Tighter restrictions on home loans

Commercial banks are restricting the provision of mortgages and project loans for the property sector, out of concern over both rising household debt and a bubble developing in the condominium segment, according to experts.

During a survey conducted earlier this year, most developers told The Nation that commercial banks were restricting the provision of mortgages for buyers hoping to have homes transferred in the current quarter, with a rejection rate generally between 10 and 15 per cent.

This compares with a mortgage-application rejection rate of 5 to 10 per cent last year.

Meanwhile, commercial banks are also restricting the provision of project loans for property firms that develop condominium projects, by having a condition that a project must have presales of at least 60 per cent of the overall value for small and medium-sized developers – and at least 40 per cent for the top 10 property firms.

LPN Development managing director Opas Sripayak said that up to 10 per cent of its customers hoping to transfer condominiums in the current quarter had faced bank rejection of their mortgage application. 

The rejection rate was about 5 per cent last year and during the first quarter of this year.

“Commercial banks have restricted the provision of mortgages, weeding out applicants who have insufficient earnings to repay their loans,” he said.

However, the company tries to help such customers by negotiating with another bank to support their mortgage application. 

If they are still unable to get a home loan, LPN returns the down payment to the customer, he added.

AP (Thailand) chief marketing officer Vittakarn Chandavimol said the rejection rate for its customers was about 15 per cent during the first half of the year, due to banks being more selective before approving mortgage applications.

Pruksa Real Estate chief business officer Piya Prayong said the bank rejection rate for Pruksa customers was about 25 per cent. 

Some 10 per cent of the total relates to buyers of homes priced up to Bt2 million, many of whose credit scores had risen after they purchased a vehicle under the government’s first-car scheme, he said.

“We have tried to help our customers by suggesting they find a co-borrower to increase their earnings to a level at which a bank will approve their mortgage application,” he added.

 

Condo bubble worry

Commercial banks have also put stricter conditions on project financing for condominiums, due to concern about a bubble developing in the segment.

A source from a property firm that develops condominiums said the company had been told by its bank that it must show presales of at least 60 per cent of the project value before getting the money to develop a condominium.

This is higher than the normal condition for small and medium-sized companies that presales of between 40 and 50 per cent must be proved, he said.

Meanwhile, the top 10 property firms, which have never previously faced a presales criterion for project financing, also face bank conditions of presales hitting 40-50 per cent before receiving a loan to construct a condominium project.

“I think the commercial banks are concerned about the business risk now that the Thai and global economies have shown signs of slowing down,” said the source.

Meanwhile, early this week, the University of the Thai Chamber of Commerce reported the results of a survey showing that household debt averaged Bt188,744 per family in the first five months of the year, up 12 per cent from last year.

Most of the additional debt was a consequence of the rising cost of living and the fact that many survey respondents had bought costly tangible assets such as homes and vehicles, having benefited from the first-home and first-car purchase programmes.