One Square Metre Could Cost Thb 3mio

[fletchsmile]

We're buying a condo for just under THB 10mio.

Under Bank of Thailand regulations, banks here can lend up to 100% of the loan to value (LTV) of property up to THB 10mio. However if the value of the property is over THB 10mio then LTV is limited to 70%.

So someone borrowing THB 9,999,999 could borrow it in full (subject to the banks internal policy);

But someone borrowing THB 10,000,001 could borrow only THB 7mio.

It is not tiered either so that first 10mio could be 100% and 70% on the excess as you might expect. So That is an extra THB 3mio in cashflow to be found for the second case. I appreciate it is not a cost as such, but it is a significant difference in payment schedules/ cashflows.

Obviously the answer is to negotiate a price under THB 10mio if it's bordeline. That's what we did. But yesterday our developer came back and said that now the condo has been finished it is about 1m2 larger. Most contracts in Thailand say that if the actual dimensions are larger or smaller, you pay more or less on a prorata basis for the extra m2. Unfortunately this extra 1m2 costs about THB 80k, so now takes us over THB 10mio, which will affect the amount we can borrow.

Our numbers are slightly different, in that we have made a deposit, then a downpayment, of 10% so it's more like 2mio extra, but still a hefty cashflow difference. i.e on signing it was just under, and on completion just over. I do have the cash to bring into the country if necessary. So we wouldn't be homeless. But there's a big difference in puttng 1mio down or 3mio down, and bringing 2mio into Thailand at the moment.

In the UK there's usually a clause that up to x m2 or x% difference there is no change in price. i.e a materiality clause that price is only revised above a certain amount. It also seems open to abuse here in Thailand, in that it would be difficult or costly to measure the diff yourself, unless an expert. That said I believe they are acting in good faith, and in our case it just seemsto be a quirk of the system

Anyone have any experience or solutions to this?

Edited September 22, 2007 by fletchthai68

[quiksilva]

Explain the situation in full to the developer, they should be keen to help. Be sure to speak to the most senior person you can reach. At the end of the day it is in their interests for you to complete this transaction too.

Perhaps you could arrange for an agreement on the side for this extra 80K?

[teejay]

Just talk to the developer, you should be able to sort it out if you explain the situation. I personally did not know of the lending limit.

Another solution is considering the side deal as described by quicksilva above. Consider it as two separate transactions, one being 9,999,999THB and the other being the remaining. That should fly.

Quicksilva, did you find your bumpers?

[jumnien]

100% loan, are you sure you don't want to wait a few years and save up for a down payment?

[fletchsmile]

100% loan, are you sure you don't want to wait a few years and save up for a down payment?

As mentioned already put down 10%. In the current climate I'd prefer downpayment to be as low as possible..

[fletchsmile]

Explain the situation in full to the developer, they should be keen to help. Be sure to speak to the most senior person you can reach. At the end of the day it is in their interests for you to complete this transaction too. Perhaps you could arrange for an agreement on the side for this extra 80K?

Just talk to the developer, you should be able to sort it out if you explain the situation. I personally did not know of the lending limit.

Another solution is considering the side deal as described by quicksilva above. Consider it as two separate transactions, one being 9,999,999THB and the other being the remaining. That should fly.

Quicksilva, did you find your bumpers?

Yes the 70% LTV rule above 10mio came in a few years back. I was aware of it, but didn't foresee the likelihood of condo being increased in size. Hence we negotiated actual price just under 10mio. Previously after discount had been 10,003,050 but we got them to go a little further.

Not sure the 2 contracts approach would be legit. However, if we paid separately for something like fitted kitchen/wardobes/bathrooms etc, that may be OK and presumably legit. We'd need to get the contract redone tho'

A couple of other thoughts were:

1) I read elsewhere there are two definitions of the value when regsitered. One being what you actually pay and secondly a land registry value that is often lower. Not sure which would/could be used for mortgage

2) Offering to pay all the transfer tax instead of 50/50. Unfortunately though, I found out the difference it's close to 2m2 more so about 150k more, whereas I think tax is 2%. We're already paying half so paying all would be extra 100k only

Edited September 23, 2007 by fletchthai68

[torrenova]

I think the mortgage amount will be the registered figure, not what you are paying for it. So if they say it is worth only 9m, then that is what they will lend if 100%.

Out of interest, what rate are you paying at 100% and with whom ?

[fletchsmile]

I think the mortgage amount will be the registered figure, not what you are paying for it. So if they say it is worth only 9m, then that is what they will lend if 100%.

