Finance minister quells bubble talk
Finance Minister Apisak Tantivorawong has rushed to dispel concerns that there is a local property bubble.
Developers typically trim supply if a bubble forms to prevent losses, but they are continuing to introduce a large amount of supply, which suggests they believe demand will prevail, he said.
However, the central bank must analyse the risks in the property market from either deterioration of debt-servicing ability or financial institutions’ overexposure, said Mr Apisak.
The improving economy should improve borrowers’ income, he said.
His comment came after Bank of Thailand governor Veerathai Santiprabhob 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.
The central bank used a micro-prudential measure to inform financial institutions to tighten mortgage loan approvals under the basis of good risk management.
Mr Apisak said financial institutions could be a source of problems if borrowers default, and the Bank of Thailand can tighten regulations by lowering the loan-to-value (LTV) ratio if the situation looks murky.
He said the government’s low-budget housing project was initiated to shift rental payments to mortgage payments to allow low-income earners to have their own homes.
With that idea in mind, interest rates should not be raised in order to prevent these borrowers’ debt-servicing ability from deteriorating, he said.
Deputy Finance Minister Wisudhi Srisuphan said the central bank may send signals to warn financial institutions that extend mortgages at high LTV ratios.
LTV ratios that are too high applied to mortgages that buy an entire floor or project raise questions about artificial demand, he said, adding that the current situation is not a housing bubble, but can instead be described as a run-up in home prices fuelled by speculative demand.
The Finance Ministry has not instructed state-owned financial institutions on the issue but the ministry is keeping an eye on the situation.
In the meantime, Predee Daochai, chairman of the Thai Bankers’ Association, said there is no need to tighten criteria on housing loan approvals as it has reached alarming level, though higher risk is looming in some residential segments and locations.
Developers typically trim supply if a bubble forms to prevent losses. APISAK TANTIVORAWONG Finance minister