• A 20-year bull run, where Bangkok condo prices have multiplied by 700%
• Prime land price inflation at twice the rate of condo price inflation, whereby it has no longer been able to develop condos profitably for the past 3-4 years
• A loss of confidence in the Thai domestic market
• Thai household debt off the charts to hitherto unseen heights
The Curse of the Listed Developer
The concept of listed developers increasing profits and earnings every year, hits a roadblock when the property market corrects. Real estate by nature is more cyclical than other industries and is only a safe investment haven when the market is rising.
However, because of listed status demands, developers need to continue buying land, even when overpriced, in order to continue showing growth. They have to buy land on the assumption that property prices will continuing rising. This inevitably stops, and, they end up caught with an inventory of overpriced, unprofitable properties, that are out of tune with the market in recession.
Developers with strongest balance sheets, can fire-sell units quickly once the market turns, and slash prices before the race to the bottom starts in earnest. Those that cannot, because they paid too much for the land, risk a huge potential distressed debt problem, and some will ultimately find themselves having leapt off the listed market cliff, lemming style.