Thailand’s central bank seeks to prevent property bubble

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The Bank of Thailand imposed an 80-per cent loan-to-value limit on mortgages for homes worth more than ten million baht and for all second and more homes, effective January 1, 2019 for new lending, it said in a statement on October 4. The tightening of the mortgage lending rules is meant to curb property speculation due to growing concern about risks stemming from a prolonged period of near record-low interest rates.

This means borrowers for such properties will soon have to pay at least 20-per cent down payments, up from five to ten per cent currently, as the central bank seeks to prevent a bubble from speculation. Banks will also be prohibited from providing advances that exceed the value of a property, including so-called cashback loans.

Intense competition in the mortgage sector had led to a loosening of lending standards in the past, said Sakkapop Panyanukul, the director of the financial stability unit at the central bank. The monetary authority has seen instances of loan-to-value ratios exceeding 100 per cent, as well as purchases with no down payments.

“These macro-prudential measures should help reduce speculative buying and search-for-yield behaviour,” Sakkapop said in a briefing in Bangkok, adding that it was “a preventive measure.” Oversupply of condominiums in certain areas also remained high, he said.

For all other properties, the central bank’s guidance is that financial institutions should not provide mortgages based on a loan-to-value ratio of more than 95 per cent for low-rise residential projects and 90 per cent for high-rise ones, which is still high by international standards, at least in developed countries. For example, Singapore in July this year capped the loan-to-value ratio for home loans to between 45 per cent and 75 per cent, depending on conditions such as mortgage tenure, age of the borrower or whether the borrower has already taken other loans.

All related parties, including financial institutions and property developers, have been summoned by the central bank to discuss the issue.

“This is not putting a [complete] break on the property sector,” Bank of Thailand’s assistant governour Wajeetip Pongpech said.

“We are just lowering the speed,” he added

The average selling price of condominium projects launched in the past few years increased by about five to ten percent annually, Colliers International Group Inc. said in its second-quarter report for Bangkok.

 

 

 

 

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Reading Time: 2 minutes

The Bank of Thailand imposed an 80-per cent loan-to-value limit on mortgages for homes worth more than ten million baht and for all second and more homes, effective January 1, 2019 for new lending, it said in a statement on October 4. The tightening of the mortgage lending rules is meant to curb property speculation due to growing concern about risks stemming from a prolonged period of near record-low interest rates.

Reading Time: 2 minutes

The Bank of Thailand imposed an 80-per cent loan-to-value limit on mortgages for homes worth more than ten million baht and for all second and more homes, effective January 1, 2019 for new lending, it said in a statement on October 4. The tightening of the mortgage lending rules is meant to curb property speculation due to growing concern about risks stemming from a prolonged period of near record-low interest rates.

This means borrowers for such properties will soon have to pay at least 20-per cent down payments, up from five to ten per cent currently, as the central bank seeks to prevent a bubble from speculation. Banks will also be prohibited from providing advances that exceed the value of a property, including so-called cashback loans.

Intense competition in the mortgage sector had led to a loosening of lending standards in the past, said Sakkapop Panyanukul, the director of the financial stability unit at the central bank. The monetary authority has seen instances of loan-to-value ratios exceeding 100 per cent, as well as purchases with no down payments.

“These macro-prudential measures should help reduce speculative buying and search-for-yield behaviour,” Sakkapop said in a briefing in Bangkok, adding that it was “a preventive measure.” Oversupply of condominiums in certain areas also remained high, he said.

For all other properties, the central bank’s guidance is that financial institutions should not provide mortgages based on a loan-to-value ratio of more than 95 per cent for low-rise residential projects and 90 per cent for high-rise ones, which is still high by international standards, at least in developed countries. For example, Singapore in July this year capped the loan-to-value ratio for home loans to between 45 per cent and 75 per cent, depending on conditions such as mortgage tenure, age of the borrower or whether the borrower has already taken other loans.

All related parties, including financial institutions and property developers, have been summoned by the central bank to discuss the issue.

“This is not putting a [complete] break on the property sector,” Bank of Thailand’s assistant governour Wajeetip Pongpech said.

“We are just lowering the speed,” he added

The average selling price of condominium projects launched in the past few years increased by about five to ten percent annually, Colliers International Group Inc. said in its second-quarter report for Bangkok.

 

 

 

 

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