hong Kong such government-built housing projects have rarely seen scale and success anyway in 1986 the World Bank began promoting a liberalization and deregulation policy known as enablement clearing the bureaucratic blockages to more housing financially strapped the Thai government immediately bought into the concept of enablement from then on the Private Industry and the quote-unquote free market to use a loaded term would take the lead on building housing enablement came at an economically prosperous time starting in 1986 Thailand embarked on a massive economic boom in 1985 the plaza Accord made the Japanese Yen more expensive compared to the US dollar and other currencies like the bot this triggered a flow to foreign investment into Thailand from places like Japan Taiwan and South Korea between 1988 and 1996 Thailand received over 100 billion dollars of foreign capital investment amounting to nearly 10 percent of the annual GDP each year this directly boosted industrial economic activities like manufacturing combined with cheap labor and plentiful natural resources GDP growth Surge from 5.5 percent in 1986 to a high of 13.3 percent in 1988. the military's influence and governance receded in 1988 a new democratically elected government led by tatachai chunhaven I'm so sorry about mangling all these names sought a more business oriented approach in practice this cultivated a great deal of corruption but it also allowed private businesses to have direct influence on government policy this economic boom in Thailand meant more people getting better jobs and higher incomes they in turn wanted to improve their quality of life and own their own home new policies helped encourage this in 1982 the Thai government reorganized its housing lender the government housing bank or GHB and directed it to expand its residential mortgage lending operations by offering attractive deposit rates the GHB received the deposit of customers moving their funds over from pyramid schemes they then lent out these savings at reduced rates 10.5 percent as compared to the 16.5 percent you used to get on the private markets the GHB quickly became Thailand's biggest mortgage lender totally jealous the private Banks joined in mortgage loans from the Commercial Banking sector grew 41 a year from 1985 to 1990. together the two provided the financial liquidity to fuel further housing demand on the supply side oil prices fell from their previous highs and an oil glut emerged this substantially brought down the cost of energy and thus made construction cheaper this Confluence of demand and Supply created a boom in housing Construction prior to this private housing developers mostly Built Homes for the home's owners who were usually wealthy but starting in 1986 they went downstream focusing on producing row houses and townhouses priced for about 50 percent of the middle class or about seven thousand to ten thousand US dollars in 1987 30 411 privately developed housing units entered the market the next year in 1988 that became 45 192 units the year after that in 1989 57 622 units private developers constructed some eighty percent of the total annual housing stock with all this demand land prices quickly started to rise especially at the city's outer regions areas once only suitable for agriculture or slums were quickly snapped up for townhouses land prices in the outer Bangkok metro area in 1990 reached some 21 times higher than what they were in 1987. when land ran out for townhouses developers shifted to building Condominiums the market showed signs of overheating in 1985 you can purchase a one-story 64 square meter townhouse in Bangkok for about 120 000 Baht or 4 800 US Dollars by 1990 that same amount would only get you a 24 square meter low-cost condo projects sold out within weeks days or even hours for certain projects customers began queuing at 5am for a chance to purchase their dream home the Bangkok housing developer industry was extremely fragmented while there were large companies like Bangkok land most developers were small family firms with just a few employees and maybe one plot of land during the weekends they set up stalls and supermarkets and department stores to sell houses these smaller development firms had little experience or understanding of their local housing markets rather they just built whatever everyone seemed to be building at the time regardless they managed to secure funding for their projects if not from Banks then from Affiliated non-bank Financial lenders speculators emerged purchasing homes for the sole purpose of flipping them middle and high income families traded low-priced apartments or Condominiums between each other driving up prices condos priced between ten thousand and sixteen thousand dollars were the main focus of this speculation less than half of these were rented out and just 32 percent were owner occupied in 1991 the entire Market added 130 000 housing units to the Bangkok metro area this was the first peak in the city's housing market things slowed down for a bit after that from 1991 to 1993 housing production declined to about 100 000. there were multiple reasons for this the outbreak of the first Gulf War in 1990 drove Energy prices back up again and dampened the tourism Market causing a pullback in economic growth there was also a military coup in February 1991 that overthrew tunehaven's civilian government leading to a few years of political turmoil democracy was restored in 1992 the new government sought to revitalize the real estate market by offering support to developers building low-income housing units there were also two other things first the Thailand government unveiled a master plan for Bangkok designating new areas for urbanization and second the Thai Securities Exchange Commission mandated that listed real estate companies had to have a land bank this set off a scramble amongst the big companies to buy up as much Bangkok land as possible in 1994 new housing construction by both developers and individuals in Bangkok surged once more the three years from 1994 to 1996 saw over half a million of new housing units under construction that July the Bangkok Post ran a story mentioning that speculators were fleeing low-cost units in the midst of a glut and Supply it was the first sign of a crisis Thailand's phenomenal economic growth 7.8 a year from 1980 to 1995 led to widespread praise but things started to turn in the second half of the 1990s wage increases caused tied labor to become more expensive natural resource degradation was becoming a serious concern Thai Industries failed to upgrade to more