REIC: New rules to hinder city supply
The new residential supply being launched in Greater Bangkok next year is expected to shrink by 20% if the new requirements on mortgage lending proposed by the Bank of Thailand on Oct 4 remain unchanged, says the Real Estate Information Center (REIC).
Vichai Viratkapan, REIC’s acting director-general, said the new supply launched in Greater Bangkok in 2019 will drop to 92,000 units from the 116,000 units estimated for this year.
“The requirements will affect new supply as developers will be hesitant to launch projects,” he said. “Developers estimate a slowdown in home purchasing power if the new requirements are applied.”
Earlier REIC forecast new transfers of housing units in Greater Bangkok next year would slightly grow by 0.5-1% from around 340,000 units worth about 700 billion baht this year.
“In the worst-case scenario, new housing transfers will drop 5% next year or 20,000 units as a result of the new requirements. That figure includes those seeking a second mortgage,” said Mr Vichai.
The Bank of Thailand announced two weeks ago that it would apply new requirements to mortgage lending from Jan 1, 2019.
The measures include a loan-to-value (LTV) limit of 80% of home value starting from second mortgages for residential units valued at 10 million baht or more, down from 95% at present.
All types of top-up mortgages such as personal loans and loans for mortgage-reducing term assurance will be counted as a single amount and capped at no higher than the home value.
According to REIC’s recent survey on housing developer sentiment, the index for housing developer expectations over the next six months dropped to 57.5 from 62.0 in the second quarter.
Mr Vichai said developer confidence on every issue was lower. The biggest drop was development cost, as they are concerned about rises in the price of fuel, construction materials, land and a possible increase in interest rates in the future.
“They [developers] were also worried about the central bank’s new requirements on mortgage lending,” he said.
The survey respondents were listed and non-listed developers in Greater Bangkok in the late third quarter, when the central bank began to voice concerns about a possible property bubble.
Kittipol Pramoj Na Ayudhya, formerly president of the Thai Real Estate Association, said the central bank would likely reconsider the LTV limit on the second contract upwards and might change to apply the LTV limit for the third contract upwards.
The Thai Condominium Association is expected to submit a letter either today or on Monday to the central bank governor, asking for the central bank to apply the current LTV of 90% more efficiently for six months.
If the leverage numbers do not improve, the association wants the central bank to lower the LTV on a step-by-step basis for 1-2 years as some buyers signed onto off-plan projects before the new LTV was announced.
If the central bank wants to retain the LTV limit, it should do so starting with second mortgages, except for Bangkok and Eastern Economic Corridor locations; or should do so for third and additional homes.