Question About Property Lending In Thailand

[cheekymonkey]

Hi everyone,

Quick but important query if you don't mind. Informed answers much appreciated.

I may have a potential buyer for my condo in Saphan Kwai (priced at 1.65m baht) - an ordinary Thai girl with an ordinary salary of about 30k - but she cannot afford to buy the condo as the bank will only lend her a maximum of 1m baht, which means that she will have to find around 650,000 baht by herself! Please note that I have confirmed with the condo's management office that my condo is indeed worth 1.65m at current market prices and so I am confident that I am not overpricing the property.

Having spoken to the bank, I was told that there was no way that the bank could lend more to a potential buyer than it did to me when I bought the condo in the first place. Because of the arrangement between the bank and the construction company, I was allowed a) to borrow 95% of the value and the value (around 1.1m baht) was equal to the sales price. But for subsequent buyers, the bank will only a) lend around 80% and it will be based on a valuation well below the market price. The combination of these two factors is obviously severely inhibiting for potential Thai buyers.

Could somebody out there please clear up my confusion. I am fairly certain that I have misunderstood something or "missed a trick" as I cannot believe that the bank's response represents all Thai lenders. Somebody help a confused guy who just wants to sell his condo...please... Any tips also welcome. Thanks in advance.

[Heng]

There isn't a set rule book to lending, but what the bank has told you is pretty standard. Properties that are sold by the developer, as well as properties that are held by the bank as foreclosed.... both of these types of properties will have preferential and slightly more "relaxed" loan criteria for the simple reason that the bank wants to promote the sale of these properties.

Person to person and resale transactions are more likely to be scrutinized by the bank. Also, the valuation that is used is often NOT the market price or whatever you paid for it.... but rather the land department valuation, which doesn't have anyone's profit margin added on.

[trajan]

in my case it wasnt government valuation...which was unrealistically low....the bank required the appraisal company they chose to value the condo....then they took 70% (80% for Thais) of that appraised value as the lending amount....that appraised valuation was close to the actual purchase price....so it worked out well....

Heng, did you get a mortage based on a percentage of government valuation?? that is way too low compared to actual purchase prices, so you probably came up with 50%-60% cash?

Edited November 15, 2006 by trajan

[Heng]

No, actually I completely forgot about independent valuations that banks often use. You are correct and I am wrong.

Have never taken out a loan/mortgage on anything; I was going on how we (pawnshops) give out loans -keeping the government valuation in mind-, usually with folks that banks won't lend to. Yes, I agree the land dept. valuation is generally on the low side, but it's one way we keep the risk in check. That said, depending on the area, the government is not always way off. We have properties in Bangkok that are valued at around say half of the market price, while in Chonburi many are at around 75% of the market price. It all depends.

[cheekymonkey]

Thank you to both of you for your replies.

Couple of small additions. The condo is actually in my wife's name - that's how we got the high percentage loan initially.

As for the issue about the land department and independent valuations, I think you may both be correct. I'm not sure but I think that the land department makes an initial valuation to use as a base for calculating the fees for transfer of land. They do this in terms of price per sqm.

Banks can and do use companies to make independent valuations but they won't go above the money amount of the original loan (based on the land department's valuation). So, although the independent valuation companies do value properties closer to the market price, the percentage lent reduces to stay below the original money amount lent to the first purchaser.

I'm not sure of the above at all - it's just what I've managed to gather from my wife, who is not 100% sure either.

Anyway, with any luck, my buyer will have enough money for the deposit, which is around 40%!!! She's going to borrow from her parents. Imagine if you tried to buy a house back home (say London) with a requirement to pay at least 40% deposit. It's difficult enough as it is with crazy house prices! Anyway, thanks again.

[astral]

You do not say when you bought originally?

Perhaps the bank does not realise that prices rise with time....

[backflip]

Another perspective is that the lending bank is not using a market valuation of the property, rather, the anticipated ability of someone with a salary of 30K servicing a million THB mortgage.

[trajan]

No, actually I completely forgot about independent valuations that banks often use. You are correct and I am wrong.

Have never taken out a loan/mortgage on anything; I was going on how we (pawnshops) give out loans -keeping the government valuation in mind-, usually with folks that banks won't lend to. Yes, I agree the land dept. valuation is generally on the low side, but it's one way we keep the risk in check. That said, depending on the area, the government is not always way off. We have properties in Bangkok that are valued at around say half of the market price, while in Chonburi many are at around 75% of the market price. It all depends.

thanks Heng, you are right, in outer areas, some government valuations are much closer to the market prices, but in the built-up core areas of Bangkok, the government valuations are sometimes just a fraction of market value.... in my case I am in the dead center of CBD so the government valuation was VERY low compared to market values....the appraisal firm got the market value almost spot on (but a bit lower on the conservative side)...

