THE BANK of Thailand’s (BOT) tightening policies that make it harder for many home-seekers to gain mortgages will force property companies to shift their business focus from catering to middle-income earners to those in the upper brackets, developers say.
The central bank is seeking to rein in the mortgage market by reducing the debt-service ratio and loan-to-value criteria for prospective borrowers. The moves will hurt sales for homes priced below Bt3 million, the developers say.
“Although the BOT says it will hold a public hearing for this measure on October 11, it has an agenda to restrict the commercial banks in their provision of loans for the residential sector,” a source from a property company said.
“This will directly impact the industry, especially the middle to lower-income market, which offer homes priced lower than Bt3 million per unit.”
Under the current rules, the commercial banks have a debt-service ratio of between 33 per cent and 50 per cent, which means homebuyers pay their monthly instalments at an average of between 33 per cent and 50 per cent of their monthly salary.
The banks have also imposed loan-to-value ratios of about 90 to 95 per cent, requiring homebuyers to make down-payments of about five to 10 per cent.
Now, people with an average monthly salary of Bt27,000 are limited to buying homes priced at up to Bt1.5 million per unit.
If the BOT proceeds with the tightened rules, the new conditions will take effect in 2019. Under the new regime, homebuyers would need a monthly salary of more than Bt40,000 to buy a Bt1.5 million property, the source from the property firm said.
“Following this model, this would force property firms to change their business strategy and focus on the middle to upper-income market, rather than the middle to lower-income market,” he said. “We concede that this policy will impact the property market next year when the new rule becomes effective.”
At present, up to 30 per cent of the demand for residential units aimed at the lower-middle to lower-income market are priced between Bt1.5 million and Bt3 million. Properties of at least Bt5 million, pitched at the upper-middle and upper- income market, account for the rest of the demand.
Yesterday, BOT announced measures under which it would set limits on bank lending for purchases of second homes and luxury houses selling for more than Bt10 million. It will impose a loan-to-value ratio (LTV) - the percentage of a property's value that can be given as a loan - for such homes at 80 per cent from January 2019. This means buyers will be required to place deposits of at least 20 per cent of the property price.
“The principle is to set a minimum down-payment for loans on second homes or residential units worth over Bt10 million," the central bank said.
The BOT has also revised the definition of debt for the purpose of calculating the debt-service ratio. Instead of this debt being taken as the housing loan only, it will also incorporate other liabilities, such as personal loans and hire-purchase obligations. This broadened scope for total debt will be used by the commercial banks to calculate the debt-service-ratio when assessing home-loan applications.
The BOT’s public hearing on the planned regulations will be run for financial institutions, business operators, consumers and other interested parties from October 11. The new rules will apply for new loans and take effect from January 1 next year.
Kasikorn Research Centre (KResearch) said that the BOT measures could affect property developers in their marketing approach, and new residential projects would be launched with more caution amid an upward trend in interest rates and the high stock of unsold residential units.
The unsold housing stock is estimated to reach 190,000 units at the end of this year, close to that of the year before, the research house said.
The BOT measures would generate a certain impact next year when the unsold housing stock is expected to decline to 179,000 units and property loans are projected to rise to no more than 6 per cent, KResearch said.
The research house points out that the current property market is different from that in the 1997 financial crisis. Now, listed property developers, which share about 60-70 per cent of the Thai property market, have more a flexible financial footing with good business management. Moreover, Thai financial institutions have much more prudent risk management, KResearch said.
Financial institutions' non-performing property loans edged higher to 3.39 per cent of total property loans in the second quarter of this year, up from 3.23 per cent at the end of 2017 and 2.44 per cent at the end of 2015.
KResearch said that repayment capability of borrowers who own houses valued from Bt10 million to over Bt50 million required monitoring, given the higher NPLs in this segment compared with the mass market.
Following the BOT’s announcement yesterday, the share prices of most listed property firms dropped. At the close of trade, shares in Land & Houses fell Bt0.20, or 1.79 per cent, to Bt11; Pruksa Holding Plc dropped Bt0.40, or 1.93 per cent, to Bt20.30; Sansiri Plc edged down Bt0.03, or 1.82 per cent, to Bt1.62; and AP (Thailand) Plc shed Bt0.15, or 1.70 per cent, to Bt8.65.
The Stock Exchange of Thailand Index yesterday ended trading at 1,724.13, a drop of 17.83 points from Wednesday, with a trade value of Bt54.21 billion. Foreign investors recorded net sales of Bt4.95 billion and institutional investors made net sales of Bt3.43 billion.