Once Only the Sky was the Limit: Bangkok's Housing Boom and the Financial Crisis in Thailand

This paper explores the causes of the collapse of the housing sector in Bangkok in 1997 and its impact on the financial sector and the economy of Thailand. With the liberalisation of the Thai economy and its integration into the world economy during the 1980s and the early 1990s, real estate companies gained access to US$-nominated off-shore loans at low interest rates. Because of the availability of cheap loans and the speculative demand for housing, financial institutions and real estate developers did not conduct market research and invested in doubtful projects, resulting in an enormous oversupply of housing. The close relationship between bankers, developers and politicians ensured that the government would bail out insolvent real estate companies and financial institutions. In 1996, exports fell and the economy stopped growing due to increased international competition. Unhedged foreign debts reached dangerous levels and speculative attacks forced the government to devalue the currency. Real estate companies and financial institutions would have collapsed without continued bail-outs by the government. However, the government's non-transparent policies eroded the confidence of the general public and international investors, resulting in capital flight and a serious financial and economic crisis.