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22 Jan 2020

Financial Institutions

Relaxation of LTV Regulations to Bolster Residential Market Amid Numerous Risks (Current Issue No.3075)

                The reduction in home ownership transfer fee in early 2020 and the Bank of Thailand's decision to relax its loan-to-value (LTV) regulations for first-and second-time home buyers on January 20, 2020, with the aim of promoting home ownership and increasing consumer house-buying power, will likely give a boost to the residential market. In addition, such measures may be used by real estate developers as marketing tools to bolster and close their home sales in the future. Details of the new LTV regulations are as follows: 

  1. The maximum LTV ratio on the first mortgage for homes worth less than THB10 million is 100 percent, against 90-95 percent before, plus an additional 10 percent as top-up loans for home decoration, constituting 110% of the collateral value.
  2. The maximum LTV ratio on the first mortgage for homes worth more than THB10 million is 90 percent, against 80 percent before.
  3. The maximum LTV ratio on the second mortgage is 90 percent if the first mortgage has been paid for more than two years, compared to more than three years seen in the previous regulation.

                 However, consumers will continue to experience numerous risks, including the anemic economy, employment insecurity and sagging purchasing power. In addition, even if the relaxation of LTV regulations will benefit homebuyers, the approval of mortgages will depend on their qualifications and debt servicing ability. Meanwhile, the property market is bracing for heightened competition amid high level of non-performing assets.

                  Given this, we at KResearch maintain a conservative view towards the residential market and expect that the new LTV regulations may help support home sales to grow slightly over our initial estimate. We also view that investment in new residential projects may contract approximately 1.2-2.9 percent YoY in 2020 or there will be about 109,000-111,000 units built. The number of home ownership transfers may reach approximately 184,500-189,500, shrinking 2.2-4.8 percent YoY, due partly to the decline in home-buying transactions of foreign nationals.

Financial Institutions