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14 May 2009

Real Estate and Construction

Housing Loans, 1Q09: Growing Despite Economic Downturn (Business Brief No.2503)

In 1Q09, outstanding mortgage loans in the system totaled some THB1,626.35 billion, growing 8.8 percent YoY, up from the 7.8-percent growth in 2008. The increase could be attributed to the lower base effect (in 1Q08, home purchases and ownership transfers were postponed pending proposed real estate business tax incentives, e.g., reductions in transfer and mortgage registration fees). Other positive factors at the time included the government's measures to stimulate the flagging real estate market, commercial banks' lending rate reductions and homebuyers' rush to transfer their ownership to take advantage of incentives expiring on March 28, 2009. As a result, outstanding housing loans in 1Q09 still experienced growth.
Over the remainder of this year, mortgage loans are expected to receive a boost from the government's economic stimulus efforts, especially real estate tax incentives, slashes in lending rates by commercial banks in line with BOT policy rate reductions. The home loan market may also benefit from pricing campaigns launched by banks through the offering of fixed interest rates below market rates as featured at the Money Expo 2009, May 7-10, 2009, to attract reluctant homebuyers and spur sales. Special low lending rate campaigns – e.g., a zero rate for the first six months of the loan term – have been highlighted, which are likely to boost mortgage loan growth in 2Q09.

Despite bright prospects for the home loan market in 2Q09 and into early 3Q09, KASIKORN RESEARCH CENTER (KResearch) holds the view that mortgage lenders may face a serious challenge in boosting loan growth because the Thai economy is poised to experience its first contraction since the 1997 economic crisis. Even though the GDP contraction in 2H09 may be less pronounced than in 1H09, housing demand is unlikely to improve quickly, which may thus hinder the housing loan growth. The domestic political discord may pose a major threat to the Thai economy throughout the year, especially if violence – as during Songkran – flares up again. Thus, home purchases may be hit hard, which would in turn impede economic recovery. Amid this risky economic environment, KResearch therefore forecasts that outstanding home loans in the system in 2009 may grow in a range of 5.5-6.3 percent to total around THB1,694-THB1,705 billion, down from the 7.8-percent growth recorded in 2008.

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