Household debt surge impacts property and auto sectors

[webfact]

 

The accumulated domestic debt and non-performing loans (NPLs), coupled with stagnant buying power, have continued to suppress domestic consumption since the previous year, with the property and automotive sectors suffering the most significant blow. This is reflected in the high rate of home loan refusals and car repossessions.

 

The numerous interest rate increases last year exacerbated the financing issues, with some economists arguing that the prolonged period of low interest rates before the increases have led to the current overwhelming debt level. The National Economic and Social Development Council (NESDC) data reveals that the household debt-to-GDP ratio, nearing 90.9% as of the third quarter of 2023, is considered high and can inhibit individual spending.

 

While the recent household debt level is not the highest in the past five years, the concern lies with the quality of household debt. Those intending to purchase a house may find it challenging to secure a loan due to financial institutions’ cautious approach in light of the fragile purchasing power. Officials also view car repossessions as a critical figure to monitor this year.

According to Alongkot Boonmasuk, secretary-general of the Housing Finance Association, the mortgage rejection rate currently exceeds 50%. This surge is attributed to low-income earners seeking to purchase residential units priced below 3 million baht (US$ 84,000). Developers attribute the higher rejection rate to various factors, including the economic slowdown, multiple interest rate hikes, high household debt levels, inadequate financial planning, and developers’ eagerness to boost sales.

Inevitably, these factors have resulted in developers falling short of their revenue targets. Generally, prospective homebuyers book a unit, making a down payment worth 5 to 15% of the unit price, payable monthly over 6 to 12 months for a low-rise house or up to three years for a condo unit, depending on the project and developer.

 

However, during the down payment period, if the economy takes a downturn, some mortgage applications are rejected when the property transfer is due. The rejection reasons could be linked to the homebuyers’ details or the financial institutions’ policies. For instance, a poor economy could lead to lower earnings for some buyers, while banks may adopt a more cautious lending approach.

 

Household debt

 

Last year’s five interest rate hikes also contributed to the higher rejection rate by reducing consumer purchasing power. Banks responded by imposing stricter lending rules for both existing and new buyers. For those who had completed their down payment, the high interest rates at the time of the property transfer, compared to when they booked the unit, reduced their borrowing capacity.

 

With higher interest rates, potential homebuyers often have to make a higher down payment or seek a co-borrower to get approved for a mortgage. However, not all potential homebuyers succeed at these options, leading to increased mortgage rejection rates. Some misunderstand the developer’s screening process on the booking date, thinking it guarantees mortgage approval.

 

In the third quarter of 2023, the quality of household debt deteriorated for all types of credit, with NPLs amounting to 152 billion baht (US$ 4.3 billion), or 2.79% of total loans, up from 2.71% in the previous quarter. At the end of 2022, NPLs totalled 140 billion baht (US$ 4 billion), making up 2.62% of total loans.

 

Despite ranking fourth on the list of highest household NPLs in the third quarter of 2023, special mention (SM) auto loans were remarkably high for the quarter at 14.6%, followed by personal loans at 6.66%. SM loans refer to debts unpaid for 30 to 90 days, needing special attention, reported Bangkok Post.

 

In 2023, up to 250,000 cars were repossessed, compared to the average of 180,000 seizures a year. According to the Federation of Thai Industries, sales of pickups remained sluggish in January, dropping over 43% year-on-year as banks remained cautious in determining loan requests. The downturn in the domestic automotive industry was a significant factor affecting January’s Manufacturing Production Index, which decreased by 2.94% year-on-year to 99.2 points.

 

by Alex Morgan

Picture courtesy of Money Expo Facebook

 

Source: The Thaiger 2024-03-14

 

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[observer90210]

Time to make life easier for the retirees and allow foreigners to own at least one plot of land and commute all leasehold to freehold. As they are the the main big spenders. Not to mention making visa and various immigration issues less a pain in the neck for foreigners. If not, watch the economy to go further to it's doom.

