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Car Debt Puts Brakes on Condo Market

November 13, 2019
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The condominium market has been directly impacted by a lower purchasing power as Thais take on more debt to buy new cars despite the slow economic growth environment while foreign sales have dropped due to a strong Thai baht.

Back in 2011, the first-car scheme was introduced by the government to help boost the automotive industry in Thailand. It was very well-received as reported by the Department of Land Transport reported that the number of newly registered passenger cars in Bangkok in 2012 and 2013 was more than 450,000 cars per year, almost doubling the 2010 number and almost tripling the previous 10-year average.

After dropping for two years, in 2016, the number of newly registered cars started to increase again as those who bought under the first-car scheme started to replace cars with newer ones. In 2019, it is expected that the number of new car registrations will rise for the 4th consecutive year. While this is good news for the automotive industry, the debt that came with it, under the assumption that many car buyers need to take out loans, will have a negative effect on the ability of those people to service additional loans on condominium purchases. The loan-to-value (LTV) regulation and high mortgage rejection rate put even more challenges on the condominium developers to weather the storm.

The Bank of Thailand’s recent effort in cutting the interest down to 1.25%, the same rate as during the 2008 Global Financial Crisis, to boost economy could have less benefit to the condominium market as there is the LTV regulation controlling the market while it could be more beneficial to the automotive industry. However, this could lead to more automotive debt for the locals, limiting the spending power even further.

The increasing automotive debt and illiquidity of buyers will create uncertainty for condominium sales and transfer rates, especially at the middle to lower end of the market where affordability is an issue. Comments from many residential developers in the press recently have been requesting the government and the Bank of Thailand to consider the LTV regulation amendment and introduction of stimulus to improve the market.

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