sophisticated goods and other countries like China were competing more aggressively by 1996 it became clear that the Thai export machine was slowing down that year Thailand experienced negative export growth for the first time in over a decade there was too much foreign money flowing into the country critically there was the Bangkok International banking facility it was kind of like a government subsidized loan portal originally set up in the early 1990s to help promote Bangkok as a financial center and attract International capital for re-lending to Vietnam Laos or Cambodia kind of like the Hong Kong of Southeast Asia and that was indeed the original plan but over time that purpose was perverted into Capital Arbitrage trades where someone would borrow US Dollars and lend in Thai baht the difference between US dollar borrowing about eight percent and lending in Thai baht about 13 as well as the then fixed currency rate meant free profit short-term foreign loans more than doubled from 1992 to 1995 18.9 billion to 41.1 billion he replaced legitimate foreign Capital Investments grew a current account deficit and further fueled speculation in the Bangkok housing market the banking system was also not fully modernized and struggled to handle such recent liberalizations and all this money coming in looking for returns lacking proper regulations they started lending out to unworthy borrowers some of those borrowers were in real estate but money also went to Industry manufacturing retail and most perilously of all the Thai stock market in 1995 the GHB commissioned a study of bangkok's housing vacancy rates what they found was horrifying the author studied a sample of 1 500 projects representing 319 000 units in Bangkok built from January 1990 to April 1994. it showed that something had gone incredibly wrong 35 of the sample units were sold but vacant many of these were low-cost condos and townhouses extrapolating from that the report estimated that 300 000 units or 14.5 percent of the city's entire housing unit stock was vacant released in November 1995 the report had a profound effect on the housing market the massive oversupply situation became obvious for everyone to see and everyone rushed to sell their units the government proposed a few measures to arrest the real estate collapse however they either were ineffective or never implemented developers canceled their housing projects by 1997 over 40 percent of all housing projects were canceled before completion the stocks of Thai property developers crashed along with the rest of the market the number of housing developers shrank from nearly 2 000 firms to just 200. many of these heavily indebted developers failed to make their loan repayments to both their local and foreign creditors in February 1997 sumpra song Land missed a 3.1 million dollar interest payment in April sahaveria City and August joldis development the popping of the Bangkok real estate bubble coincided with a continued drop in exports the Thai stock market crashing and the overall slowing of the Thai economy as it turns out the amount of bad real estate debts actually held by the Banks weren't all that much about 15 percent most of the real bad loans were spent on stock market speculation or industry but due to non-transparent financial reporting standards nobody knew the true Financial State of the banks rumor spread of this or that bank possibly collapsing with that funds started speculating against the Thai bot which since 1983 had been pegged at a rate of 25 baht to a U.S dollar on June 29 1997 the Prime Minister publicly said that the peg would stay but after depleting all of their reserves on July 2nd 1997 Thailand had no choice but to float their currency the bot immediately crashed by the end of 1997 the rate went from 25 Baht per dollar to 50. many Thai Banks and financial companies had taken out short-term debts denominated in U.S dollars to fund themselves and their Investments those debts basically doubled or Worse turning many such companies insolvent in August 1997 the bank of Thailand suspended 58 Financial companies which then triggered a run on all the others four Banks were nationalized in the end the IMF got involved in August 1997 the IMF offered a 17.2 billion dollar bailout then the second largest in history in exchange they demanded an austerity program higher taxes the ending of certain subsidies and tight monetary policies 1998 was a terrible year economically a thousand businesses were closing each month two to three million people were laid off particularly in construction inflation hit 18 due to the weak currency many foreign workers were sent back home including a million from Myanmar the imf's actions during the Asian financial crisis remain very controversial by turning these private debts into public ones it forced Thai taxpayers to Bear the brunt of the costs for cleaning up after the real estate industry's excesses Financial austerity meant less Public Services four hundred thousand children dropped out of primary school and a number of those living under the poverty line increased by 1.5 percent hundreds of thousands of Bangkok residents return home to their farms in the provinces construction would not return to mid-1990s levels for over a decade in the wake of the crash the government passed new measures to help the housing market recover one notable measure is the 1999 Land code Amendment which allowed foreign investors to acquire and own small plots of residential land or condos laws were modified to make declaring bankruptcy easier and a bad debts vehicle the Thai assets Management Corporation was set up in 2001 to purchase bad loans but most banks simply extended the loan repayment schedule until they got their money back economic growth eventually recovered the export machine came back and developments like the tourist authority of Thailand's Amazing Thailand campaign helped bring tourists back to the country and the consolidation of the Housing Industry allowed the creation of more professional developer guilds which more focused on building Better Homes in tune with market demand the story of the Bangkok housing bubble is a story of a country unsuited for new deregulatory changes in the markets the market got away from itself and the taxpayers ended up having to pay for its successes all right everyone that's it for tonight thanks for watching subscribe to the Channel Sign up for the newsletter and I'll see you guys next time

Channel: Asianometry

Views: 111,463

Keywords: asianometry

Id: -v7IcD5CeHc

Length: 21min 58sec (1318 seconds)

Published: Sun Feb 26 2023