The Cabinet on May 3, 2011, approved a mortgage incentive plan for first-time homebuyers as proposed by the Ministry of Finance. In this plan, homebuyers can apply for loans to purchase or build homes. Borrowers will be exempted from interest in the first two years on mortgages for up to 30 years. Property eligible for the plan will be residential units costing up to THB3 million. The mortgage registration fee (normally 1 percent of the loan value) and the transfer fee (2 percent of the official appraised value) will be exempted. This mortgage incentive program amounts up to THB25 billion, equivalent to 8 percent of new mortgage loans each year. It is expected to bolster the real estate market and mortgage business this year. The Government Housing Bank will be responsible for program financing.
KResearch is of the view that the government's new mortgage incentive should boost housing demand and offer a good opportunity for real estate developers to sell their inventories. However, developers will have to be very cautious about investments in any new housing projects because many foreseeable downside risks. Among them are lofty oil prices, rising interest rates and inflation that have begun to weigh on disposable incomes, plus a market oversupply amid steady increases in new residential construction.
As for competition in the housing loan business, KResearch is of the opinion that this new incentive will likely heighten competition because it targets the same homebuyer segment as banks do, i.e., mid-income earners who can afford to buy a home valued at up to THB3 million. Due to rising interest rates that will add to mortgage burdens for homebuyers, it is expected that buyers may look to financial institutions that offer the lowest mortgage rates, thus prompting banks to adjust their interest rates to make their mortgages more competitive. However, some financial institutions are already offering breaks on mortgage rates, which they should be able to afford for three or six months due to operating cost constraints, but this also forces them to be more cautious when undertaking price-cutting tactics.
Because the new mortgage incentive will quicken buying decisions on new homes, we have raised our projection on housing loans for 2011 to THB2,025,350-2,042,715 million, rising nicely at 8.0-9.0 percent YoY, though still lower than the 9.8 percent growth achieved in 2010 over 2009 (estimates include housing loans held by insurance companies).
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