Govt mulls support for property sector

Measures have already been announced to boost the tourism and industrial sectors.

“Measures such as boosting corporate spending by reducing corporate income tax would not directly impact the economy in the same way that boosting the property sector would do,” said a source close to Finance Minister Kittiratt Na-Ranong.

As a result, the government wants to introduce a measure that directly boosts the property sector, which has a market value of more than Bt700 billion nationwide. 

Any boost to the property market would also be a shot in the arm for related businesses such as makers of furniture, home electronics and construction materials, as well as distributors and retailers of such products. 

“The government is now surveying the market to find an appropriate means of supporting the property sector,” said the source.

However, most developers consider such a measure unnecessary, as the market is continuing to grow despite the economic slowdown.

That said, if the government insists on supporting the industry, they suggest that it introduce a financial package to support low-income home-buyers during a period in which commercial banks are increasingly rejecting their applications for housing loans.

Thongma Vijitpongpun, chief executive officer of Pruksa Real Estate, the residential market leader for homes costing up to Bt5 million per unit, said the main problem was not the level of sales, but how to persuade commercial banks to provide mortgages for potential home-buyers on low incomes and who do not receive a monthly salary.

“We have a rejection rate of about 25 per cent [largely from this category]. If we can solve this problem, revenue will grow above our estimate,” he said.

Opas Sripayak, managing director of LPN Development, another listed developer and the market leader for condominiums offering units priced up to Bt3 million, said that if the government wanted to support the property sector, it should discuss with commercial and state-owned banks how to provide mortgages for those customers who have sufficient purchasing power but lack the necessary financial history as they are not salary earners. 

“Many of our customers, although they may not have monthly earnings, do have enough income from their own business to lodge a down payment and prove they have the purchasing power to make monthly instalment repayments to a bank. 

“If the banks relaxed the rules and could provide mortgages to this category of buyer, it would be the best way to drive the property market to stronger growth,” he said.

Early this month, the Bank of Thailand warned commercial banks to restrict loan provision and increase their loan-loss reserves in light of the additional risk inherent in the country’s slower economic growth and the impact of heightened political uncertainty.

Most commercial banks have restricted the provision of mortgages among home-buyers with a low income and who do not have a history of bank transactions, as well as among those who are freelance workers or entrepreneurs that do not have a regular monthly income.

As a result, the average rejection rate for housing-loan applications has increased from 25 per cent to between 30 and 35 per cent, although some banks have a rejection rate of up to 50 per cent due to their more stringent lending criteria.

Meanwhile, the banks have revised the loan-to-value ratio from an average of 95 per cent for low-rise residences such as detached houses and townhouses to between 80 and 90 per cent, depending on each customer’s purchasing power.

They have also adjusted the loan-to-value ratio from an average of 90 per cent for condominium projects, to just over 80 per cent.

“We have adjusted the loan-to-value ratio for customers who buy a third or fourth home to 85 per cent, and also have a rejection rate of about 50 per cent. This is in line with customer risk, because some of them have a debt burden greater than their ability to repay,” said Kasikornbank executive vice president Pakorn Partanapat.

With the current market environment directly impacting property firms if they find they are unable to transfer homes to customers, developers have been seeking ways to help home-buyers get a loan.