With banks' housing loan rejection rate still relatively high, the Thai Real Estate Association will ask the state-owned Secondary Mortgage Corporation (SMC) to buy mortgages from non-bank financial institutions to allow them to extend more loans to homebuyers.
Association president Pornarit Chounchaisit said banks' mortgage rejections remain the key problem for many residential developers, particularly small and medium-sized firms that do not have strong connections with commercial banks.
"The bank mortgage rejection rate of 30% is the new normal," he said. "Some small and medium-sized developers experience mortgage rejection rates of up to 70%. Even worse, some have not had a single unit receive a mortgage as they do not have any pre-screening methods."
A few months ago the association had unofficial talks with the SMC on studying the possibility of issuing bonds to raise proceeds to finance the purchase of mortgages released by non-bank financial institutions such as insurance firms, leasing companies, and credit fonciers.
Legally, the SMC is not allowed to buy mortgages from non-bank financial institutions, only from commercial banks. The government is amending laws to allow SMC to buy mortgages from those institutions.
The new law is expected to be enforced over the next few months.
Mr Pornarit said more mortgages from the non-bank sector will allow homebuyers to afford mortgages amid stricter bank mortgage rules, as banks attempt to curb their non-performing loans and fend off the negative impact of high domestic household debt.
Non-bank financial institutions' have mortgage interest rates that normally are 2% higher than those from banks, but the new law will enable homebuyers a higher chance of getting a unit transfer and borrow from the commercial banks after they have repaid non-bank mortgages for 1-2 years.
"Some buyers cannot get bank mortgages as they do not have good financial records. Once they have a record of repaying non-bank financial institutions every month, commercial banks will become more willing to offer them mortgages."
Mr Pornarit urged the SMC to issue 20 billion baht in bonds to buy mortgages from non-bank financial institutes.
Housing Business Association president Atip Bijanonda said if residential units cannot be transferred to homebuyers who are rejected for mortgages, the overall market will become sluggish, as it will cripple new investment.
"Developers who get units back from rejected homebuyers may be unable to make new investments," he said.
"This supply, called reverse supply, will also have an impact on the market as supply where the reverse supply is located will rise."
Mr Atip warned that this situation may further deteriorate once the land and buildings tax comes into force in 2019 as the tax is likely to encourage some owners or individual investors to dispose of their property before the tax becomes effective.