Analyst: Mortgage concerns not urgent

Analyst: Mortgage concerns not urgent

BoT worries about overextended lending are unlikely to trigger financial crisis, K-Research says

Construction workers at a condominium building. K-Research expects 190,000 residential units to remain unsold this year.
Construction workers at a condominium building. K-Research expects 190,000 residential units to remain unsold this year.

Risks from overextended mortgage lending, which has the Bank of Thailand concerned, will not lead to the kind of systematic risk that snowballed into the Asian financial crisis in 1997, given that the majority of presales are real demand, says Kasikorn Research Center (K-Research).

Kevalin Wangpichayasuk, assistant managing director at K-Research, said 82% of residential presales are financed through financial institution mortgages or bought by foreigners, so most is believed to be real demand, while 15-20% is either real or artificial demand.

"We found that most residential sales are financed by financial institutions or bought by foreigners, while there is only a small portion where we cannot clearly identify [the source of funding]," she said.

An interest rate hike, which some expect to happen soon, would add costs to borrowers and scale back the property market and mortgage lending growth, Ms Kevalin said.

K-Research expects the Bank of Thailand to raise its policy rate twice, two quarter-point hikes, in the first half next year before leaving the rate unchanged in the latter half.

Bank of Thailand governor Veerathai Santiprabhob recently warned of a debt-fuelled bubble in the housing market, resulting from "search-for-yield behaviour", which prompted him to summon related parties to discuss controlling risks.

The central bank has found this behaviour to be ubiquitous, especially in high-rise condominium projects, and such behaviour reflects an oversupply in some condo areas, resulting in artificial demand and higher non-performing loans (NPLs) in the mortgage segment.

Mortgage NPLs rose to 3.39% in the second quarter, up from 3.38% registered in the previous quarter, according to central bank data.

Earlier, the central bank also raised concerns over higher competition in the housing loan market, especially higher loan-to-value (LTV) offered for mortgage loans after finding that some lenders offered higher LTVs than the central bank's guidance at 90% for low-rise residential projects and 95% for high-rise projects.

"If the central bank implements macro-prudential measures to control mortgage lending and raise the policy rate, both the property market and housing loan growth will slow next year," Ms Kevalin said. "At the same time, housing loan quality will improve."

She said the residential market, however, will continue to face challenges in the period ahead from persistently high numbers of unsold housing units, which will lead to a longer time to release existing supply.

K-Research estimates that 190,000 residential units will remain unsold this year, similar to last year.

Some 41% of the unsold residential units in 2017 were condos, followed by single-detached and duplex homes at 34% and townhouses at 26%.

She said SET- and MAI-listed property developers' debt-to-equity (D/E) ratios of 1.31% and 0.9%, respectively, at the end of June were below the average of SET- and MAI-listed companies' 2.69% and 1%.

SET-listed property developers' D/E at the end of June climbed from 1.22% at the end of December, while MAI-listed real estate operators' D/E fell from 0.98% at the end of last year.

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