Thursday, July 29, 2010

Thai Landlords - Greedy or Stupid ?

It never ceases to amaze me how many Thai landlords bite their noses off to spite their face ! I live in a condominium complex ( near Bang Na )that caters for medium income Thais and farang. The complex must house at least 2000 people, many of whom have cars, and clearly have spare money.

As with many similar complexes the ground floors of the buildings have shop units.

Now, to make any money the rent for the premises has to be realistic so that you can charge realistic prices for the goods/ services you offer. Commonsense tells you that if you charge too much for something the customer will go elsewhere. Out of the 12 shop units in my complex, 5 are now vacant and have been for sometime.

Apart from the Family Mart, a farang funded Salon and Independent convenience shop all the others regularly change hands. Why does that happen do you think ? It's simple, they don't make enough money to cover their bills and have to close. The reason is because the rent is too high.

For a 60 sq foot shop unit the rent is anything from 30 - 35000 Baht per month. That, coupled with other expenses, makes overheads at least 60000 Baht a month.

I personally know three people who had shops here. They were not making any profit
so either had to close or the shop overheads had to come down. If they put their prices up their customer base would have fallen through the floor. So they all asked their landlords if they could have a reduced rent. All got short shrift.

The first tenant told his landlord why he wanted a reduced rent and the landlord burst out laughing. He replied, "I am surprised you have lasted so long as my last three tenants only lasted 6 months each". Now his unit has been empty 5 months and he is not getting any money from it.

The next tenant explained the same reasons to her landlord. He politely told her that he couldnt reduce it lower than the 31000 Baht as he had to pay his bank 28000 Baht to cover the loan on the premises. All he had to do was reduce the rent to 26000 and my friend would have stayed. 5000 Baht to farang is nothing, but to a normal Thai that is nearly 1 months wages.

His shop unit has now been vacant 6 months so he doesn't get any money at all whereas he would have received 156000 Baht !

There is the argument that he could have found a new and affluent tenant very quickly, but with 4 other empty units out of 12, the writing is on the wall.

I regularly speak with farang who have Thai wives and are looking to open a shop ( in the wife's name of course ) but all are put off by the size of the rent. They all say that rents are the same in the much more affluent area - Sukhumvit.

So if the 5 empty units had reasonable rents, say 27000 Baht, they would have tenants and the landlords would have received over 810000 baht in total, instead of nothing.

Seems crazy to me - and no it's nothing about tax as most do not pay tax anyway.

2 comments:

  1. In my experience many Thai landlords are both greedy and stupid. The Thai rental and housing market doesn't seem to operate according to the normal laws of supply and demand. In the current self-inflicted depression rental values and condominium prices have remained high. Instead of being more competitive, property developers are wasting their resources on more marketing and "free" gifts. Meanwhile Thai landlords would rather have empty properties than reduce the monthly rental to increase utilisation. They simply don't understand the economics out of greed and the belief that they could lose the opportunity that someone will turn up and pay the full asking price.

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  2. I have to agree with you. But does 'face' come into it as well. A landlord seems to think they are better than a tenant/ buyer and if the tenant gets a discount from the landlord, the landlord loses 'face' because he has lost his position of power ??

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