The dangerous reality of cashback condos

Bank of Thailand
Reading Time: 3 minutes

To Thais, the marketing of cashback condos has been almost as pervasive as life insurance planning for expatriates.

Cashback condos, most prevalent in suburban Bangkok where there is a significant number of completed-but-unsold units, involves obtaining a mortgage and additional cash on top.

A contact, let’s call her Nok as she does not want to reveal her identity, was approached by someone who purported to be acting as a real estate agent, and could pretty much guarantee a cashback mortgage.

The agent was very specific about the development and type of unit she could offer. It was in an ‘out of the way’ location and priced around THB 2.6 million. The ‘guaranteed’ cashback offered with the mortgage was between THB 300,000 and THB 400,000, meaning a total mortgage approaching THB 3 million.

The agent was “extremely confident’ of her ability to obtain a mortgage for Nok, even though she knew little about her credit record. She offered to complete and file the mortgage application with one of Thailand’s leading banks.

Using publicly-available data, the unit would be returning a poor rental yield that, in real terms, meant less than THB 12,000 per month.

The mortgage payments would have been closer to THB 20,000 per month.

You can see the problem already.

Speaking to the Bangkok Post in an article that was published yesterday (Monday), Phattarachai Taweewong, a Senior Manager at Colliers International, said: “They saw a lot of advertisements online about cashback condos, saying ‘debt settlement with property’ posted by individual agencies,”.

He added: “If the project is owned by a major developer, financial institutions will approve a credit line for a mortgage loan based on the price stated in the sales contract; It can be as high as 100 percent of the stated price.”

To be successful the property and its buyer needs to achieve capital gains and generate rental income. While the first is possible in the mid-term, the rental returns in the cases we’ve seen do not come close to matching the mortgage payments.

And thereby there is a substantial risk that these cashback condos will add to the growing number of non-performing loans (NPLs) in the Bangkok property market.

For the record Nok declined that offer.

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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