The warning in the bubbles

By The Nation

 

 

Amid constantly shifting economic trends, central bank right to try and slow steady rise in household debt

 

Thailand’s household debts have risen to a five-year high since 2014, prompting the Bank of Thailand recently to put a brake on the uptrend, especially with regard to mortgage loans for the property sector.

 

The new LTV (loan-to-value) ratio imposed by the central bank took effect on April 1. In order to avoid the more stringent requirement, property developers and buyers attempted to finalise their mortgage loans by the end of the first quarter, resulting in a further 10.1-per-cent rise in outstanding loans owed by Thai households.

 

Many middle- and upper-income households have significantly contributed to rising household debts as they turn to the property sector for investments in second or third condominium units for the purpose of speculation and rental incomes. Previously, it was easy to get these mortgages at a relatively low interest rate due to the previously higher LTV ratio, so bubbles were building up in some segments of the property sector.

 

Now, these speculators-cum-investors need to make larger down payments because they are securing fewer loans under the new LTV ratio. In other words, housing credit risks have been under-priced for a long time, and this could lead to a macro-economic crisis.

 

From the fourth quarter of last year to the first quarter this year, household debts rose 6 per cent, to Bt12.8 trillion, accounting for 78.6 per cent of the country’s GDP. Besides the property sector, lending in the automotive sector also has raised concerns among regulators due to the rapid growth prompted by fierce competition and relatively low interest rates.

 

For car and truck firms as well as motorcycle companies, aggressive promotional campaigns to boost sales have been commonplace over the past several years, aimed at driving sales growth amid a growing number of players. As a result, numerous discounts and financial incentives have been offered to lure buyers, resulting in a declining credit quality and higher risks for households due to their growing debt service ratio.

 

According to the authorities, non-performing loans (NPL) for personal consumption also rose 9 per cent in the first quarter of this year, accounting for 27.8 per cent of the total NPLs. Such indicators are worrisome against the backdrop of an economic slowdown, with increased uncertainties in the global economy, especially with regard to the US-China trade war. Thai exports, which account for the largest share of GDP, have already weakened, while tourism revenues, which account for over 20 per cent of GDP, could also take a hit if the trade war worsens, resulting in fewer Chinese tourist arrivals in Thailand.

 

Meanwhile the National Economic and Social Development Board (NESDB) has reported that the shortage of skilled workers remained a significant issue in the first quarter of this year, with employment rising 0.9 per cent. The agriculture sector’s jobs increased 3.2 per cent, while jobs in construction increased 10.5 per cent, largely due to public-sector infrastructure mega-projects.

 

In terms of compensation, inflation-adjusted wages rose 2.5 per cent in the private sector, but there was still a big shortage of skilled workers due to the mismatch between workforce demand and supply. So far there has been a relatively small impact on agricultural jobs due to drought, but the protracted US-China trade war will certainly hit jobs in export-oriented manufacturing industries due to a drop in exports.

 

Automation, robotics and other technologies also have had a significant impact on Thai factories as they attempt to boost their efficiency and competitiveness by adopting new technologies in the production process while reducing the labour roster.

 

The government has not yet tackled the impact of these disruptive technologies on the labour market in an effective way.

 

Source: http://www.nationmultimedia.com/detail/opinion/30370700

 

-- © Copyright The Nation 2019-06-07

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7 hours ago, webfact said:

tourism revenues, which account for over 20 per cent of GDP

What!!

Last year Transportation and Tourism (a sub-sector to Services sector) accounted for 12-15% GDP. Now its 20%?

And

7 hours ago, webfact said:

could also take a hit if the trade war worsens, resulting in fewer Chinese tourist arrivals in Thailand.

Seems the only investment sector remaining viable and secure in Thailand is the military. But it doesn't produce a baht for the Thai economy.

This is a very ill thought out article.  If the Trade War continues, China will be looking to shift production out of China and to other ASEAN Countries.  The questions is of course, will this new, inexperienced Government be able to take advantage of it, or will Vietnam, Phillipines et al beat them to the draw?  I don't think that this Government has the focus or experience to capitalise on this situation.

The

7 hours ago, webfact said:

they turn to the property sector for investments in second or third condominium units for the purpose of speculation and rental incomes

Current rent prices are extremely high, and sale prices for condos are even worse. Any person trying to convince you that buying a new condo now will get you any return is either trying to scam you or just ignorant.

I looked at some of the newer projects on Thong Lor, the rent is higher than 1000 baht/month/sqm and even then it would take almost 30 years of rent to pay back the unit. I wonder what kind of value today's condos can retain 30 years from now.

 

Of course there are some more reasonable prices around and I don't know anything about the second hand market. I just see that prices are going crazy and landlords are too proud to lower the rents and just prefer to seat on empty overpriced condos.

3 minutes ago, yokat said:

The

Current rent prices are extremely high, and sale prices for condos are even worse. Any person trying to convince you that buying a new condo now will get you any return is either trying to scam you or just ignorant.

I looked at some of the newer projects on Thong Lor, the rent is higher than 1000 baht/month/sqm and even then it would take almost 30 years of rent to pay back the unit. I wonder what kind of value today's condos can retain 30 years from now.

 

Of course there are some more reasonable prices around and I don't know anything about the second hand market. I just see that prices are going crazy and landlords are too proud to lower the rents and just prefer to seat on empty overpriced condos.

The second hand domestic property market is strongly hampered because for most Thais second hand has no status value. You have money to buy property you buy new for the higher status value or don't buy.

 

6 hours ago, scorecard said:

The second hand domestic property market is strongly hampered because for most Thais second hand has no status value. You have money to buy property you buy new for the higher status value or don't buy.

 

We looked at a couple USED houses one way out in the boonies, another in an undesirable part of town and another out in some rice paddies on the edge of town that was an awful ramshackle house obviously built by idiots with no money.

 

ALL of those USED houses were MORE EXPENSIVE than the NEW, CUSTOM BUILT HOUSE IN A DESIRABLE LOCATION.

 

Yeah, we ended up buying the new, custom house in a desirable location for LESS money than the used ones.

 

So, it all depends on your luck.

 

My wife found it on Facebook. ????????