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Published on December 1, 2007

The Government Housing Bank (GHB), the country's largest mortgage lender, will apply Germany's home-financing model: saving first before receiving a loan, president Khan Prachuabmoh said yesterday.

"The GHB may launch products similar to Germany's Bauspar finance system in the second half of next year," Khan said on the sidelines of a seminar entitled "The Bauspar Finance System".

Andreas Zehnder, managing director of the European Federation of Building Societies, said emerging markets and developing countries needed this kind of home-financing system. He said it was better than the US mortgage system, which was the cause of the current sub-prime crisis.

He explained that the Bauspar finance system helped upper-low and middle income groups to own homes, so it could be applied to developing or emerging economies. Someone wanting to buy a home usually starts to save after finishing school and obtaining a first job by buying a savings contract from a bank or loan provider.

The savings period is five years, and depositors earn interest of about 3 per cent annually. When the savings-contract requirements are met, a housing loan is granted. The repayment period is about seven years at fixed interest of 5 per cent.

In a typical contract, home-buyers save up to 40 per cent of the loans, and the bank provides 60 per cent. The scheme enables banks to provide a fixed interest rate for seven years, and home-buyers can predict their financial obligations.

"There are no surprises," Zehnder said.

Loan defaults under this system are very low, currently 0.04 per cent of outstanding loans.

The government may subsidise the housing loans by providing a bonus for savers. Low-income savers receive a ¤45 (Bt2,200) annual bonus from the government if they engage in this kind of saving.

Zehnder said some European governments provided more subsidies, in order to encourage home-buyers to save.

"In the case of Thailand, the government may provide a higher amount of subsidy for savers who plan to buy homes," he said.

Home-buyers in Germany usually obtain loans at age 35, but they start saving to buy a home at an early age, or their parents buy a contract for them when they are young.

Khan said a typical home-buyer in Thailand wanted to receive a mortgage immediately.

"So if we apply the Bauspar model, it may be as popular as in Germany," said Khan.

He added that the model would be worth to try, because it encouraged financial discipline among people.

Export-Import Bank of Thailand vice president Sirichai Sakornratanakul threw his support behind Khan. He said household savings in Thailand now amounted to about 3 per cent of gross domestic product, which was very low. Therefore, the new scheme should encourage more savings among households.

He also said Thailand should adopt a variety of house finance systems. For example, the Baan Mankong project for the poor has been proved successful, requiring both savings from the community and government financial assistance.

Chodechai Suwanaporn, director of the Finance Ministry's Financial System Policy Division, said Thailand might need to conduct more research before implementing the Bauspar finance scheme. He said a legal framework should be created first, the better to facilitate the system.

Zehnder said the Bauspar finance system had been successfully implemented in both Western and Eastern Europe. China and India have also recently introduced it.

Wichit Chaitrong

 The Nation