Thailand to rein in property market
“A restriction on banks for zero-per-cent interest rates is one of the measures to control the market. But the central bank will have other measures such as tightening the loan-to-value ratio from 90 per cent for condominiums to 85 or 80 per cent if it believes that the condo market shows signs of speculation and may form a bubble in the near future,” a source said yesterday.
A team has been sent to meet with the top 10 listed property firms since early last month to ask them about the residential market, he said.
The main question concerns the supply and demand situation, as concern grows over indicators of a glut in the market. But most developers believe that the market still has demand to absorb the supply and that the market is still stable without any bubbles.
They admit that some locations may be subject to speculation, but say that does not change the overall property market.
The central bank may not impose any measures on the public but will use internal guidance such as asking banks to rein in lending. They may be asked to report project loans over 200 million baht (US$68050) or to raise the credit score threshold for approving mortgage loans. These are some ways to control the property market without creating any panic.
In 2011, buyers of condos were required to make a down payment of 10 per cent of a unit’s value and in 2012 buyers of low-rise residences, both townhouses and single family homes, had to deposit 5 per cent.
Prasert Taedullayasatit, chief business officer of Pruksa Real Estate Plc, said he would meet with the Bank of Thailand on Friday. It was normal that the authorities will need more information from
developers about market sentiment and the size of both supply and demand. This is better for the Bank of Thailand before launching more measures to control the market.
Srettha Thavisin, president of Sansiri Plc, said he met with the Bank of Thailand team last week and gave them market data, including the sizes of both supply and demand. The company also showed the team its market research studies. When the company goes into new locations it has to have the information to support its expansion plan.
“They asked if a drop in the loan-to-value ratio to 85 per cent or 80 per cent will impact the market. I said that will impact directly on buyers of residences priced lower than 2 million baht because they do not have enough savings to make a down payment. This will not support low-income people in owning a home,” he said.
“In my view the property sector does not have a bubble ,” he said.
For example, Sansiri now limits sales to its customers. If they want to buy more than five units, the company will not sell them to them. This is one of the measures to reduce speculators in the market, he said.
Chatchai Payuhanaveechai, executive vice president of Kasikornbank, said that if the Bank of Thailand does not want banks to offer a zero interest rate to customers, then KBank will follow that policy, because it is the responsibility of the central bank to manage the country’s risk.
“However, we believe that the property market now is different from 1997 because most property firms and commercial banks have restraints on launches and provide loans for customers based on credit scores.
“When we look in more detail we see less non-performing loans from mortgage loans compared with other loans, so we believe that the real estate market now does not face a bubble. But we have to be careful in some locations,” he said.
The Bank of Thailand will also talk with banks about their campaigns for home loans featuring a zero-per-cent interest rate as part of its annual visit to the executives of the banks.
Ruchukorn Siriyodhin, assistant governor for the Financial Institutions Policy Group, said banks can launch this kind of zero-rate campaign but they have to clearly inform prospective customers about the effective interest rates throughout the loan term to give them complete information for decision-making.
The central bank has been monitoring the banking industry and found that their lending has met the standard and that their NPLs have not increased. Bankers said they have been informing home loan customers about the effective rates after the zero-per-cent rate ends. The central bank raised this concern to prod the banks into being more cautious about bubbles in the property sector, they said.
Chatchai of KBank said commercial banks currently calculate the effective rate for customers and also offer solutions of instalments to customers. The home loan customers can select the type of campaign that matches their payment ability.
KBank does not force home loan customers to buy mortgage reducing term assurance (MRTA) for the zero-per-cent campaign. However, the bank asks the customers to buy the policy to manage their credit risk.
The central bank might have sent the signal to banks to ease off the zero-per-cent campaigns because they might fuel the bubble. The regulator can issue a regulation against the banks offering a zero-per-cent rate.
Weidt Nuchcharoen, senior executive vice president of Krungthai Bank, said the bank had told the central bank that the zero-per-cent rate was a gimmick to help ease the financial burden on customers who need reserve money during the first six months.
After the zero-per-cent rate ends, customers will have to pay the step-up rates as prescribed by the banks. The bank will calculate the financial burden throughout the loan term.
Wichit Phayuhanaveechai, executive vice president of Bank of Ayudhya, said the bank has acknowledged the Bank of Thailand’s concerns. The central bank wants transparency and clear information from banks that are promoting zero-per-cent home loans.
* 1 baht= US$0.034