BoT concerned about property sector risks

property sector risks
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The Bank of Thailand (BoT) has expressed its concerns regarding the financial stability and what is highlighted as being property sector risks.

It has released a summary conclusion of the joint meeting of the Monetary Policy Committee and the Financial Institutions Policy Committee that took place on June 29

It concluded that Thailand’s financial stability remained sound. Economic growth continued to gain traction which enhanced businesses’ financial strength especially for large corporates.

However, the BoT also noted the build-up of property sector risks.

It said that the proportion of new housing loans with a high loan-to-value (LTV) ratio had been rising, while mortgagors’ debt burden also risen relative to their income.

In addition, it said that oversupply continued to warrant monitoring.

Referring specifically to Thailand’s financial institutions, it said the search-for-yield behaviour, which could lead to underpricing of risks, continued to persist – especially in savings cooperatives.

Fragilities continued to build up in the housing loan market and this was reflected in an increase in the share of new housing loans with loan-to-value (LTV) ratio exceeding 90 percent, as well as an increase in the loan-to-income (LTI) ratio.

Moreover, the quality of housing loans had deteriorated, as indicated by higher non-performing loan (NPL) ratio.

Despite their strong financial positions, the BoT said that banks should exercise caution in granting such loans, which could add to households’ debt burden and impair households’ financial cushion going forward.

On the other hand, it added that there continued to be a need to monitor oversupply in the real estate market.

Latest data showed the amount of time required for Thailand’s property developers to sell their stock of condominiums in certain locations and at certain price ranges had become longer.

Looking ahead, it added that the fact developers’ financing via bank loans and bond issuances had been growing steadily suggested that new supply could accelerate in the future.

In summary, the committees viewed that further assessments should be conducted on competition in the housing loan market, and on oversupply of condominiums in certain areas.

Special attention, it said, should also be given to office and retail space supply, which could accelerate due to new mixed-use projects.

The BoT, the Office of the Securities and Exchange Commission and the Office of Insurance Commission will also improve and enforce regulations to cope with emerging risks appropriately.

Andrew Batt
The author of this article is Andrew Batt, the founder and editor of Andrew has been writing about property and real estate issues in Thailand and Southeast Asia for more than 10 years. He has worked for PropertyGuru Group, DDproperty, Dot Property Group, Hipflat and AsiaRents. He has also produced content for leading Thailand property developers and real estate agencies.

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