[trajan]

So, although the independent valuation companies do value properties closer to the market price, the percentage lent reduces to stay below the original money amount lent to the first purchaser.

sorry but I dont understand this statement... my lender did not care what the prior loan amount was to the first purchaser....they just focused on the appraised value and then lent a percentage of that...I confirmed this with the bank officer who visited my office several times...

Anyway, with any luck, my buyer will have enough money for the deposit, which is around 40%!!! She's going to borrow from her parents. Imagine if you tried to buy a house back home (say London) with a requirement to pay at least 40% deposit. It's difficult enough as it is with crazy house prices! Anyway, thanks again.

a 40% cash payment is pretty high, but in London, I dont think you would find too many Baht 1.65 M condos would you? that cash downpayment amount would be about the average charge limit on a Platinum Visa card here....

[trajan]

Another perspective is that the lending bank is not using a market valuation of the property, rather, the anticipated ability of someone with a salary of 30K servicing a million THB mortgage.

yes, the assumption is that the income of the person is sufficient to service the loan...if not there is no need to appraise the value of the property...

however, please note that Thai nationals get MUCH longer term loans so the monthly payments are significantly smaller (my maximum term offered to me was 10 years)

[cheekymonkey]

So, although the independent valuation companies do value properties closer to the market price, the percentage lent reduces to stay below the original money amount lent to the first purchaser.

sorry but I dont understand this statement... my lender did not care what the prior loan amount was to the first purchaser....they just focused on the appraised value and then lent a percentage of that...I confirmed this with the bank officer who visited my office several times...

Maybe you're right and I interpreted her meaning incorrectly.

Anyway, with any luck, my buyer will have enough money for the deposit, which is around 40%!!! She's going to borrow from her parents. Imagine if you tried to buy a house back home (say London) with a requirement to pay at least 40% deposit. It's difficult enough as it is with crazy house prices! Anyway, thanks again.

a 40% cash payment is pretty high, but in London, I dont think you would find too many Baht 1.65 M condos would you? that cash downpayment amount would be about the average charge limit on a Platinum Visa card here....

My point here was that property lending is done slightly differently to back home or rather, in a more risk averse manner. Not sure if this is due to 90s property bubble. Have the banks and government changed the valuation rules from say, 20 years ago? Would be interesting to know.

Anyway, my point was that 40% deposit being required for a 1 year old condo is very high, regardless of the money amount - it makes no sense to translate 1.65m baht into pounds - the huge difference between market price and appraised valuation means a relatively cheap condo is almost impossible to purchase for an ordinary Thai.

Btw, in answer to the point made about the buyer's ability to service the debt, I can assure everyone that this girl qualifies and can afford to repay twice the amount (2m)! I know this because she has no debt and has a salary equivalent to my wife's last year. The mortgage is not the issue, the issue is how property is valued in Thailand. As I say, I suspect it's something to do with the massive property speculation of the 90s. Can anybody confirm?

Finally, I'll find out how much the bank does lend her in about 2 weeks. Fingers crossed...

[trajan]

the issue is how property is valued in Thailand. As I say, I suspect it's something to do with the massive property speculation of the 90s. Can anybody confirm?

Finally, I'll find out how much the bank does lend her in about 2 weeks. Fingers crossed...

in my own personal experience, the property was valued by the appraisal firm chosen by the bank based on the "Market Approach" to determine "the fair market value of the property."

Im just quoting from the appraisal report on my condo...

"Under the market approach, the value of the appraised property is based on recent sales and listings of comparable property." "Adjustments are made for differences between the subject property and those of actual sales and listings regarded as comparable."

They collected a sampling of comparable condos in the vincinity and other comparable areas (sales offerings and completed sales). They also collected all kinds of other data (locations, amenities, nearby facilities, building materials, finishings, etc.) and even appended a list of official assessed valuations for units in the entire building plus units in other buildings in the area. Those official assessed valuations varied on a per square meter basis depending on floor level, balcony space, basement areas, car parking spaces, etc. However, they were all invariably way below "fair market valuations" based on the "market approach."

The report is a rather substantial booklet of materials topped of with color photos or the interior and exterior and also the neighborhood, etc.

and their final "fair market value" almost matched the separately negotiated actual sales price.