There have been some experts predicting a 1997-style property bubble forming in Thailand, but it seems unlikely since there are no signs of increased borrowing for property speculation purposes, according to Bank of Thailand officials.
“We did not see strong growth in loans used for speculation on property prices compared with overall housing loans. The spike in real estate prices we are observing is not alarming and will not create systematic risk like what happened in the 1997 crisis where speculators’ funding was mainly concentrated in borrowing,” says Bank of Thailand Governor Veerathai Santiprabhob to The Bangkok Post.
The former Director-General of the World Trade Organization and Secretary-General of the UN Conference on Trade and Development, Supachai Panitchpakdi, earlier claimed the symptoms of a property bubble in Thailand were present causing some concern. His conclusion was based on the fact a large portion of domestic private investment has been in the property sector.
However, the main difference between now and the 1997 financial crisis comes down to funding. The 1997 property bubble was dependent upon loans given to real estate speculators, but currently most property purchases are done with money from the savings of wealthy people.
In addition to this, banks are now better at managing risks associated with project financing. They scrutinise loans for real estate development far more than 20 years ago, looking at both pre- and post-financing. Developers are also looking at new methods when it comes to financing and rely more on capital markets than in the past. These have lower financial costs, but can be troublesome for long-term investments.
“Some developers also use financial instruments in the capital market such as bills of exchange to fund their long-term investment, a practice we deem as a mismatch. But these few cases won’t affect the financial system as a whole,” says Veerathai.
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