The impact of real estate investors on the market

Not everybody loves the real estate investors that are not end-users. Some developers in Bangkok even hate them and want to avoid them at all cost. They require high deposits in order to scare these investors away, to prevent them from pushing the market in the wrong direction.

People that buy condos without any intention to live in them are not always looked kindly upon. The single investor is not considered a threat but when a large group of investors are involved they potentially have the power to move the market in a direction that is favorable to their investment thesis.

Have you ever wondered why there are so many studios or 1-bedroom units on the market? We now have the problem of thousands of non-family friendly condos in Pattaya. It is simply condos with the wrong size, not suited for families.

The investors are not only pushing the market towards smaller units, they are also pushing the market towards really cheap units with prices around only 35.000 baht per square meter. Obviously you will get what you pay for, and at that price you will get a very low quality.

A low quality of the build does not bother an investor, he is not the end-user, he has no intention of living in the condo himself, it is his intention to either sell it for profit or rent it out. Real estate speculators pay little attention to the fundamental value of a condo and instead focus purely on rental income or a quick return of investment.

Let’s say we have just 4 multi-unit investors from 50 major countries, then we suddenly have a couple of hundred of these investors and then they become a powerful group that cannot be ignored.

There is no doubt that these multi-unit investors play an important role in the property market today, as a group they are extremely powerful and even dangerous. They are most certainly pushing the market towards very small and cheap units.

Is there a real housing demand in Pattaya or is it all just real estate speculation? Is it the real estate speculators that eventually will cause the property bubble to burst or is it the developers that naively believe trees grow to the sky?

Why do investors like the small and cheap units? Let’s say an investor has 10 MB that he intends to spend on property. Is he going to but just one high quality luxury unit with a size of more than 100 sqm or buy 5 small units at each 2 MB? Of course he will buy 5 small low-quality units because he will generate more rental income that way.

That is the reason why we have so many ultra-small condos in Pattaya.

Published 15 July 2013

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