Real-estate stocks rise on Bank of Thailand’s relaxed LTV norms

Realtor stocks have been rising due to a combination of optimism on improving property-buying sentiment and speculation that Bank of Thailand (BOT) would relax mortgage lending norms for the commercial banks.

The speculations on relaxed norms came true when the BOT scrapped the loan-to-value (LTV) limit of 80-90 per cent it had imposed in 2019. On Thursday, the BOT allowed commercial banks to lend 100 percent of property value on all new mortgage loans including refinancing of loans borrowed earlier.

This came as a surprise because in recent past, BOT was concerned about rising household debt.

Citing risk, and climbing household debt, BOT imposed a cap of 80 per cet on new mortgages on 14 Oct 2018. This led to the number of new mortgages falling from around 41,000 in 4Q of 2018, which was a 10-year peak quarter, to around 30,000 in 1Q of 2020.

This also decreased the proportion of new mortgages with an LTV of 90 per cent or more from 46 per cent in 4Q of 2018 to 35 per cent in 3Q of 2019. In early 2020, the BOT relaxed LTV norms, which led to a slight increase in new mortgages to around 33,600 in 2Q of 2021, with 43.4 per cent being with more than 90 per cent LTV.

While the BOT can make some sense of this data to justify relaxing LTV norms, commercial banks would remain risk averse and may not lend 100 per cent of property value.

If commercial banks restrict mortgage lending as they have done in recent past – and it is logical do so considering the frail state of the economy – BOT’s relaxation will help only a select few, i.e. rich people who have good credit but still want to borrow.

There are two other reasons for sudden interest in property stocks, points out a sales note from Krungsri Securities’ foreign institutional desk.

  1. The reopening of Bangkok will boost developers’ pre-sales, SPALI has upped new launches in 4Q.
  2. Governmental approval of long-term visa to foreigners investing in Thai property will boost developers’ sales.

As Thailand reopens, real estate developers are returning to the market with new launches. As per AREA, an independent property survey company, take-up rates and new launches hit a new low in September. An estimate from Bualuang research shows that 2021 may mark the worst year for take up and new launches for more than 13 years.

Many brokers have different choices for their best picks in the property sector. Here is some of the data we extracted from Bloomberg on rating, no of BUYs, HOLDs, and SELLs and Consensus target price

Note that this year controlling family of SPALI has purchased the company’s shares worth Bt706m. See the details below

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