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Housing Finance Market Overview
In Thailand, mortgage loans are available to homebuyers from both public and private financial institutions. The Government Housing Bank (GHB), a housing finance agency, was in 2006 with a market share of around 39 per cent the biggest market player. The combined market share of public institutions represented almost 50 per cent of the outstanding mortgage debt. The remaining market is clearly dominated by private commercial banks. The Thai housing finance industry has seen in the last years only a modest growth in relative terms. From 2000 to 2007 the ratio of mortgage debt to GDP increased from 14 to 18.3 per cent. However, according to a study from the Bank for International Settlements, only around 50 per cent of the Thai population had formal access to credit in 2006.
The Market from the Perspective of the Demand Side
In general, Thai banks will not permit loan-to-value ratios to exceed 70 to 90 per cent of the purchase price or appraised value. Almost all loans are variable rate loans whereof for the most interest rates are initially fixed for a short time period. Yet, the GHB offers loans of up to 100 per cent for some specific welfare programs. The Thai tax system offers a variety of tax incentives for individuals purchasing real estate. Interest paid on a mortgage to acquire one’s place of residence can be claimed as a tax deduction up to a set maximum. Special “welcome tax breaks” and reduced registration fees are also available. A further, indirect subsidy for the housing markets consists in the government guarantees public banks (like the GHB) enjoy.
House Price Development
The growth of house prices has been modest. From 2000 to 2008 the annual average growth in prices was only 2.2 per cent. Yet, the movement of house prices was characterized by high up- and downswings in this period.
The GHB’s funding has mainly emanated from deposits and the issuance of (government-backed) bonds. Yet, it was authorized to issue mortgage backed securities and planned to do so in 2008. Furthermore, the GHB considers to introduce a contractual savings systems for housing. Private commercial banks lean on deposits as main source of funding.