(Source: Bangkok Post)
By Pornnalat Prachyakorn, Bangkok Post, ThailandJuly 19--Thailand's property market should start to feel an impact next year when the key
interest rate is expected to hit 3%, according to Samma Kitsin, the director-general of the Real Estate Information Center (REIC).
Mr Samma said the recent increase in the Bank of Thailand's short-term interest rate by 0.25 percentage points was small and would have a negligible impact on the property market.
The central bank last week raised its one-day policy rate for the first time in two years to 1.5%. Local
banks have already begun to respond with minor increases in lending and deposit rates.
The property market is expected to remain calm until the end of the year despite a tendency of the interest rate to rise further.
"Interest rates could be increased at least twice more through the end of the year, but likely in a gradual fashion," Mr Samma said.
The next increase could come at the Oct 20 Monetary Policy Committee meeting, followed by another at the Dec 1 meeting. The policy rate is likely to reach 2% by the end of the year.
Mr Samma said there was a small possibility of a rise at the next meeting on Aug 25, although this would depend on second-quarter economic figures and inflation trends for July. The National Economic and Social Development Board is to release official second-quarter growth figures on Aug 23.
"If the second quarter GDP figure turns out as good as the [12% rise posted] in the first quarter, or if July inflation spikes, we could see an [interest rate] move in August," he said.
But the property market is unlikely to be affected by rising rates until 2011, when short-term rates could reach as high as 3% by mid-year or in the third quarter.
Homebuyers with existing mortgages will pay more on floating-rate
loans. New borrowers, meanwhile, will likely face lower borrowing limits, potentially pushing buyers toward the lower end of the market.
"[The rate trend] will likely affect private banks more than state-owned ones, as the state banks primarily focus on the lower- to middle-income segment," said Mr Samma.
Price hikes by developers, meanwhile, will be constrained by high market competition, even as funding costs and other expenses rise, resulting in lower profit margins.
"Although earlier this year we heard some developers discussing possible price rises of up to 7%, in reality it's difficult to raise prices amid such intense competition," he said.
Khan Prachuabmoh, the president of the GH Bank, said the state-owned bank would seek to maintain its loan rates until the end of the year. He said the bank had ample liquidity with no need to lift deposit rates.
But a rate hike would be considered if the bank saw deposit outflows to other institutions, Mr Khan added.
He said purchasing power remained strong in the market even with the recent expiration of tax incentives for the property market, with the GH Bank recording 20 billion baht in new home loans for June alone.
The bank, one of the country's largest mortgage lenders, will maintain a full-year loan target of 90 billion baht. In the first half, GH Bank extended 50 billion baht in new loans.
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From: http://www.istockanalyst.com/
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