LTV tweaks have minor effect
Elevated debt, tight loan approvals key
The recent tweaks to ease loan-to-value (LTV) regulations are expected to yield a limited impact in increasing property sales because of elevated household debt and banks’ tighter loan approvals, say economic think tanks.
Although first-time homebuyers are identified as the main beneficiaries of relaxed LTV regulations through increased loan ceilings, weak purchasing power of Thai and foreign consumers amid the global economic slowdown, elevated household debt and banks’ cautious loan approvals for retail lenders are the main factors muting any positive impact for the property sector, according to SCB Economic Intelligence Centre. (SCBEIC).
Thai households have a higher tendency to default on loan payments if household income drops by 20%, said SCBEIC, citing a 2017 stress test of Thai households by the Bank of Thailand.
Horizontal houses are poised to benefit from the latest tweaks because most homebuyers’ first mortgages are mostly made up of these houses, reflected through new loan issuance by commercial banks, said the think tank.
The Bank of Thailand has eased LTV regulations governing mortgage lending, shortening the minimum debtservicing period for first mortgages for those seeking a second for homes priced below 10 million baht.
Under the amended regulation, the minimum down payment for a second mortgage for homes valued less than 10 million baht is 10% if borrowers have serviced the first mortgage contract for at least two years, and 20% if the first mortgage has been paid for less than two years.
Another tweak is lowering the minimum down payment for first mortgages for homes valued 10 million baht or more.
Those who buy residences valued less than 10 million baht and apply for a first mortgage are also allowed to take out a top-up mortgage of up to 10% on top of the housing loan, constituting as much as 110% for the mortgage bundled with the top-up.
The amendment aims to help people own their own homes, but tries to eliminate artificial demand.
Investment in new property projects in Bangkok metropolitan areas could decline by 1.2-2.9% year-on-year, with investment units estimated at between 109,000-111,000 as property developers remain cautious on this year’s real estate outlook, said Kasikorn Research Centre (K-Research).
Property ownership transfers in Bangkok metropolitan areas are forecast at 184,500-189,500 units, down 2.2-4.8% year-on-year, partly due to a decline in foreign buyers’ purchases, said K-Research.
The baht appreciation has caused property purchase price in Thailand to become more expensive for foreigners, while the investment return generated from real estate has dwindled.