Thailand

Country Profile

_{Along the Chao Praya river in Bangkok, Thailand [http://www.transitionsabroad.com/publications/magazine/0411/chao_praya_river_in_bangkok_thailand.jpg]}

Thailand has a high owner occupation rate, with 75 percent of urban households owning a home, of which 80 percent have a mortgage, as of 2008. Thailand’s residential debt to GDP ratio is 17 percent as of 2008.

Thailand established a Government Housing Bank in 1953, which serves as a specialized financial institution for the provision of loans to home buyers and developers. At inception, the bank was also charged with undertaking housing developments, but this function was transferred to the National Housing Authority in 1973. Around the same time, the Government Housing Bank began to accept deposits to mobilize savings from the wider population, and currently operates 147 branches throughout the country. The market share of outstanding loans held by private lenders versus GHB is approximately 64 percent to 34 percent.

In Thailand, typical mortgage terms are for 20 to 30 years. However, interest rates are initially fixed for a short term and then adjusted to a floating rate for the remaining of the term. For example, in calculating a buyer’s monthly payment on an initial home mortgage loan with a nominal rate of 6.5 percent interest rate, the banks may add 1 percent to 2 percent “reserve” equating to an initial interest rate of 7.5 percent to 8.5 percent. This practice is useful for both the lender and the borrower as it offers a cushion to mitigate potential default risks. If interest rates have risen at the interest rate adjustment date, borrowers’ monthly payments will not be adversely affected. If subsequent interest rates do not rise higher than the agreed-to rate, the partial pre-paid installment will amortize the loan principal faster than the contracted term. For example, a 20-year term loan may be shortened to only 17 to 18 years. Due to this “installment calculation” and “adjustable loan term” practice, Thailand enjoyed very low NPL ratios of 2 percent to 4 percent before the 2008 crisis, although this rate has subsequently risen.

The Government Housing Bank has launched different products to stabilize the markets after various economic crises, including the introduction of tax-free savings accounts in 1981. Following the economic meltdown of 1997 to 1999, GHB introduced 30-year fixed, low-interest loans in co-operation with the Government Savings Bank, and set up a secondary mortgage market office. Overall, GHB is seen to adhere to market rates and not distort the market.