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World turmoil means tough luck for homebuyers

source: Bangkok Post Nov 24 2008 New homebuyers can expect more questions and scrutiny from lenders, as banks tighten their credit procedures due to the global economic downturn. Don’t expect a lot of marketing gimmicks or cut-throat interest rates next year, when banks could become more stringent with mortgage-seeking customers. But bank executives say they expect the medium- to upper-income segment of the market to remain relatively strong, defined as buyers shopping for units priced at four million baht and up. Rungruang Sukkirdkijpiboon, an executive vice-president of Siam Commercial Bank, said purchasing power remained relatively good at the upper end of the market, even with the weakening economy and decline in the stock market. He said that in addition to a buyer's financial status, lenders also consider the brand of the project and location as key criteria for a loan. Developers at the high end of the market are among the strongest financially and most experienced in the sector. With their reputations and brands at stake, they are more responsive and likely to deliver their products on time and up to specifications. "The upper end of the market continues to boast higher demand and lower risk," Mr Rungruang said. SCB, the country's third-largest bank by assets, ranks number one in the home mortgage market among commercial banks. SCB projects that its mortgage loans should grow by 55 billion baht this year although the figure could drop next year in line with the overall economy. Mr Rungruang said in contrast to recent years, competition in the home mortgage market was expected to be less intense this year due to economic uncertainties. Banks were over the past few years much more aggressive than now in offering low interest rates, product enhancements and other incentives to attract new and refinancing customers. And while money-market interest rates are expected to decline through the first quarter of next year due to the weakening economy, bank executives say it is unlikely that significant reductions will be seen in housing loan rates. Chatchai Payuhanaveechai, a first senior vice-president at Kasikornbank, said the bank was likely to maintain its housing rates at current levels. Kasikornbank currently offers a 1.99% fixed rate for the first three months. Borrowers can then decide between one of six different packages offering different levels of fixed rates or discounts from prime minimum lending rates of up to three years. KBank currently quotes MLR at 7.25%. "I don't think market rates for home mortgages will change, even though the central bank's policy rate should decline," Mr Chatchai said. He agreed that loan demand for the medium- to upper-income market, covering consumers with monthly incomes from 40,000 baht up, remained high, helping the market for properties priced at two to five million baht. On the other hand, demand at the top end of the market, those with income over 100,000 baht per month and looking at properties priced from five to 10 million baht, was declining slightly. Mr Chatchai agreed that location remained critical in evaluating loan applications. "A good location means strong demand, and homebuyers for such projects will be more successful in securing a loan," he said. "For the luxury market, condos located in the city near BTS or subway stations will have an advantage from the perspective of a lender." Sasitorn Phongsathorn, the president of Land and Houses Retail Bank (LH Bank), said with the slowing economy, the bank would focus more on the medium- to upper-end of the market. "Demand from this customer segment remains high, while they are relatively unaffected from the weaker economy," she said. High net-worth buyers looking for properties of 20 million baht and up also remained a valuable segment for the bank. But she noted only 80% of this segment needed bank support, with 20% purchasing property in cash.

 

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