The warning in the bubbles

Thailand’s household debts have risen to a five-year high since 2014, prompting the Bank of Thailand recently to put a brake on the uptrend, especially with regard to mortgage loans for the property sector.
The new LTV (loan-to-value) ratio imposed by the central bank took effect on April 1. In order to avoid the more stringent requirement, property developers and buyers attempted to finalise their mortgage loans by the end of the first quarter, resulting in a further 10.1-per-cent rise in outstanding loans owed by Thai households.
Many middle- and upper-income households have significantly contributed to rising household debts as they turn to the property sector for investments in second or third condominium units for the purpose of speculation and rental incomes. Previously, it was easy to get these mortgages at a relatively low interest rate due to the previously higher LTV ratio, so bubbles were building up in some segments of the property sector.
Now, these speculators-cum-investors need to make larger down payments because they are securing fewer loans under the new LTV ratio. In other words, housing credit risks have been under-priced for a long time, and this could lead to a macro-economic crisis.
From the fourth quarter of last year to the first quarter this year, household debts rose 6 per cent, to Bt12.8 trillion, accounting for 78.6 per cent of the country’s GDP. Besides the property sector, lending in the automotive sector also has raised concerns among regulators due to the rapid growth prompted by fierce competition and relatively low interest rates.
For car and truck firms as well as motorcycle companies, aggressive promotional campaigns to boost sales have been commonplace over the past several years, aimed at driving sales growth amid a growing number of players. As a result, numerous discounts and financial incentives have been offered to lure buyers, resulting in a declining credit quality and higher risks for households due to their growing debt service ratio.
According to the authorities, non-performing loans (NPL) for personal consumption also rose 9 per cent in the first quarter of this year, accounting for 27.8 per cent of the total NPLs. Such indicators are worrisome against the backdrop of an economic slowdown, with increased uncertainties in the global economy, especially with regard to the US-China trade war. Thai exports, which account for the largest share of GDP, have already weakened, while tourism revenues, which account for over 20 per cent of GDP, could also take a hit if the trade war worsens, resulting in fewer Chinese tourist arrivals in Thailand.
Meanwhile the National Economic and Social Development Board (NESDB) has reported that the shortage of skilled workers remained a significant issue in the first quarter of this year, with employment rising 0.9 per cent. The agriculture sector’s jobs increased 3.2 per cent, while jobs in construction increased 10.5 per cent, largely due to public-sector infrastructure mega-projects.
In terms of compensation, inflation-adjusted wages rose 2.5 per cent in the private sector, but there was still a big shortage of skilled workers due to the mismatch between workforce demand and supply. So far there has been a relatively small impact on agricultural jobs due to drought, but the protracted US-China trade war will certainly hit jobs in export-oriented manufacturing industries due to a drop in exports.
Automation, robotics and other technologies also have had a significant impact on Thai factories as they attempt to boost their efficiency and competitiveness by adopting new technologies in the production process while reducing the labour roster.
The government has not yet tackled the impact of these disruptive technologies on the labour market in an effective way.