As I sit in my hotel room in chilly Hong Kong, the TV is blaring news of a market meltdown. Major indexes are capitulating in the US, Europe and across Asia like the EKG of a heart-attack patient.
Grabbing headlines in the US are two leading Democratic presidential frontrunners sparring in something akin to an Ali-Fraser rematch. In Thailand, the lights are on but nobody is at home in a vacated leadership role. Far too many questions remain unanswered while the word "recession" keeps popping ip with unsettling regularity. I'm reminded of the phrase of the late, great Hunter S Thompson, uttered during the bleak Nixon era: "When will it end, oh Lord , when will it end?" Being neither an economist nor a polished political commentator, I have no idea when it will end. My lack of insightful analysis into the current state of affairs puts me in the same boat as the majority of property investors and market watchers.
The trigger that appears to have started the chaotic events of the past few months is the US sub-prime mortgage crisis. Viewed from a distance, tales of people losing their homes and being evicted are akin to a replay of Hurricane Katrina, leaving others to wonder just how this could happen in a developed, first-world economy.
Go deeper and what's often overlooked is that many of the foreclosures are on second- and third-home purchases. The Home loan industry has evolved into something similar, with junk bonds and scandals in savings and loans. During the feeding frenzy over the past few years, property has been bought with zero cash down. few years, property has been bought with zero cash down.
In many cases, there has been negative equity, often with more than 100% of a property's value offered along with perks to buy furniture, automobiles or vacations.
It was as if someone at the bank left the vault open and nipped out for a cappuccino. Banks, institutions and privateequity firms fed a frenzy that was geared towards top-line growth, increasing stock options and million-dollar bonuses for their executives. It's difficult to assess how these global economic problems are affecting the Phuket property market.
In analyzing the fundamentals of Phuket's real-estate boom of six years ago, the compelling features were an accessible, international resort destination; a reasonable cost of living; access to health care, schools, golf and marinas; and the hospitality of one of the most exotic cultures on earth. Development shifted into high gear and construction on the island went into overdrive. I am a part-time developer, sometimes an investor and most often a consultant. I'm not throwing in the towel just yet. Real estate, for the most part, is about long-term, stable investment. If you bought on fundamentals, chances are that over time, the yields will rival those of any other investment.
The past few years have seen something of a casino-like atmosphere in Phuket. If you want fast money, then head to the casinos of Macau, but remember that the house always wins. The past few years have seen something of a casino-like atmosphere in Phuket, but the property market is not a palce to get rich quick.