On October 21, 2021, the Bank of Thailand (BOT) announced the relaxation of rules for home loans and top-up loans (LTV measure). The details include: 1. raising the loan-to-value (LTV) ratio for second homes and subsequent units priced below THB10 million to 100%, from an earlier cap of 70-90%, and keeping the existing LTV at 100%, unchanged for the first contract of homes while offering an additional 10% as a top-up loan for home decoration (110% of the total home value); 2. raising the LTV ratio for first homes and subsequent units priced over THB10 million to 100%, from an earlier cap of 70-90%. The temporary relaxation is effective as of Oct 20 this year until the end of next year. KResearch views that this relaxation of LTV regulations will help to increase homebuyers' purchasing power and serve as a marketing tool for real estate developers to boost sales. Nevertheless, buying a home also depends on two principal elements: homebuyers’ confidence in economic recovery, and readiness. Meanwhile, the residential market and financial institutions' home loan direction will be plagued by multiple challenges for the rest of 2021 and going into 2022.
If the Thai economy shows signs of improvement with the abatement of the COVID-19 pandemic and mild domestic inflation, the relaxation of LTV regulations will help make the residential market gradually improve in 2022. KResearch has assessed that the transfer of property ownership nationwide throughout the duration of these regulations will increase by THB18-30 billion, compared to what it would have been without the regulations. Meanwhile, in 2021 the number of home ownership transfers nationwide is expected to reach 240,000 units, a contraction of 33.1% from 2020. Among them, the number of home ownership transfers upcountry (across 70 provinces) will drop by more than half compared to 2020.
The relaxation of the above LTV regulations should lead to a higher growth range for home loans in 2022. KResearch preliminarily assesses that such relaxation would help to boost home loan growth by 0.3-0.7% to 4.8-5.2% in 2022, higher than the projected 4.2-4.5% for 2021. Concurrently, issues to be closely monitored are the assessment of homebuyers’ readiness to apply for new home loans and/or to refinance their existing debt, including the borrowers’ credit risk and debt servicing ability, due to the potential for increasing debt after COVID-19, and the possibility that income and employment may not return to normal. Ultimately, conditions for home loan approval will vary for each debtor depending on the aforementioned factors.
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