Rise In Mortgages Poses Threat, Says Kasikorn Research

[webfact]

HOUSING
Rise in mortgages poses threat, says KResearch
Sucheera Pinijparakarn

BANGKOK: -- Even though there are no signs of bubbles yet, the rise in outstanding mortgages to individuals as a proportion of the country's gross domestic product (GDP) is likely a high risk to the country when the cycle of interest rate starts to rise, Kasikorn Research Centre has warned.

The research managing director, Charl Kengchon, said that outstanding mortgages to individuals as a proportion of GDP in 2012 was 20 per cent compared to 16.8 per cent during the 1997 crisis.

The increase in mortgage lending in the past few years was supported by the government's schemes, the mass transit and the lower interest rate unlike the situation in 1997, which was driven by the financial market. Outstanding loans for residences and services investment in real estate to GDP were 4 per cent lower than the 10.4 per cent in 1997 because developers had reduced sourcing of funds from banks.

He said consumer debt should be closely followed because the outstanding mortgages to individuals will be further increasing as many projects in the pipeline are to be transferred.

KResearch estimates that the proportion of mortgages to individuals to GDP will rise to 22 per cent in the next two years, the overall household debt to GDP could move up to 30 per cent from 24 per cent.

The household debt to GDP in the next two years will hit a record high in the country.

The situation is not serious, he said, but the country must be cautious about the ability of consumers to repay debt when the interest rate trend becomes high again in line with the global economy, he said.

"When employment in the US resumes, the Fed will end the QE [quantitative easing] and capital fund flows will return to the US again, meaning the cycle of interest rate will rise again and influence the higher financial burden of consumers, especially mortgagess," he said.

The picture of high liquidity will be changed from the role adjustment of the Fed, while infrastructure projects worth Bt2.2 trillion, which require huge lending, will curb liquidity. The factors will impact increase in interest rate, he said.

Non-performing mortgage loans were unlikely until the interest rate is increased, which would make some borrowers unable to bear the burden of the debt, he said.

The monetary policy currently reflects the worry of the Bank of Thailand, said the economist, adding that the central bank does not want to cut the rate despite the strong baht because if the rate is lowered, it will accelerate mortgage lending.

The rate reduction might not cool down funds flows much as speculators can gain profit from the upside of the currency because of the quantitative easing from the Bank of Japan and the US Federal Reserve.

The Bank of Japan is injecting US$100 billion (Bt3 trillion) per month and there is quantitative easing of $85 billion per month by the Fed.

The research house has suggested that Thai companies should focus more on investing in CLMV (Cambodia, Laos, Myanmar and Vietnam) to help sustain the baht and maintain second rank in trading volumes with CLMV.

Thailand has a production base at home, especially agricultural base, which are unable to benefit from the strong baht unlike Japan or South Korea, which are also under pressure due to their strong currencies, as both have production bases outside the countries.

CLMV has a crucial role to lure investment and the trade activities hence Thailand should speed up investment in the region because several countries, especially Japan, are expanding activities there.


-- The Nation 2013-03-22

[waza]

Hmmm I dont think a rise in interest rates is the only threat that will cause morgagee stress. Imagine a senario, and I know its pretty far fetched, when the Thai government makes some poor economic decisions. Like if they decided to spend 30% of GDP on rice and stored it at the cost of 4% of GDP per year, then combined that with a flood mitigation sceme that cost another 30% and then borrowed another Bt2 trillion for something. This would lead to inflation, inflation has the effect of decreasing a consumers spending power so thay have to pay more to buy the same amount. This can produce the situation where a morgagee must decide whether to pay all their morgage or eat, termed financial stress. Its more insidious than just raising interest rates but can have the same effect.

