Real Estate News

Published: February 6, 2004

'No Bubble Yet,' but all sides need to show caution.
Central bank says database is crucial

The Bank of Thailand sees no signs of an asset price bubble in the property market this year, but says the industry needs to exercise caution and be prepared to adjust if overheating occurs.

Both developers and buyers should be careful in borrowing from commercial banks, as the lesson learned in the past was that credit growth by 20% could cause a real estate crash, said Atchana Waiquamdee, director of the central bank's Economic Research Department.

She said the 1997 crisis was caused by business expansion based on inadequate supporting information as commercial banks granted credit using assets as collateral, with the resulting property price collapse causing huge damage.

The central bank has moved recently to prevent overheating, with regulations such as a requirement that lenders extend no more than 70% of the value of houses priced above 10 million baht.

Lenders must also detail credit approvals for developers who borrow more than 100 million baht in any quarter.

She said better information should be provided to help developers make more prudent investment decisions. The central bank suggests 10 items for an industry database: housing prices, land prices, housing demand, pre-built houses, housing completions, houses and land values, real estate credit, commercial building prices, and total construction costs.

"The real estate industry is regarded as a spearhead of economic stimulation because its value is very high," Ms Atchana said.

At its peak, the property sector accounted for 10.3% of gross domestic product in 1994. Last year, it accounted for 6.6% of all employment in the country, or 4.1 million jobs.

"Today, economists and analysts cannot tell whether the SET index or the real estate business will reach the bubble point because the value of assets would be determined in the future." she said.

A bubble bursts at the point where the price of asset is higher than the fundamental factors. Such an event could happen in any industry but should not pull down other industries with it.

Khan Prachuabmor, president of the Government Housing Bank, said the Finance Ministry was likely to approve the establishment of a national real estate information centre by March, with 200 million baht in funding. It would be open for public inquiries by year-end.

The centre will carry seven databases with information on residential units, offices, shopping malls, hotels and resorts, factories and industrial land, golf courses and land banks.

Real estate developers believe the market will grow by 10% this year to between 50,000 and 55,000 units sold. They agreed that low interest rates would be a major factor supporting sales, even if rates rose by 0.25 to 0.5 percentage points by the third quarter as many anticipate.

Prasong Owlarn, president of the Housing Business Association, said sales might reach 60,000 units this year, of which 50-55% would be single houses priced from 2-5 million baht. Townhouses priced at one to three million baht are likely to take 20-25% of the market and condominiums the rest.

Wanna Tantikasem, president of the Thai Condominium Association, said 10,000 condo units were built last year, far from the saturation level of around 40,000 seen before the crisis.

She urged condo developers to review new Bangkok zoning rules that will take effect in July, as appeals were possible until March 22.

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