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Thailand’s Housing Market Hampered by Rate Hike and Inflation

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The Housing Finance Association in Thailand expects rising interest rates and inflation to dampen the housing market and mortgage rates this year.

As building materials become more expensive due to inflation is also hammering the housing market.

Homebuyers and those seeking mortgages will feel the pinch of rising interest rates in the second half of this year, said Vichai Viratkapan, acting director-general of the Real Estate Information Center (REIC).

According to REIC, the Bank of Thailand will increase its policy rate twice in the second half of this year, each time by 25 basis points.

Low housing market growth

It is expected that headline inflation will reach 6% to 7% this year. As a result of this scenario, REIC predicts that the overall housing market will only grow by 2-3% in 2022.

Since Thailand reopened to tourists in January, there has been a gradual improvement in the property market aiding in the country’s economic rebound.

The last two years have been tough on the real estate market due to the pandemic. During the first quarter of this year, there were 30% fewer new home transfers than the same quarter last year, Mr. Vichai said.

In spite of this, demand for second-hand homes will be higher than for new homes, mostly because of lower prices and government incentives, he said.

Mortgage loan markets

Second-hand home transfers grew by 9.3% year-over-year during the first quarter of this year.

Mr. Vichai stated that under the worst-case scenario, with the policy rate increased by 50 basis points, the property and mortgage loan markets would register a modest growth rate for the full year.

Meanwhile, Thailand’s Housing Finance Association chairman Kitti Pattanapongpiboon said that higher inflation and rising interest rates are likely to impact existing and new homebuyers.

As a result, second-hand houses will gain in popularity due to their unchanged prices, greater supply, and the non-performing assets (NPAs) market; he noted.

“2022 Home-Loan NPA Grand Sale”

As of April this year, the banking industry’s non-performing assets were 135 billion baht, representing 46% growth year-on-year, up from less than 100 billion during the last pre-pandemic year of 2019.

This year, the Housing Finance Association will hold a physical and virtual exhibit titled “2022 Home-Loan NPA Grand Sale.”

According to the association’s secretary-general, Alongkot Boonmasuk, banks have provided financial assistance to existing mortgage borrowers to ease their burden.

He said banks would continue to help customers if the policy rate increased and passed through to market rates which may save the housing market.

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