The inflation rate in Thailand was recorded at 3.23 percent in February of 2013. Inflation Rate in Thailand is reported by the the Ministry of Commerce. historically, from 1977 until 2013, Thailand Inflation Rate averaged 4.66 Percent reaching an all time high of 24.56 Percent in June of 1980 and a record low of -4.38 Percent in July of 2009. In Thailand, the most important categories in the consumer price index are Food (33 percent of total weight), Transportation and communication (27 percent of total weight) and Housing and furnishing (23.5 percent of total weight). http://www.tradingeconomics.com/thailand/inflation-cpi

Edited March 22, 2013 by waza

[cloudhopper]

Regardless of interest or inflation rates, inability to repay the loans due to lack of sufficient income will be the biggest threat to the Ponzi fractional reserve banking system as the global economy cools.

[tragickingdom]

As long as the property is significantly more worth than the mortgage the percentage in comparison with the GDP would not matter. Even when buyers would be "underwater" it would not matter as long as those people where young people at the start of their career. Luckily there is no Wallstreet in thailand and are the rating agencies American, so the chances that any collusion takes place to cheat the world are not problematic.

In the meantime the US is inflating a the mother of all bubbles with their free money for banks and as they refuse to restructure their deficit and debt, so enjoy as long as it last.

[belg]

well, tip for the next election promises : free mortgage for everybody for car, house, motosay ... or no more debts, everybody rich (again)

credit cards for farmers or labour with low income

in the meanwhile ... farangs with a good balance on their account, cannot get even a basic CREDIT CARD without workpermit ....

give us the right to buy land and a house and i might build one here (bigger than the one on my wife's name)

[Locationthailand]

Hmmm I dont think a rise in interest rates is the only threat that will cause morgagee stress. Imagine a senario, and I know its pretty far fetched, when the Thai government makes some poor economic decisions. Like if they decided to spend 30% of GDP on rice and stored it at the cost of 4% of GDP per year, then combined that with a flood mitigation sceme that cost another 30% and then borrowed another Bt2 trillion for something. This would lead to inflation, inflation has the effect of decreasing a consumers spending power so thay have to pay more to buy the same amount. This can produce the situation where a morgagee must decide whether to pay all their morgage or eat, termed financial stress. Its more insidious than just raising interest rates but can have the same effect.

The inflation rate in Thailand was recorded at 3.23 percent in February of 2013. Inflation Rate in Thailand is reported by the the Ministry of Commerce. historically, from 1977 until 2013, Thailand Inflation Rate averaged 4.66 Percent reaching an all time high of 24.56 Percent in June of 1980 and a record low of -4.38 Percent in July of 2009. In Thailand, the most important categories in the consumer price index are Food (33 percent of total weight), Transportation and communication (27 percent of total weight) and Housing and furnishing (23.5 percent of total weight). http://www.tradingeconomics.com/thailand/inflation-cpi

Wazza! I'm impressed buddy ...

[IsaanUSA]

well, tip for the next election promises : free mortgage for everybody for car, house, motosay ... or no more debts, everybody rich (again)

credit cards for farmers or labour with low income

in the meanwhile ... farangs with a good balance on their account, cannot get even a basic CREDIT CARD without workpermit ....

give us the right to buy land and a house and i might build one here (bigger than the one on my wife's name)

Why would a tourist or retired person that has shown proof of income need a Thai credit card? You can walk down to the bank and get a Thai debit card, no problem. Or you can just apply for credit cards in your home country.

Edited March 22, 2013 by IsaanUSA

[billd766]

well, tip for the next election promises : free mortgage for everybody for car, house, motosay ... or no more debts, everybody rich (again)

credit cards for farmers or labour with low income

in the meanwhile ... farangs with a good balance on their account, cannot get even a basic CREDIT CARD without workpermit ....

give us the right to buy land and a house and i might build one here (bigger than the one on my wife's name)

Why would a tourist or retired person that has shown proof of income need a Thai credit card? You can walk down to the bank and get a Thai debit card, no problem. Or you can just apply for credit cards in your home country.

I got rid of all my credit cards from the UK long ago but to apply for a credit card from the UK you need to have a permanent address in the UK.

I left the UK in 1999 and I will only go back on a holiday visit if that. Even when I die I will still stay in Thailand.