Persistent low demand and high loan rejection rates as well as problems related to foreign ownership of condominium units have lowered the ceiling of Thailand’s property sector, with a cascading effect on multiple sectors of the economy.
The ripple effects of these problems are being felt instantly by the hotel industry, causing discontent among hotel operators.
The Thai property market has been struggling due to various factors such as slower economic growth, an oversupply of properties, and stringent bank loan restrictions — the loan rejection rate for potential buyers is reportedly as high as 50 per cent.
The Bank of Thailand (BOT) recently attempted to alleviate some of these problems by relaxing its Loan-to-Value (LTV) regulations.
Banks can now offer loans for 100 per cent of the property value for first homes onwards priced at 10 million baht and above, and for second homes onwards priced at 10 million baht or below. This relaxation is a temporary measure, from May this year to June 30 next year.
Trouble of daily rental for condo
One of the more contentious issues affecting the property and hotel sectors is the practice of foreigners owning condos offering their units for daily rental. This practice has drawn the ire of local hotel operators who argue that these foreign owners are effectively running illegal hotel businesses without having to adhere to the same regulations and tax obligations as licensed hotels.
The hotel industry is particularly vocal about the disparity in tax rates and the legal obligations of licensed hotels as compared to condo owners who engage in daily rental activities.
Licensed hotels are subjected to higher tax rates and must comply with stringent regulations under hotel law, whereas condo owners bypass these requirements, creating an uneven playing field.
The situation is particularly exacerbated by Chinese investors, who currently have the highest percentage of condo ownership among foreign buyers in Thailand. These investors are reportedly heavily involved in the daily rental of condo units, especially via the Airbnb app.
Foreign investors are permitted to buy up to 49 per cent of the units within a condominium development, but many find ways to acquire more through Thai nominees.
By doing so, they can gain majority control over the condo management, further enabling them to operate rentals without obstacles. This has led to complaints from Thai residents who feel unsafe sharing their living spaces with transient occupants.
The presence of numerous foreign renters in residential buildings has also caused unease among permanent residents, highlighting a critical need for regulatory intervention.
A legislative solution?
The issue has reached Parliament. Lawmakers are urging the government to take steps to protect the interests of local hotels and condominium residents.
Recommendations include stricter enforcement of existing laws and the introduction of new regulations to curb illegal rental practices.
Thienprasit Chaiyapatranun, president of the Thai Hotels Association, has questioned the government's 60-day free visa policy for foreigners. He suggests a review of the policy, indicating that tourists usually stay for two weeks or 15 days and therefore a 60-day visa is not required.
Meanwhile, Vichai Viratkapan, former chief of the Government Housing Bank’s Real Estate Information Center, recommends that the government allow condo owners to register if they wish to rent out their properties.
He also suggests that daily rentals should only be permitted in specific areas and during periods when hotel rooms are fully booked, thus mitigating the negative impact on local hotels.
Bleak outlook for property sector
Taking a broader view, Thailand’s property sector is grappling with a complex and challenging situation, with spillover effects impacting the hotel industry.
The interplay between local economic conditions, foreign investment practices, and regulatory gaps presents significant challenges that require coordinated efforts from various stakeholders.
The government’s role in addressing these issues is crucial to ensure fair competition, protect local interests, and foster a stable and sustainable property market. As the situation evolves, it remains to be seen how effective the proposed measures will be in resolving the underlying problems and restoring confidence in both the property and hotel sectors.
Should the government restrict daily rentals for condo units, it may dampen the residential housing market. The government may need to stimulate the sector by providing other incentives for homebuyers, says Vichai.
Regarding the move by the BOT to relax the LTV, Samma Kitasin, a real estate economist, says: "It would have a limited positive impact on the property sector as the biggest issue is the high rate of housing loan rejections by banks."
Danger of bad debts for lenders
Banks were cautious about approving mortgage applications, partly due to a significant number of housing loans turning into bad debts.
According to the National Credit Bureau Co, as of January the value of housing non-performing loans stood at 236.6 billion baht, a sharp increase of 27.1 per cent year on year. It was up 1.6 per cent month on month.
The number of bad loan accounts was 162,106, an increase of 14.2 per cent year on year and up 0.2 per cent over December.
Looking ahead, the risk remains high of more housing loans potentially turning sour, judging from the value of so-called "special mention" loans at 174.5 billion baht, up 8 per cent year on year. Special mention loans are those that have potential weakness, requiring close attention by the management, although they are not considered a significant risk of becoming non-performing.
There are, however, some encouraging signs as the special mention loans declined by 4.2 per cent from December.
Property developers have responded to weaker demand by reducing the number of new residential projects, and banks are also cautious in financing real estate projects, says Samma. He suggests that banks relax their loan criteria.
“Housing loans are better than clean loans such as credit cards, because they have a tangible asset as collateral and the prices of houses tend to rise in the future,” Samma explains.