[hotchilli]

5 hours ago, webfact said:

The accumulated domestic debt and non-performing loans (NPLs), coupled with stagnant buying power, have continued to suppress domestic consumption since the previous year, with the property and automotive sectors suffering the most significant blow. This is reflected in the high rate of home loan refusals and car repossessions

Economy on the slide... 

[HappyExpat57]

So let's throw gambling into the equation. THAT should fix everything.

[Elkski]

1 hour ago, HappyExpat57 said:

So let's throw gambling into the equation. THAT should fix everything.

Gambling and 2 lottery systems plus multi level marketing scams and that dice game.  High debt. Police near big joke running online gambling busted.  So now they want to make it legal.     

[Cake Monster]

6 hours ago, webfact said:

This is reflected in the high rate of home loan refusals and car repossessions.

What numbers do " high rate " actually entail

I have seen figures that some 50 + % of people applying for Home Loans are rejected in the 3M value and less sector.

This being the largest sector of the Housing Market, there is trouble ahead

Also I seen published that some 250,000 + vehicles were repoed last year and the number is projected to be even worse this year.

And lets not forget, all these projections and numbers re bae on then Date of Financial Year End( End Sept ) last year.

This Trian Wreck has had another 5 full Months to gather speed , so the Debt to GDP could easily be in excess of 92 % of GDP now, and the repos and NPL could be through the roof.

There is also very little or no mention of " Special Mention Loans " - those that are over due by 30 - 90 Days in these reports, and these Loans are also starting to soar

 

 

 

[Banana7]

The Bank of Thailand told the banks to avoid NPLs during COVID by offering non-paying customers alternatives, like stop payments on a loan. BOT didn't want Thailand looking bad financially during COVID and was hoping things would get back to normal after COVID. Of course the banks didn't stop accumulating interest on those loans, and interest started compounding upon interest and principal, resulting in a loan balance greater than the original loaned amount.  Delaying payments helped some, but lots of people didn't understand the consequences of not paying when due and the Bankers' sympathetic offer to not foreclose during COVID.

 

Borrowers now realize the asset is worth less than the loan balance, so they stop paying, which results in a NPL. Then the Bank takes ownership of the collateral, and tries to sell it. Lots of assets, like used motor vehicles are available, so no need to buy new.

 

Edited March 14 by Banana7

[it is what it is]

2 minutes ago, Banana7 said:

The Bank of Thailand told the banks to avoid NPLs during COVID by offering non-paying customers alternatives, like stop payments on a loan. BOT didn't want Thailand looking bad financially during COVID and was hoping things would get back to normal after COVID. Of course the banks didn't stop accumulating interest on those loans, and interest started compounding upon interest and principal, resulting in a loan balance greater than the original loaned amount.  Delaying payments helped some, but lots of people didn't understand the consequences of not paying when due and the Bankers' sympathetic offer to not foreclose during COVID.

 

 

happens the world over, people get into debt and banks, charities and occasionally governments are prepared to offer support and help. but first, people have to help themselves.

[superal]

On 3/14/2024 at 3:59 PM, Banana7 said:

The Bank of Thailand told the banks to avoid NPLs during COVID by offering non-paying customers alternatives, like stop payments on a loan. BOT didn't want Thailand looking bad financially during COVID and was hoping things would get back to normal after COVID. Of course the banks didn't stop accumulating interest on those loans, and interest started compounding upon interest and principal, resulting in a loan balance greater than the original loaned amount.  Delaying payments helped some, but lots of people didn't understand the consequences of not paying when due and the Bankers' sympathetic offer to not foreclose during COVID.

 

Borrowers now realize the asset is worth less than the loan balance, so they stop paying, which results in a NPL. Then the Bank takes ownership of the collateral, and tries to sell it. Lots of assets, like used motor vehicles are available, so no need to buy new.

 

This I have heard but how do you get access to see what reprocessed assets the banks want to sell ?