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Property-market partnerships

The Nation April 3, 2009 Buyers benefit from bank-developer links Companies 'preapprove' clients to avoid loan problems The extraordinary business pressures being imposed by the economic downturn on Thailand's property market are forging an ever-closer relationship between property developers and commercial banks. There was a time when developers, swinging from the financial limb of big construction costs, were left to struggle up or fall on their own ability in a tough marketplace. But banks have lately joined the fray, offering special rates and deals to support developers' sales efforts. And while the banks' attitude of restricting mortgages to sure payers would once have sounded a death knell in the property market, the bigger developers have begun a "preapproval" process, recognising that banks want only to avoid non-performing loans and the putting forward of only those mortgage applicants that are likely to get a green light. The new partnership supports the sales targets of developers as vigorously as it drives the level of bank loans towards annual goals, and a large majority of mortgage applicants buying from the leading property firms are achieving approval. Asian Property Development's senior vice president Visanu Suchartlumpong said his company had a "good connection" with Siam Commercial Bank. In a joint promotion, the bank is offering a special interest rate for the developer's customers who qualify for mortgages. He said the banks were restricting the provision of mortgages out of concern that non-performing loans would increase because of the economic downturn. However, Asian Property Development is trying to help its customers by "preapproving" their financial status and advising them on building up a financial record so they will meet the bank's requirements, he said. In this way, the company's rate of customer rejections by the bank had fallen to less than 10 per cent. LPN Development's managing director Opas Sripayak said his company had created a down-payment system through the bank, to help customers by having payments recorded through the banking system. It then became easier for them to gain approval for a mortgage. As a result, the company's customer rejection rate fell from 40 per cent in 2007 to 20 per cent in last year's fourth quarter and this year's first quarter. Moreover, customers who are now buying from the company's residential projects represent real demand, rather than speculators, so most of them have a better financial situation, allowing them to achieve mortgage approval, Opas said. Preuksa Real Estate director and chief operating officer Prasert Taedullayasatit said the rate at which his company's customers were being rejected by the bank was now 20 per cent. This is lower than last year's 30 per cent, because Preuksa has introduced a preapproval process before signing sales deals. "We set up the system to preapprove our customers and we also adjusted the size of our residential units to match customer demand, so we are helping them to own their own homes in that way, as well," he said. Prasert said his company would offer joint promotional packages with the bank "from project to project", depending on demand at various locations. The nature of home-buyers has also changed. Whereas before the economic downturn there were speculators among the buyers, today's customers have real demand to a buy a home in which to live. Not only has the customer rejection rate fallen, but the company's marketing campaign is also providing the best conditions for buying, he said. As for the banks, their concern focuses mainly on non-performing loans (NPLs). The Government Housing Bank has reported its non-performing-loans at Bt60 billion, or 10.3 per cent of its total housing loans. Restricting mortgages to customers with high credit quality is one means of solving the problem. It has placed a cap on the level of NPLs this year, hoping to keep them below 12 per cent of total loans. Meanwhile, Bangkok Bank says it is currently rejecting 40 per cent of new loan applications out of concern for a significant rise in NPLs. Last year, its rejection rate was 26-27 per cent.

 

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