The battle to avoid another property bubble

[webfact]

The battle to avoid another property bubble

By The Nation

 

 

Fearful of a repeat of the 1997 financial crisis, the central bank has tightened regulations on mortgages

 

The Bank of Thailand has put a brake on the property market, with a focus on speculative buyers to prevent a repeat of real estate crises.

 

On April 1 it started enforcing a tougher set of rules on real estate mortgages called the LTV – loan to value ratio – requiring buyers of second and third properties to put more down-payment on their purchases.

 

The LTV ratio on an individual’s first property purchase remains unchanged at 0-10 per cent so that first-time buyers of houses and condo units are not affected. But the ratio on a second property purchase is raised to 10 per cent in the event that buyers have been paying instalments on their first mortgage for three years or longer. 

 

If the payback on the first mortgage extends less than three years, the ratio on the second mortgage is raised to 20 per cent as a means to mitigate the credit risk, especially among speculative buyers. For a third property purchase, the LTV requirement is raised to 30 per cent when the buyer still has to pay back the first and second mortgages.

 

 

Obviously, these new rules are friendly to neither property developers nor speculators, whether Thai or foreign, but they are seen as a preventive measure to curb the development of property-market bubbles.

 

In 1997 Thailand plunged into its worst financial crisis in recent memory, largely triggered by the bursting of economic bubbles, including those caused by over-investment in the property sector. Lessons were learned and precautionary measures were prepared to prevent another crisis that might be prompted by a systemic credit risk left unchecked.

 

According to the central bank, 2012 and 2013 were the golden years for the Thai property sector, whose profits and returns on assets as reported by listed real estate firms jumped to a high of 9-10 per cent per annum, up from the previous 6-7 per cent. High profitability led to the entry of new players and further expansion of existing ones, while the relatively low interest rates in Thailand also played an encouraging role in boosting the supply of homes.

 

For property developers, the cost of funding was therefore favourable to launching new projects. For speculative buyers, there were opportunities for short-term profits.

 

Since 2012, most players have been reluctant to slow down because their market share could suffer, resulting in the unstoppable accumulation of more homes waiting to be sold. The last two or three years have seen a buyer’s market, with developers going all out to chase less affluent and lower-income buyers with all types of sales promotions. In addition, developers have begun tapping more foreign buyers, especially the Chinese. 

 

So the demand side has dwindled, leaving developers with second- and third-tier potential buyers as well as speculators whose capacity to 

borrow and buy is comparatively low, while those with actual demand had already purchased amid rising household debt.

 

Banks have also been struggling to maintain or boost their profits, competing aggressively for mortgage loans despite the rising credit risks. Some lenders have given customers loans beyond their full value (with an LTV ratio above 100), plus an additional or top-up loan. While the lenders’ risks have significantly risen, some believe property prices will continue to rise and the collateral will be sufficient to cover bad debts.

 

That could be wishful thinking. As of now, prevention is probably better than forging recklessly into another crisis.

 

Source: http://www.nationmultimedia.com/detail/opinion//30367191

 

-- © Copyright The Nation 2019-04-05

[ukrules]

It's a little late for this.

[Bluespunk]

2 hours ago, webfact said:

On April 1 it started enforcing a tougher set of rules on real estate mortgages called the LTV – loan to value ratio – requiring buyers of second and third properties to put more down-payment on their purchases.

All things considered, the perfect date to do this. 

[justin case]

area of my old house (well you know who ownes it) => many houses OWNED by bank now for years and increasing... "village" I live in, since moving in 10+ years ago and they are still constructing and selling new houses till now ... became a big monster and those a.wipes were by law supposed to build a school, but they divided area's into different phases to avoid this obligation...  still building but already preparing that the 'management' will leave all the future costs to the village... take the profits from sales and than get the hell out and start a new mega project

[mikebell]

Pattaya/Jomtien bubble surely ready to pop?

[ThaiBunny]

3 minutes ago, mikebell said:

Pattaya/Jomtien bubble surely ready to pop?

Again?

[Sealbash]

Pattaya/Jomtien bubble surely ready to pop?

What analysis has led you to believe this is a bubble? People have been saying this for many years, and it seems condos and houses are still be sold. Not necessarily occupied, but sold.


Sent from my iPhone using Thailand Forum - Thaivisa mobile app

[bert bloggs]

1 hour ago, justin case said:

area of my old house (well you know who ownes it) => many houses OWNED by bank now for years and increasing... "village" I live in, since moving in 10+ years ago and they are still constructing and selling new houses till now ... became a big monster and those a.wipes were by law supposed to build a school, but they divided area's into different phases to avoid this obligation...  still building but already preparing that the 'management' will leave all the future costs to the village... take the profits from sales and than get the hell out and start a new mega project

Its the same where i live ,houses priced properly sell ,very quickly ,but the bank owns 3 houses , i thought i would phone and check on one that has been empty for years , i reckon on a good day you could get 10 to 12 million , the bank want 29 million , go figure .

Edited April 5, 2019 by bert bloggs

[rgrdns]

40 minutes ago, Sealbash said:

What analysis has led you to believe this is a bubble? People have been saying this for many years, and it seems condos and houses are still be sold. Not necessarily occupied, but sold.


Sent from my iPhone using Thailand Forum - Thaivisa mobile app

Yep....I guess there's still a lot of dirty money to be washed 

[natway09]

If they cannot afford to pay 10% down payment on their 2nd home if the 1st is still in hock they should not be allowed to buy it

[Ulic]

7 hours ago, bert bloggs said:

Its the same where i live ,houses priced properly sell ,very quickly ,but the bank owns 3 houses , i thought i would phone and check on one that has been empty for years , i reckon on a good day you could get 10 to 12 million , the bank want 29 million , go figure .

Unfortunately a very common bank accounting practice. If they sell the house for 12 million they take a 17 million loss. Keep the house and they have a 29 million asset. 

[bkk6060]

9 hours ago, mikebell said:

Pattaya/Jomtien bubble surely ready to pop?

Why?

A true real estate bubble is created when people keep buying and buying and prices keep going up..

Then, at some point usually due to certain economic conditions, the bubble bursts.

 

None of this is happening in Pattaya/Jomtien.  In fact there are over 11,000 properties on the market a share are desperate sellers trying to get out for less then they paid.

 

It is more of a depressed market in Pattaya/Jomtien not a bubble.  A true real estate bubble has never truly occurred here. 

[DrTuner]

Speculative buyers or Chinese money laundering?

[DrTuner]

1 hour ago, Ulic said:

Unfortunately a very common bank accounting practice. If they sell the house for 12 million they take a 17 million loss. Keep the house and they have a 29 million asset. 

As long as they don't revalue it in the books - which they should be forced to do but I doubt they are. Just another day in the hocus pocus world of accountants.

[bert bloggs]

2 hours ago, DrTuner said:

As long as they don't revalue it in the books - which they should be forced to do but I doubt they are. Just another day in the hocus pocus world of accountants.

Also they have had someone living in it and looking after it all this time .