Eased curbs drive loans
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Eased curbs drive loans

Move will encourage home loan market, writes Kanana Katharangsiporn

A residential unit model on display at a house and condo fair in Bangkok in 2019. (File photo: Somchai Poomlard)
A residential unit model on display at a house and condo fair in Bangkok in 2019. (File photo: Somchai Poomlard)

The temporary revocation of lending curbs might be an encouragement for the home loan market and housing transfers next year, however, the high rate of mortgage rejections remains a concern due to weak purchasing power.

Alongkot Boonmasuk, secretary-general of the Housing Finance Association, said the easing of loan-to-value (LTV) limits will help drive home loan market growth in 2022 by an additional 0.3-0.7%.

"Lifting the LTV ratio to 100% is a positive factor helping boost the residential market which has slowed down since 2019," he said. "If Covid-19 is brought under control, market recovery will be faster."

Last month the Bank of Thailand eased LTV constraints to 100% for second and third home purchases, from an earlier cap of 70-90%.

The easing of rules will be effective from Oct 20, 2021 until Dec 31, 2022.

"Despite the relaxation and other measures like the extension of property tax incentives and those to lure wealthy foreigners, the property market in 2022 will be challenged by many factors carried over from this year," he said.

Weak local demand and shrinking purchasing power with high household debt are among the critical factors, as well as the fragile employment rate and declining wealth and household savings due to the long-term pandemic.

At the same time, the cumulative unsold supply remained large, resulting in high competition as many developers offer discount prices to drain their inventory, he added.

The overall home loan market in 2021 continued to grow. As of the end of August 2021, total outstanding loans grew 6.1% year-on-year, compared with a year-on-year growth of 5.9% in 2020.

"Mortgage loans continued expanding, mostly for units priced 3 million baht and above or among those with high purchasing power or income," said Mr Alongkot, also senior vice-president of Kasikornbank Plc.

In the first eight months of the year, housing transfers dropped 16.8% in Greater Bangkok and 51.4% in the provinces.

Some 39 provinces saw a contraction of 90% in housing transfers while there were six provinces that had a number of transferred houses totalling less than 10 units.

Vichai Viratkapan, acting director-general of the Real Estate Information Center (REIC), said the residential market has been sluggish since 2019 due to the economic slowdown, the Covid-19 outbreaks, high household debt and lower income of people and small businesses.

"All figures related to the housing market were negative across the board," he said. "They were below a five-year average of the period between 2015 and 2019."

"With the easing of LTV rules, the number of newly registered houses in the fourth quarter will recover, but it will remain in the red or a drop of 3.9% after the relaxation, from a drop of 12.7% before it," said Mr Vichai. "The key growth driver will be low-rise houses."

The residential market next year will grow 12% in the worst-case scenario, 19.1% in the base case and 31% in the best case, Mr Vichai added.

Despite the easing of lending curbs, Pornarit Chounchaisit, president of the Thai Real Estate Association, remained concerned about mortgage loan rejection which was at a high rate.

"In some provinces, the rejection rate hit 70%," he said. "Though the average was 30%, the mass market with units priced 2-3 million baht saw a rejection rate of 50-60% due largely to financial institutions' stricter rules."

Mr Alongkot said there were six reasons why the mortgage loan application was rejected: a default history due to financial indiscipline, insufficient income, debt overload, incomplete documents and unclear sources of income and co-borrower problems.

"The most important is that homebuyers have no savings," said Mr Alongkot.

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