Small and new developers are facing greater difficulty getting project loans for condo developments as financial institutions become concerned about a possible oversupply in the market.
Surachet Kongcheep, senior manager at the property consultant Colliers International Thailand, said loan approval has become more difficult for small developers with no track record of condominium development or new developers that have switched from other business.
"For small developers that have had project loans and want to get a loan for a new project, banks will consider the success of their previous projects and their sales rate," he said.
Financial institutions have not been directly told by the Bank of Thailand to tighten requirements for project loans, but many are now more careful out of fear of a repeat of the 1997 financial crisis, Mr Surachet said.
Stricter requirements include a higher percentage of presales, from 40-50% or even 60% in some cases.
"Banks saw looming signs of possible risks in the property market last year when the central bank announced it would decrease the loan-to-value (LTV) ratio for homebuyers applying for finance for a condo unit," said Mr Surachet.
Banks also require developers to collect a down payment of 15-20% from buyers.
Some developers require customers to make down payments every three months when previously it was every 6-12 months.
Certain projects require higher monthly payments of up to 1.5 times the usual rate.
Despite being listed and having a big name, developers such as Supalai Plc and L.P.N. Development Plc have increased their down payments to 10-15% from 5-10%.
This is also to help prepare customers for the new LTV ratio when applying for housing loans, said Mr Surachet.
L.P.N. and Pruksa Real Estate Plc also apply a self-screening measure by limiting each customer to booking no more than two or three units.
Other new requirements are an environmental impact assessment and a construction permit before project loans can even be considered.
Mr Surachet said project location is another factor that concerns banks.
If the location is at risk of an oversupply, banks may refuse to approve a project loan.
Colliers' market research shows two locations that face a condo oversupply are Sukhumvit Road between Soi 77 (Soi On Nut) and the Bang Na intersection in Bangkok and Jomtien in Pattaya.
Mr Surachet suggests small or new developers ensure they have enough funds for project development and apply escrow accounts to protect banks and consumers.
Using a property consultant as a project sales agent is another way to help such developers apply for loans, as the third party can reassure banks regarding market feasibility, he said.
Apinant Klewpatinond, president and the chairman for commercial banking at Kiatnakin Bank, recently admitted his bank has been tightening loan approvals for condo projects out of concern about the segment.
Condos normally carry a higher risk than low-rise residential units, and developers' expertise is among the key criteria for project finance approval, he said.
Other banks have taken similar steps amid fears of speculation after the Bank of Thailand recently warned of a property bubble in some areas, especially near electric rail lines.
To avoid loans turning sour, banks have mainly focused on SET-listed developers.
A project's presales ratio and debt-to-equity ratio are other main considerations.
About the author
- Writer: Kanana Katharangsiporn
Position: Business Reporter