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When There Is Blood In The Streets, Buy Property

Part 2

In October of last year, I published an article here on this website, titled "When There Is Blood In The Streets, Buy Property". In the article I examined the old Rothschild wisdom, and applied it to the property market here in Thailand in the aftermath of the country's worst floods in the past 50 years. Throughout history, we have learned that in the days following tragic events such as wars, natural disasters and other tragedies, there could not be a better time to buy property. Despite the panic and negative reports in the media following the floods, my thoughts at the time were that buying property would be a solid investment.

 the price of property is only going to rise in coming years

Let's take a look back and see what has happened since October of last year? In December, The Nation Newspaper reported that Land prices in Bangkok's inner areas such as Siam Square surged dramatically after the floods. According to the report, the price of land has gone up from Bt1.2 million per square wah, to as high as Bt1.4 million per square wah, a 17% percent increase. They also went on to say that there were significant increases in property value in other areas of Bangkok, such as Wireless Road and Silom and Rajdamri roads.

The Nation also reported in January of this year, that condo sales in Pattaya surged by more than 120% in 2011. In my original article published back in October, I had said that "There couldn't be a better time to invest in property in a place like Pattaya". It seems that there is evidence to suggest that these predictions have indeed come true, as all indications are that the price of property across the country has risen dramatically since last year's floods.

There is still much concern regarding the future of Bangkok, and what steps the government will put in place to prevent future floods, not only this year but in the years to come. With many people convinced that future floods will continue to plague the country's capital, there has been a significant increase in demand in other areas, such as Pattaya, Hua Hin, and even Chiang Mai in the North. With the tourism industry growing each year, and the number of annual arrivals still expected to nearly double by 2014, the price of property is only going to rise in coming years, regardless of future floods, political instability, or any other adverse situations that may arise.

So as we look back, it should not be surprising to anyone that the old Rothschild's adage proved to be true once again, there are numerous examples of fortunes being made in the aftermath of history's darkest moments. There is no greater tool to predict the future, than to carefully study the past. We have all heard the saying that "history repeats itself", in this case we can suggest that the increase in property value after last years flood is much the same as what we witnessed in Phuket back in 2004, as land prices have roughly doubled since the tragedy occurred. As we look ahead, we all wonder what the future might have in store for us .. well I will go out on a limb, and say that it is going to be a lot like the past.

The Price Of Property In Thailand Post Floods

Now that we have seen the worst of Thailand's severe flooding, it is time to assess the damage and the affect of the flooding on Thailand's property market. The Thai economy has been temporarily crippled by damage to factories, farms, rice crops, roads and transportation networks. The manufacturing sector has been hit hard, with over 800 factories flooded, leaving thousands of employees out of work. It is expected to take at least another month for the flood waters to completely recede, and it will take several months or even years to rebuild and repair the damage to infrastructure.

The real estate market in other areas of Thailand, such as Pattaya and the Southern Thai beach resorts will likely only benefit

Thailand's resilient tourism industry continues to thrive despite adversity, whether it is a coup, a tsunami, or severe flooding, tourists from all over the world continue to flock to The Land of Smiles, each year seeing more visitors than the years previous. The beach resort destinations of Pattaya, Phuket, Krabi, Phi Phi and Samui are open for business, showing no signs of a decline in visitors due to the floods in Central Thailand. The large numbers of annual visitors will undoubtedly contribute to a steady rise in the price of property in destinations that were not affected by the severe flooding.
 
The Treasury Department recently announced a 20% increase in property valuations nationwide, however these figures were drawn from data going back the past 3 years, without taking into account the recent flooding and the affect of property damage caused by the floods. While potential buyers might be hesitant to purchase property in the heavily affected areas of Bangkok and the surrounding suburbs, the cost of construction materials and skilled labour is expected to rise as much as 50%, with increased demand due to necessary repairs and reconstruction. The higher cost of construction will likely keep the price of property in Bangkok and surrounding areas from dropping significantly in the short term, with an increase in value expected long term.
 
