LTV limits add to sentiment for stagnant growth in 2019

LTV limits add to sentiment for stagnant growth in 2019

Sluggish domestic demand has forced developers to shift to Chinese condo buyers in recent years. PORNPROM SATRABHAYA
Sluggish domestic demand has forced developers to shift to Chinese condo buyers in recent years. PORNPROM SATRABHAYA

The new mortgage rules taking effect on April 1 are expected to make the Thai property market stagnate this year, with developers hoping for a recovery in the second half.

Atip Bijanonda, president of the Housing Business Association, said property market growth this year will slow down, with a forecast expansion of 0-5% from last year because the economy is gloomy and the new lending curbs will affect demand.

"A lot of negative factors will affect the market in the first half," Mr Atip said. "The general election shifts consumer interest from other issues to politics. They will wait and see how the election plays out before making a decision on buying a home."

He said the new loan-to-value (LTV) limits will have a negative impact on homebuyers.

"The overall sentiment in the housing sector has been impacted since last month with lower presales of new supply. This will have an impact on the transfer period," Mr Atip said. "Many developers are hurrying to clear their unsold condo inventory."

As a higher down payment will be required by the new LTV limits, developers should give more weight to the development of off-plan or presale units for low-rise projects in the single house and townhouse segments.

"Presale houses will come back after disappearing in the 1997 financial crisis," Mr Atip said. "At that time, potential homebuyers were not confident enough to buy off-plan units, as they were afraid of not getting the unit. They want to see a completed unit first."

To help customers get a mortgage loan approval when the new LTV limits take effect, he suggested developers prepare customers in advance.

Some good strategies include preparing customers to have a good bank statement and advising them to buy a unit with a price in line with their payment capability.

Mr Atip said developers need to boost sales in the second half to compensate for first-half sales that may fall short of targets.

Small and medium-sized developers should not have excessive debt or over-investment. They should also have strong cash flow sufficient for at least two years, Mr Atip said.

"Key drivers of the property market recovery will come in the second half, including the stability of the new government and infrastructure investment policy," he said. "New infrastructure like mass transit lines, high-speed trains, double-track rail and the EEC will open new locations and new housing demand."

Prasert Taedullayasatit, managing director for the premium segment at Pruksa Real Estate Co, said the property market this year will stabilise after capital disruption last year.

"Capital disruption came from both demand and supply," he said. "The supply side was from foreign investors in joint venture condo developments that created property inflation."

There are also investments from large conglomerates with 33 mixed-use projects in Bangkok with a total investment of 1.2 trillion baht in the pipeline.

Mr Prasert said capital disruption on the demand side was from Chinese buyers.

After domestic demand slowed, many developers shifted to introducing condos to Chinese buyers. This boosted growth in condo sales to foreign buyers to 71 billion baht in 2017, of which one-third was to Chinese buyers.

"Condo sales from foreign buyers will break a record in 2018, as the first nine months of last year saw growth of 31% to 68 billion baht," Mr Prasert said. "More than half of this amount was from China and Hong Kong."

Peerapong Jaroon-ek, chief executive of SET-listed developer Origin Property Plc, said the Bank of Thailand should introduce curbs for developers instead.

"If any bank pre-finances a project in a location where supply is high, that bank should be required to have reserves," he said. "Future supply is easily checked against environmental impact assessment approval."

He said homebuyers should be encouraged to build their savings discipline through special bank deposits with attractive interest rates.

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