Out of interest, what rate are you paying at 100% and with whom ?

I did wonder whether there might be a difference being "value" and what we actually pay. Would be interested to know if anyone has any experience of this?

As mentioned we didn't get a 100% mortgage. We wanted around 10-15% down, but would prefer not to put 30% down. I just highlighted that according to BoT regulations you can get up to 100%. In practice it's difficult to get that, though, as many banks impose their own internal credit restrictions. i.e Even tho' legally banks can do up to 100%, they often only lend say 90%, as more sound lending policy.

Interest rate is 4.79% fixed for 3 years, then variable after that for a further 7 years, i.e total 10 years. With Standard Chartered Bank (Thai) plc. Mortgage is in Thai wife's name. Could have done up to 30 years I think, but didn't want. Could also have reduced first year to 4.54% by buying term insurance, but we already have so didn't want.

Edited September 24, 2007 by fletchthai68

[backflip]

"Value" is what you pay. I might view the same property as having more or less value than you.

[fletchsmile]

"Value" is what you pay. I might view the same property as having more or less value than you.

That's correct at one level and in some circumstances. In others though, value is not always what you pay. Plenty of examples:

- bid-offer spreads vs mid-market values

- liquidity premiums

- different calculation models where there are no liquid prices

- market value, arm's length value, historic value, replacement cost value

- purchase at discount

etc etc

Put another way, between 2 parties it's reasonable to make your statement. But, when there are more parties in the picture it's less simple. eg I buy land from you at X. For you that = value. When we go and register at the land office (a third party) they may give a 3rd value. They are all values. Don't necessarily need to be views either. They could be simple stipulated formula that bear little in common with reality.

[FarangNoi21]

I think the mortgage amount will be the registered figure, not what you are paying for it. So if they say it is worth only 9m, then that is what they will lend if 100%.

Out of interest, what rate are you paying at 100% and with whom ?

I did wonder whether there might be a difference being "value" and what we actually pay. Would be interested to know if anyone has any experience of this?

As mentioned we didn't get a 100% mortgage. We wanted around 10-15% down, but would prefer not to put 30% down. I just highlighted that according to BoT regulations you can get up to 100%. In practice it's difficult to get that, though, as many banks impose their own internal credit restrictions. i.e Even tho' legally banks can do up to 100%, they often only lend say 90%, as more sound lending policy.

Interest rate is 4.79% fixed for 3 years, then variable after that for a further 7 years, i.e total 10 years. With Standard Chartered Bank (Thai) plc. Mortgage is in Thai wife's name. Could have done up to 30 years I think, but didn't want. Could also have reduced first year to 4.54% by buying term insurance, but we already have so didn't want.

Hmmm, everything i saw posted previously in thaivisa had mortgage rates in the 7-8% range, not <5% which is really quite low.

[fletchsmile]

Hmmm, everything i saw posted previously in thaivisa had mortgage rates in the 7-8% range, not <5% which is really quite low.

Spot On! I can confirm ours is 4.79% fixed for 3 years, before it reverts. Yes it's a low/good rate in my view.

Feel free to check it out. I'm happy to explain a little, seeing as I'm looking for info myself.

Thai banks base their mortgage rates on MLR as a reference point. eg BKK Bank and Siam Commercial have an MLR of around 7.5%-ish I think at the moment. However, they will often offer discounted rates for set periods. eg 3 years at x% or 4 years at MLR-x%. These discounts are to attract customers. After the set period it reverts to based on MLR, maybe even MLR+. This is common in UK too. You can sometimes even get 0% mortages. Of course the 0% may last only 12 months, then you move to the normal rates.

BTW 7-8% posted in TV could also refer to the offshore rates for UOB and BKK Bank Singapore, which are available to foreigners. As more people on TV are foreigners, there's usually less discussion of Thai rates for Thai people. Hence why few people seem to have experience of our LTV issue on Thai Visa.

Hopefully now when people like Sunrise ask questions like "why don't you wait and save up", they can see one of the many reasons why a low deposit might be favourable over 30% deposit. A few more would be: political, economic, country risks, possible legal/visa changes, liquidity, THB/FCY rates, opportunity costs of money from elsewhere, returns available on other assets vs THB 4.79% funding, earned income streams vs investment streams, tax, cashflow, personal comfort levels.....

Still brings us back to the basic question of originally arranging a low deposit funding. But because of a quirk in the system we may be looking at 30% deposit.

Any answers, ideas welcome...

Edited September 24, 2007 by fletchthai68