Thailand to Impose Mortgage Curbs to Tackle Speculation

(Bloomberg) -- Thailand’s central bank will tighten mortgage lending rules to curb property speculation after growing concerned about risks stemming from a prolonged period of near record-low interest rates.

The Bank of Thailand imposed an 80 percent loan-to-value limit on mortgages for homes worth more than 10 million baht, effective Jan. 1, 2019 for new lending, it said in a statement Thursday. The same restriction applies to purchases of second homes. Banks will also be prohibited from providing advances that exceed the value of a property.

Intense competition in the mortgage sector had led to a loosening of lending standards, said Sakkapop Panyanukul, the director of the financial stability unit at the central bank. The monetary authority has seen instances of loan-to-value ratios exceeding 100 percent, as well as purchases with no down-payments.

"The macro-prudential measure should help reduce speculative buying and search-for-yield behavior," Sakkapop said in a briefing in Bangkok. "This is a preventive measure."

Currently, lenders are required to set aside more reserves for riskier mortgages, but there are no binding limits on the loan-to-value ratio.

Bad Loans

The Stock Exchange of Thailand Banking and Property Development indexes each declined 0.3 percent on Thursday, less than the 0.7 percent drop in the overall stock market.

In the minutes released Wednesday of the central bank’s Sept. 19 decision to leave borrowing costs at 1.5 percent, the monetary policy committee said the share of nonperforming loans in the mortgage sector had increased.

An oversupply of condominiums in certain areas remained high, the panel also said.

The central bank on Thursday said it doesn’t see a bubble in property prices and that the tighter rules won’t affect economic growth.

The Bank of Thailand is edging closer to the first interest-rate increase since 2011 after a split 5-2 vote to leave the benchmark rate on hold last month. Two monetary policy committee members voted for an increase to 1.75 percent.

The average selling price of condominium projects launched in the past few years increased by about 5 percent to 10 percent annually, Colliers International Group Inc. said in its second-quarter report for Bangkok.

"This is not putting a break on the property sector," Assistant Governor Wajeetip Pongpech said at the briefing about the new mortgage rules. "We are just lowering the speed."

©2018 Bloomberg L.P.