By Nikki De Guzman:
The central bank recently instructed commercial lenders to be more cautious when lending to borrowers who would invest in houses for speculative purposes, reported The Phuket Gazette.
Although the Bank of Thailand’s (BOT) move is reasonable considering that easy credit can inflate a property bubble, real estate curbs at this stage is not necessary, according to Jones Lang LaSalle (JLL).
“As the Thai stock market has heated up and the Baht continues to strengthen, some economists in both the public and private sectors have voiced their concerns over possible bubbles in Thailand’s real estate markets,” said Suphin Mechuchep, Managing Director at JLL.
This concern could be attributed to an assumption that investors who made money from the stock market may inject their cash into residential properties like condo units. But there are still no clear indications that a bubble is forming in Bangkok’s condominium sector, she noted.
“A real estate bubble can occur when there is excess demand from speculative buyers and abundant liquidity through borrowing that drive property prices to levels well above their fundamental economic value.”
She added that it can also be caused “by developers themselves, undertaking development without proper market studies and planning, leading to overbuilding. However, our monitoring of Bangkok’s core and central condominium market shows that the aforementioned conditions do not presently exist.”
While it’s difficult to identify the actual percentage of speculators in the condo market, the consensus is that some projects by major property firms lures many speculators. These developments include medium-cost and luxury properties sited at prime locations that have huge potential for price appreciation when nearing completion.
Nonetheless, these projects are usually few and far between, and most of the buyers are purchasing for their own use.
"While the BOT’s request to commercial banks to become more cautious about mortgage lending is a sound initiative, we don’t think any cooling measures to curb property transactions are necessary at this stage, as there remains no clear sign of a bubble.”
“Any measures to curb property transactions could simply undermine real estate demand as the intervention could eventually result in added costs to buyers, for whom affordability is ultimately the key issue,” Suphin added.
Nikki De Guzman, Junior Reporter at PropertyGuru, wrote this story. To contact her about this or other stories email nikki@allproperty.com.sg
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