Speculative buying accounts for 5-10% condo demand

By selling booking contracts to new buyers, they make a 20-25 per cent profit

The property sector is witnessing speculative demand amounting to between 5 and 10 per cent of total market value in popular locations such as Sukhumvit from On Nuj to Bang Na, Rattanathibet Road and Sathorn, according to experts.

"No more than 5 per cent of our customers booking condominiums located close to the mass-transit system are speculating by selling their booking contracts on to new buyers. They can generate gains of 10 to 20 per cent from such sales," said Asian Property Development chief marketing officer Vittakarn Chandavimol.

Most of these speculators manage to find "real" buyers, which means the company can transfer the projects on time and there is no impact on the overall market, he said.

Most market speculators continue to focus on condo projects close to mass transit because that is where there is still strong growth, he said, adding that real demand could however be slowed as some buyers have to purchase booking contracts from the speculators.

"We believe current speculation is not affecting the property market to the extent that a bubble will develop, as in 1997, because most developers and commercial banks have strong criteria for checking customers before approving a mortgage," said Vittakarn.

Speculative buying in condominium projects located close to the mass-transit system since the beginning of last year is still lower than during 2010, said LPN Development managing director Opas Sripayak.

Speculation is focused on units priced up to Bt5 million per unit in areas where demand exceeds supply, notably Ratchadaphisek Road, Sukhumvit Road and Rattanathibet Road.

Speculative buying accounts for about 5 per cent of the company's sales, well below the average 10-per-cent level in 2010, he said.

Thamrong Panyasakulwong, president of the Thai Condominium Association, said that while there was no bubble in the overall condominium market, some locations such as on Sukhumvit and Rattanathibet roads could be said to be in this situation given the extent to which supply has outpaced demand.

"Some locations where land prices have risen more than 100 per cent in the last five years have increased the cost of developing condominiums to the point that condo prices in Bangkok's central business districts are higher than market demand can support," he said.

Banks restrict lending

Meanwhile, commercial banks continue to restrict loan provision for both projects and individual mortgages.

This aims to control speculation in the market, over and above the Bank of Thailand rule allowing a maximum loan-to-value (LTV) ratio of 90 per cent for condominiums.

Banks'current LTV ratio is 95 per cent for low-rise residences such as detached housing, townhouses, twin houses and shop houses.

Vittakarn said that since banks had been restricting mortgage lending in this way, about 10 per cent of Asian Property's customers had been unable to receive financing through the banking sector.

Pruksa Real Estate chief business officer Prasert Taedullayasatit said the company's customers had a mortgage-application rejection rate of between 10 and 15 per cent due to the measure to screen potential buyers before they go ahead and purchase a home.

The Bank of Thailand recently reported that household debt had risen to 73 per cent of gross domestic product, from 50 per cent last year. The debt level could increase to nearly 80 per cent of GDP over the next two years, with mortgages contributing significantly to the average household's debt burden.

Meanwhile, Chatchai Payuhanaveechai, executive vice president of Kasikornbank, one of the leading mortgage providers, said the bank restricted lending to individual customers by checking their purchasing power and ability to repay a loan before granting approval.

As a result, the bank has a mortgage-application rejection rate of between 10 and 15 per cent.

KBank also restricts the provision of project loans to property firms that do not possess long experience in developing residential projects, he said.

It does this through a condition that in order to receive a loan to develop a condominium, a company must first show presales of between 30 and 50 per cent.

"This is a way to control the market when there is any sign of speculation or a bubble developing," he added.