No signs of household debt 'crisis' affecting Bangkok's real estate market

The reason they ask this question is that Thai consumer debt is the second-highest in Asean at 83 per cent of gross domestic product, with only Malaysia having a higher ratio, and has risen rapidly, growing at almost 20 per cent a year for the last few years. This is why it is termed a “crisis”.
I can report that at Ananda we are not seeing any signs of problems with consumers getting mortgages for our condos. The rejection rate for mortgages to buy our condos was only 1.1 per cent in the fourth quarter of 2014, about the same as it has always been. In any large group of people you would expect some to have had an adverse life event such as the loss of a job or illness in the family in the up to three years between when they booked the condo and the time came to take delivery.
So if consumer debt is so high and banks are supposedly tightening their loan approvals, why are we not seeing the effects on our customers, especially when some other developers are?
It is partly because only 3 per cent of the people classified as having high debt-service ratios are in Bangkok, and we’re a Bangkok-only developer. It is also partly because we offer mid-priced units but our customers are affluent, with an average household monthly income of Bt100,000.
It is also partly because the Agency for Real Estate Affairs reports an average price increase of 8.9 per cent per year for condos near the mass-transit system since 2006, compared with just 4.9 per cent for overall Bangkok condos, so our customers make sure they can take deliver so as not to lose the 30-per-cent profit over the construction period.
Indeed, we find that about a third of our customers pay cash, with no mortgage, and as we’re a mass-market developer this indicates that a lot of people in Thailand are “cashed up” with no debt problems at all. The Bank of Thailand reports that this is indeed the case and that nearly half (46 per cent) of households have no debt.
BOT figures also show that it is those in the lowest quintile of earners that have the highest debt-service ratios. So if there is a debt crisis, then it is affecting primarily the lowest income groups and those who mostly live outside Bangkok – people who aren’t our customers anyway.
Now, this could still affect us as a property developer in two ways.
The large household debts as a percentage of GDP are a consideration for the BOT when setting interest rates, so interest rates are likely to be higher than they would otherwise be given the state of the economy.
The second factor is the reduction in consumer spending as those in debt are forced to curtail expenditures. This could affect the entrepreneurs and business owners who sell to them, reducing their income or confidence in their future and thus reducing their ability to buy real estate or get a mortgage to do so, even if they don’t have high debt themselves.
At Ananda, we expect the BOT to take measures to slow the growth of household borrowing this year and we expect the banks to tighten lending criteria.
For this reason, even though we see no problems with our customers, we are adjusting our projections of final transfer of properties to be more conservative, and expect the rest of the industry to do the same.
For now, though, the “crisis” is one conspicuous by its absence, in Bangkok at least.

The latest BOT analysis of Thai household debt can be found here: bot.or.th/Thai/EconomicConditions/ResearchPublication/symposium/Symposium2557/Paper4.pdf