The Bank of Thailand (BoT) is set to discuss what it calls the increasing levels of “search-for-yield“ and speculative behaviour in the Thailand property sector.
It said this could lead to even higher risks of mortgage defaults.
Overseas buyers of Thailand property will be mostly unaffected by any financial contracts the BoT opts to introduce because the vast majority of property purchases made by foreign buyers in Thailand are not using finance from within the kingdom.
It appears the BoT is targeting both Thai consumers and developers in its latest comments on the state of the Thailand property market.
BoT Governor Veerathai Santiprabhob was reported as noting there is an oversupply of condos in some areas that is coming from artificial demand. This, in turn, was contributing to higher non-performing loans (NPLs) and mortgages.
Veerathai said: “We found several marketing campaigns for residential projects [that] are promising cashback, high rental yields or other incentives that create artificial demand.”
“These is speculative and search-for-yield behaviour, and the central bank will discuss controlling risk with related parties.”
Many property projects being offered for sale are currently coming with what appear, at first glance, to be attracting investment-driven guaranteed returns and, in some cases, guaranteed buy-back options.
A tightening of lending restrictions for Thai buyers, along with higher loan-to-value requirements are two measures the central bank could consider.
One issue affecting the market is the extremely low down-payment that is currently required to secure an off-plan condo unit.
Some central Bangkok developments are offering their units with less than THB 10,000 as a down payment, with another 20 percent due within two or three weeks.
This allows the developer to report a sale, but it also allows the “buyer” to spend the next two years to find the finance to go through with the transfer.
There are cases where “buyers” of off plan properties several years ago are now walking away from their purchase at the time of intended transfer, or attempting to sell their contract in the weeks and months before project completion.
Nathapol Luepromchai, Head of Mortgage Loans at Bank of Ayudhya, added that rising levels of mortgage NPLs are a result of artificial demand and speculation rather than economic conditions.