Developers increase focus on mid- to upper-income market

"At present, it is not only the lower-income market facing tighter bank restrictions on the provision of mortgages, as potential buyers of luxury residences who own small and medium-sized enterprises [SMEs] also face close scrutiny before a loan can be approved. As a result, the rejection rate in the luxury market increased from below 10 per cent to 30 per cent in the first half of the year," said Pumipat Sinacharoen, chief people excellence officer at AP (Thailand).

Normally, banks will closely scrutinise home-loan applications from the lower-income market for homes priced under Bt2 million, but now they are also becoming more cautious about lending to buyers of residences priced over Bt10 million, especially those who own an SME, he said.

"Up to 30 per cent of our customers who buy luxury residences priced above Bt10 million will currently only get approval for a loan that

is much lower than what they actually need.

"For example, they may need a loan of about 90 per cent of the residential value, but the bank approves only 60 per cent of the value. This forces them to cancel their purchase, because they don’t have enough cash to pay for the rest of the home’s value," he explained.

The tougher screening of both low-income and SME borrowers has caused the average rejection rate to increase from 25 per cent last year to 30 per cent in the first half of this year, said Prasert Taadullayasatit, president of the Thai Condominium Association and managing director for condominiums at Pruksa Real Estate.

Surachet Kongcheep, associate director for research at property consultancy Colliers International, said banks had become more stringent in giving loans because of high household debt, which stood at more than 80 per cent in relation to gross domestic product, while the ongoing drought crisis had "terrorised" low-income people, and mainly farmers.

"The declining purchasing power among low-income people has been reflected in low sales of condominiums priced under Bt100,000 per square metre, which target low-to-middle-income customers," he said.

Following the market tightening, property firms have revised their business strategies to focus on the middle- to middle-upper income market, where there is still sufficient purchasing power to buy homes costing up to Bt10 million.

Residential developer Sammakorn, for example, plans to launch two residential projects worth Bt2 billion combined over the remainder of the year – a detached-housing project and townhouses – with both offering property priced up to Bt10 million per unit.

The company is focusing on this segment after 23 per cent of its customers had their mortgage applications rejected by banks in the first half, compared with just 8 per cent last year.

"Most of our customers who have had their loan applications turned down were prospective buyers of either homes priced below Bt2 million or higher than Bt10 million. But customers buying a property in the range of Bt3 million to Bt5 million still normally get bank approval for a mortgage," said managing director Kittipol Pramoj Na Ayudhya.

Pawarun Udomsiri, executive vice president of Golden Land Residences, a subsidiary of Golden Land Property Development, accepted that the company’s customers had been facing a mortgage-rejection rate of 30-35 per cent this year, up from 20 per cent last year.

Those affected are largely in the lower-income market, but some are luxury-end customers who have been offered a smaller loan than what they requested.

Pre-approval of financial status

As a result, the company has been conducting pre-approvals of its customers’ financial status before sales, and advises them on how to manage their finances by cutting their personal debt before applying for a mortgage, he explained.

Golden Land Residences is also focusing on the middle-income market by launching projects comprising homes priced between Bt2.5 million and Bt5 million apiece, which is an area in which there is demand and customers have sufficient purchasing power, he added.

"Although commercial banks have tightened the provision of mortgages to home-buyers, with a rejection rate averaging 20 per cent, it has had only a limited impact on our business. We have targeted new customers and increased the down payment to 15 per cent of the residential value, reducing the risk of the bank rejecting a mortgage application," said Quality Houses’ chief executive officer, Chadchart Sittipunt.

The company is also balancing its portfolio between the middle- and upper-income market in order to stabilise income for the long term, he said.

Meanwhile, AP (Thailand) is also focusing on the middle- and upper-income market over the rest of the year, with plans to launch 15 projects worth Bt24 billion in this segment.

Chief marketing officer Vittakarn Chandavimol said that although the economy had grown only slightly in the first half, residential demand had continued to expand in the middle- and upper-income market.

This has been the company’s main target segment, driving sales so far this year to Bt18 billion, while demand is expected to continue to grow over the remainder of the year.

AP (Thailand) customers have faced a mortgage-application rejection rate of 12 per cent, well below the average of 30 per cent for the sector, he said.

Most of the developer’s customers had been pre-approved by banks before making a decision to buy a property, as its targeted middle- to upper-income buyers still had sufficient purchasing power and financial status to be granted a mortgage, he added.