Concerned about lower purchasing power as household debt rises; funding restrictions hit new developers
Commercial banks are restricting the provision of both project financing and mortgage lending, as they guard against business risk in the residential property sector at a time when the country’s economy is expected to expand by less than 3 per cent this year.
Newcomers in the residential sector will find it particularly hard to raise funds from the banks to support their project construction, a survey by The Nation found early this week.
“We have been rejecting between 20 per cent and 35 per cent of new mortgage applications since early this year, as more customers have substandard credit scores,” Kasikornbank executive vice president Chatchai Payuhanaveechai told the newspaper in an interview.
Customers having their loan applications turned down have average earnings of Bt30,000 per month per family, he said.
They have built up such a debt burden from personal loans and/or credit cards – many of them also via hire-purchase lending in connection with the first-car scheme – that they do not have sufficient purchasing power to get a mortgage, he explained.
The executive added that the bank had also reduced its loan-to-value ratio, from the previous 90-95 per cent of total asset value to between 75 per cent and 80 per cent currently, for borrowers wishing to buy a third property.
This is a key part of the bank’s efforts to reduce its business risk at a time when its non-performing loans (NPLs) have increased from 1.6 per cent of outstanding lending at the end of last year to 1.7 per cent at present. Overall NPLs in the commercial banking sector have also risen in the period, from 2.3 per cent to the current level of 2.4 per cent, he added.
Meanwhile, Kasikornbank is also restricting the approval of project financing, especially for new condominiums, which now have to show presales of between 35 per cent and 50 per cent before funding approval can be given.
Financing is only available, subject to this condition, to existing customers who have a financial history with the bank, he said, adding, “We will not provide project loans to new property developers at this time.”
Jiraporn Linmaneechote, research analyst at Phatra Securities, said home-sales growth was determined by economic growth, and 2014 was a “year of uncertainty for real-estate business”.
In 2012, when gross domestic product was able to grow by 6 per cent, presales for low-rise housing and condominiums combined jumped by 31 per cent. Last year, the economy grew by only 2.9 per cent, and presales growth was 8 per cent.
Taking the economic-growth prediction of 2.8 per cent for this year, she expects presales growth to be lower than last year’s level, as well.
Apart from the political uncertainty that has hampered consumer confidence, another factor that has pulled down sales is stabilisation of the condo market after two or three years of high growth.
“Since the fourth quarter of 2013, the cancellation rate for condominium purchases has increased considerably, and this trend will continue until the end of 2014,” said the analyst.
Another factor is high household debt, with commercial banks being more careful about approving mortgages.
Jiraporn said that since banks were now more wary of NPLs, real-estate operators should also beware of their customers’ purchasing power and increase down payments to counter the problem.
Sarawut Charuchinda, managing director of corporate lending at Kiatnakin Bank, said the institution had lowered its loan-growth target from 20 per cent to 10 per cent because of the prolonged political gridlock.
He added that Kiatnakin would concentrate on existing customers, and new loans would be concentrated on mechanical businesses and construction, because they could see long-term potential.
Fewer new projects
The number of new residential projects launched in Bangkok and its suburbs this year could fall by between 25 per cent and 35 per cent from last year’s level, with developers deciding to delay many of their new projects, according to property experts and research houses.
The number of new homes transferred to customers in greater Bangkok, meanwhile, is forecast to decline by between 2.5 per cent and 9.4 per cent from the 2013 level, when 143,543 units were delivered.
The forecasts reflect the country’s slowing economy, which is expected by many observers to expand by less than 3 per cent this year, and the fact that the political turmoil has now spilt over into the second quarter.
KasikornResearch expects the residential market in greater Bangkok to see 75,500- 85,500 new units launched this year, some 35 per cent to 42.6 per cent lower than last year’s 131,550 homes.
Its research also found signs that residential transfers from developers to customers would drop by between 2.5 per cent and 9.4 per cent, at 130,000-140,000 units compared with 143,543 units last year. Bangkok Bank’s research house, meanwhile, forecasts that new registrations and transfers this year will fall by between 2 per cent and 5.8 per cent, due to lower purchasing power.
Real Estate Information Centre director-general Samma Kitsin said that in the first quarter, new residential projects launched in Bangkok and its suburbs had declined 15 per cent compared with the same period last year.
This is because property companies delayed launching many of their new projects from the beginning of December through much or all of the first quarter, as they could see no early end to the country’s political problems.
However, Government Housing Bank, which holds about 29 per cent of the mortgage market in terms of annual value, has continued to lend. It recorded year-on-year growth of 7 per cent to Bt29 billion in the first quarter of this year from Bt27 billion in the same period of 2013, the bank’s president Angkana Pilanovat Chaimanus said.
GH Bank’s senior executive vice president for credit business, Chatchai Sirilai, added: “Our rejection rate is only 6 per cent, which is lower than the market [average], because most of our customers bought a first home costing no more than Bt3 billion. They also have the [financial] quality to meet our standards.”