If we look to the past, recent history will teach us that the affect of a natural disaster will only suppress property value for a relatively short period of time. After the 2004 Tsunami struck Phuket, causing extensive damage to beachfront property and claiming the lives of almost 500 tourists and locals, property sales came to a grinding halt. For almost a year the price of residential property and condominiums stayed level, with sales significantly lower than in previous years, however just 7 years on, the average price of residential property on the island of Phuket has increased by nearly 3 times what it was before the Tsunami.

Experts tend to agree that history will indeed repeat itself in the wake of the floods of 2011, as property value in Bangkok and the surrounding areas is expected to stutter just temporarily. Long term projections are still quite positive, and within the next few years the damage caused by floods will be but a distant memory. The real estate market in other areas of Thailand, such as Pattaya and the Southern Thai beach resorts will likely only benefit from the affect of the flooding in Bangkok, as more Bangkokians will be looking to buy second homes in these destinations.

When There Is Blood In The Streets, Buy Property

The old adage has been around since the 18th century, when Baron Rothschild was quoted as saying "Buy when there's blood in the streets, even if the blood is your own." The British nobleman was a member of the infamous Rothschild clan that made it's name in banking. Rothschild made a fortune buying up properties during a fire sale that resulted due to panic after the Battle of Waterloo against Napoleon. Over the years the same principle has been proven time and time again in the wake of histories darkest moments.

There couldn't be a better time to invest in property in a place like Pattaya

Despite the tragedy and hardship that was felt by your average citizen during the Great Depression in The United States in the 1930s, More millionaires were made in those years than at any other time in history. Joseph Kennedy, the father of former American president John F. Kennedy built his empire and gained fortune by investing heavily in real estate during the Depression. Kennedy increased his net worth from 4 million USD to over 180 million USD between 1929-1935.

In recent years this pattern has held true in the aftermath of events such as world wars, natural disasters and financial meltdowns that have rocked the markets and caused buyers to panic. Fortunes have been made in Europe at the end of World War 2, in Asia in the aftermath of the 1997 Asian financial crisis, and in countless other times of desperation and despair. It would seem that when things appear to be hopeless, this is no time to panic, and perhaps the most opportune time to invest.

The island resort area of Phuket was devastated by the 2004 South Asian Tsunami, an entire season of tourism was canceled, and local merchants were left penniless, many losing their entire net worth. The lives of nearly 500 people were unfortunately lost in this tragedy, and the local economy came to a grinding hault. The price of property at this time never actually fell, however it stalled for long enough for a few people to make a significant fortune, and today real estate on the island of Phuket has now nearly doubled in value since the Tsunami.

In Thailand in recent years, there literally has been "blood in the streets", as the saying goes. The political turmoil last year during the red-shirt protest resulted in several unfortunate deaths in the capital of Bangkok, as well as significant property damage in the center of the city. Time has passed and now many of those wounds have since healed, with a new government and a much more stable political climate, the future looks quite promising.

The serious floods that are now causing havoc across the country will no doubt have a negative impact on the country's economy, the Bank of Thailand has already announced that they will need to revise the economic forecast and they expect significant downgrades due to the flooding. The cost of damages caused by the floods are estimated to exceed 100 billion baht which is equal to 1% of gross domestic product. While this is certainly far from good news, don't expect this to have a negative impact on the value of real estate in the country, the popular resort areas of Pattaya, Phuket, and the islands in the south have not been affected by flooding.

There couldn't be a better time to invest in property in a place like Pattaya, where the cost is relatively much lower than many of the other resort destinations that are popular with foreign tourists. The price of property in Phuket, Krabi and the nearby southern islands is only going up, with increasing demand showing no signs of slowing. Thailand's property market is as strong as it has ever been, and while there is a natural disaster playing out in some parts of the country, the same Rothschild wisdom shall likely prevail "When there is a flood in the streets, buy property."