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23 Nov 2006

Real Estate and Construction

Housing Loan Outlook, 2006 Year-End: Focusing on Attractive Products(Current Issue No.1921)

The housing loan business in Q3/2006 recorded slower growth, with a total turnover of THB1.31 trillion. This represented an increase of 11.51 percent, over-year, but slowing from the growth of 13.82 percent and 15.69 percent in the preceding quarter and for 2005, respectively. Housing loans offered by commercial banks in Q3/2006 totaled THB675.7 billion, a year-on-year rise of 12.32 percent, but down from the growth of 14.19 percent in Q2/2006, and 14.67 percent lower than the previous year. Since last year, the housing market has posted decelerating growth, blamed on the sluggish Thai economy. The purchasing power of homebuyers has been affected by spates of negative factors, thus causing them to adopt a more cautious stance in their home purchase plans. Most have opted to defer their decisions on home purchases pending an economic recovery. This has dealt a blow to the mortgage financing industry since early this year. As a way out, commercial banks and other financial institutions have introduced more attractive packages of interest rates to revitalize the market. Because of this, competition in the home loan market became more intense during the second half of this year. KASIKORN RESEARCH CENTER (KResearch) takes the view that new housing loans in the system for all of 2006 will finally be seen to have grown in a range of 10-12 percent to reach THB1.33 – 1.35 trillion, against the THB1.21 trillion of the year before.
Conclusions and Comments
Looking ahead, KResearch is of the view that the mortgage financing industry will see heightened competition in the final quarter of 2006. Promotional campaigns and marketing-related activities are likely to be actively launched as part of financial institutions' efforts to expand their mortgage bases during the remainder of this year. These programs may include new products with a wide variety of special interest rate offers, based on customer demand and debt servicing ability.
In addition, mortgage financiers will undertake strategies of fee reductions, giveaways and sweepstakes more in Q4. Apart from the interest rate factor that is quite influential toward decision making by home-loan customers, other associated factors are becoming more important, i.e., service, capabilities and rapidity in serving customers. Moreover, for commercial banks, price competition will definitely affect their profitability; therefore, they will try to offer other alternatives to please customers by turning to sales promotion programs to intensify the competition.
Although commercial banks have undertaken many marketing strategies to expand their loan portfolios, i.e., launching a variety of products, offering different plans of loan rates to attract borrowers, risk management is also becoming vital to bank business. Banks will be maintaining strict measures in screening the qualifications of borrowers in order to control loan quality, i.e., offering information to applicants for housing loans to educate them about related mechanisms in the loan system, and letting them know about methods to check the qualifications of loan applicants, etc.
However, KResearch views that in the remainder of 2006, housing loan business will likely decelerate, which mainly due to the slow economy affecting people who are thinking about buying homes. Buyers' anxiety about their future income induces hesitance in their decision-making. On the contrary, if the economic direction improves next year and negative factors toward their decisions to buy homes improve, homebuyers will be more confident on income stability in the future.
An interesting issue for homebuyers to consider is the fluctuating trend of interest rates likely to be seen in the future, as most financial institutions view that interest rates may fall next year. Hence, it is possible that some homebuyers will slow action on purchases over the rest of the year in order to await a clearer direction in interest rates. However, commercial banks and financial institutions will launch products with different formulae on interest rates.
As for the factor of locations of housing projects, locations near mass transit will be an important factor in buying decisions. The most popular locations are near mass transit systems. Although the government has mentioned the possibility of 5 new mass transit lines, buyers have to wait for the clarification of these rail routes that are expected to be launched in March and begin construction by next October. It seems that some customers will be waiting to see the likelihood of these mass transit projects before making buying decisions.

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