Inflation, rate hikes to hit housing sector

Inflation, rate hikes to hit housing sector

The Housing Finance Association expects rising inflation and interest rate hikes to dampen demand for property and mortgages this year.

The price of new houses is continuing to increase, in line with higher building material prices.

Projected interest rate hikes in the second half of this year should pressure demand among homebuyers and those seeking mortgages, said Vichai Viratkapan, acting director-general of the Real Estate Information Center (REIC).

REIC predicts the Bank of Thailand's Monetary Policy Committee will increase its policy rate twice, by 25 basis points each time, in the second half of this year.

The headline inflation rate is expected to increase to 6% this year. Under this scenario, overall property market growth will be around 3% in 2022, said REIC.

The property market has been gradually improving since the start of this year in line with Thailand's economic rebound, thanks to the country's reopening to tourists.

Real estate has been in the doldrums the past two years because of the impact of the pandemic. New home transfers in the first quarter of this year contracted by 30% year-on-year, Mr Vichai said.

However, demand for second-hand homes will be higher than for new homes, mainly because of lower prices and the government's incentive schemes, he said.

For the first quarter this year, second-hand home transfers recorded a positive growth rate of 9.3% year-on-year.

Under the REIC's worst-case scenario, with the policy rate hiked by 50 basis points, the property and mortgage loan market would show a small growth rate for the full year, Mr Vichai said.

Kitti Pattanapongpiboon, chairman of the Housing Finance Association, said higher inflation and rising interest rates would impact existing mortgage borrowers and new homebuyers, who will face higher costs.

As a result, second-hand homes will become more popular as their prices have remained static, alongside higher supply and the situation in the non-performing asset (NPA) market, he said.

As of April this year, banking industry NPAs increased to 135 billion baht, or 46% year-on-year, rising from below 100 billion during the last pre-pandemic year of 2019.

The Housing Finance Association plans to hold the "2022 Home-Loan NPA Grand Sale" exhibition from July 1-3 this year via both physical and virtual editions.

Alongkot Boonmasuk, the association's secretary-general, said banks have provided financial assistance to existing mortgage borrowers to ease their burden.

If the policy rate is increased and passes through to market rates, banks would continue to help customers, he said.

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