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Speculative condo promotions come under scrutiny

BANGKOK: The Bank of Thailand will hold a consultation to discuss the ‘search-for-yield’ behaviour prevalent in the property sector with relevant parties because it could lead to higher risk of default in mortgage loans.

By Bangkok Post

Saturday 29 September 2018, 10:00AM

A high-rise condominium model is exhibited at a housing fair. The central bank says search-for-yield behaviour is rampant in the property sector. Photo: Bangkok Post / Jiraporn Kuhakan

A high-rise condominium model is exhibited at a housing fair. The central bank says search-for-yield behaviour is rampant in the property sector. Photo: Bangkok Post / Jiraporn Kuhakan

The central bank found this behaviour is widespread, especially in high-rise condominium projects, said BoT Governor Veerathai Santiprabhob.

Such behaviour reflects an oversupply in some condo areas, resulting in artificial demand and higher non-performing loans (NPLs) in the mortgage segment, said Mr Veerathai.

“We also found several marketing campaigns for residential projects are promising cashback, high rental yields or other [incentives that create artificial demand]. These are search-for-yield and speculative behaviours, and the central bank will discuss controlling risk with related parties,” he said.

“If a macro-prudential measure is needed to supervise mortgages and control search-for yield behaviour, we will announce it officially.”

Mortgage NPLs rose to 3.39% in the second quarter, up from 3.38% registered in the previous quarter, according to central bank data.

The central bank has used a micro-prudential measure by informing financial institutions to tighten mortgage loan approvals under the basis of good risk management.

Earlier, the central bank raised concerns over higher competition in the housing loan market, especially higher loan-to-value (LTV) offered for mortgage loans.

The central bank’s Monetary Policy Committee and Financial Institutions Policy Committee previously reported after a joint meeting that there was a higher ratio of new mortgages, with LTV rates exceeding 90%.

The increasing loan-to-income proportion and deteriorating mortgage loans all point toward fragility in the residential property market. Under the financial regulator's guidance, the LTV ratio is set at 90% for low-rise residential projects and 95% for high-rise projects.

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Separately, Nathapol Luepromchai, executive vice-president and head of mortgage loans at Bank of Ayudhya, said banks have discussed and shared information about the search-for-yield behaviour during meetings at the Thai Institute of Banking Finance Association.

Each bank has prevented risk exposure by tightening loan approvals for what it deems as artificial demand, said Mr Nathapol.

If the central bank holds a consultation, this would facilitate information-sharing between the financial regulator and banks as a means to control risk, which would benefit the overall property industry as well as homebuyers, he said.

“After seeing such behaviour for around a year, it would be reasonable for the [central bank] to implement a macro-prudential measure, setting an exact LTV ratio rather than [providing] guidance,” said Mr Nathapol.

Rising mortgage NPLs are a result of an artificial demand and speculation rather than economic conditions, he said.



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Jor12 | 02 October 2018 - 23:02:10

Get over it. With development comes in infrastructure. It's a holiday destination, so more hotels and accommodation is needed. More the better. It's not your sleepy fishing village of  the 70's , which the white supremacists want to retain.
"search-for-yield" is explained in the article...promises of "cashback, high rental yields or other (incentives that create artific...

CaptainJack | 02 October 2018 - 11:39:57

Might be helpful if you actually explained what you mean by "search-for-yield". Believe it or not but some of us aren't condo developers OR commission vampires.  Do you mean selling the things before they're built? Like those scam artists at the Ace? If so then good,  that practice should be banned altogether.

Rorri_2 | 01 October 2018 - 12:01:51

"The more condos the better. Should be treble the current number," now we know who Jor12 really is.... known to all as Big Joke.

Pauly44 | 01 October 2018 - 08:21:19

Typical ignorant comment from J12, already over supply, half of the new developments are empty with raw crap pumped directly to sea!!! Phuket is a small island, not a big city, over development is ruining what was once a very nice place, now it's lost it's charm I fear for the future as the greed of authorities and developers knows no bounds with no environmental consideration whatsoever. 

Jor12 | 30 September 2018 - 13:30:02

The more condos the better. Should be treble the current number.

Timothy | 30 September 2018 - 11:26:25

A condo building nearby just started construction. Only a big hole in the ground at this point. Has signs proudy declaring it has won awards as the "Best Condo Development of 2018". How the heck is that possible? 

Kurt | 30 September 2018 - 09:53:36

Condo business on Phuket is very lucrative for investors/building firms. Huge profits for poor quality building., and making good money with 'service charges'. Enormous ( tripled or more than real) electric- and water bills, etc.
Buyers have no protection, doesn't matter or they are thai or foreigner. How are matters with that Ace condo project, opposite entrance Patong Hospital?

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