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Banks more focused on ability of home-buyers to repay

The high level of household debt has negatively affected many home-buyers that put down a deposit last year and hoped to have their property transferred to them this year, as commercial banks are examining loan applications more closely before approving a mortgage.

Meanwhile, small and medium-sized developers face liquidity problems due to the banks only approving condominium project financing up to 50 per cent of a project's value, said Thamrong Panyasakulwong, president of the Thai Condominium Association.

The banks also insist that this size of condominium developer must book at least 60 per cent of a project's value before receiving financing, he said.

Given these restrictions, most smaller operators have had to delay the launch of new condominium projects, and are also delaying their construction.

Some have even had to suspend their projects altogether and return down payments to customers, he added.

"Twenty-three per cent of our customers have been unable to get a mortgage from the banks since the beginning of the last quarter, as their financial statements show a high debt level and lower income, causing the banks to reject their applications," said Pruksa Real Estate president and CEO Thongma Vijitpongpun.

The company has, however, tried to help customers in this situation find ways to present their financial statements in a more favourable light, and it also encourages them to find a family member to jointly apply for a housing loan with them, he said.

"Most of our customers who booked units in our projects in 2012, also got a preapproved loan from the bank, which they paid down every month. But [many of them] then decided to buy a new car in the final month of 2012, which increased their debt. This reduced their purchasing power to take on new debt when applying for a mortgage this year, now that their condominium is finished and is ready to be transferred to them," said LPN Development managing director Opas Sripayak.

"As a result, we have to find a way to help them to get a loan, by negotiating with the banks as well as suggesting our customers contract with their family members to jointly apply for a mortgage," he added.

Opas said this strategy had enabled many of its customers to secure a mortgage. However, some 10 per cent of its customers - those with particularly high household debt - have still been unable to get a housing loan since the start of October.

Normally, a commercial bank will provide a mortgage if an applicant is able to repay an average of 30 per cent of their monthly income during the instalment period.

For example, for someone buying a condominium costing Bt1 million, they have to pay a monthly instalment of Bt7,500, which means they must have monthly income of at least Bt25,000 in order to qualify.

However, if a person already had to pay monthly instalments of Bt8,000 for a car, the bank would cut their qualifying monthly income from Bt25,000 to Bt17,000, which means it would be prepared to offer a mortgage of just Bt700,000 - matching their purchasing power to pay Bt5,100 per month, calculated as 30 per cent of Bt17,000.

This is primarily why purchasing power in relation to getting a mortgage has fallen during a time of rising household debt, said the MD.

Meanwhile, Chatchai Payuhanaveechai, executive vice president of Kasikornbank, acknowledged that the bank was restricting project financing among inexperienced small and medium-sized developers, out of concern about people's purchasing power at a time when household debt is rising.

The bank is also minimising its risk by limiting the provision of mortgages to those customers who can prove they have sufficient earnings to keep up their repayments over the long term, he said.


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