Mortgages and financing options

วันที่ 3 สิงหาคม 2551

With what still seems to be a void in the market when it comes to property financing for foreigners, there is no mistaking the increasing number of offers of loans and mortgages from private lender and developers alike. However, how safe are these arrangements, and if they are so, why aren’t the Thai banks following suit?

In answering both of these questions, it is necessary to look at the legal context of any loan agreement. The fact remains that for the arrangement to be smooth running, trust is required on the part of the lender.

If borrower fails to pay back the loan, usually a court case would follow and recovery of the money would be handled by the legal system. In Thailand, whilst the law is in place to recover money, it is a much slower system than in many other countries, with repossession of a property, for example, taking anything up to ten years to complete. It is for this reason that Thai banks are reluctant to lend money based mainly on the pledge of security, since if the loan cannot be re-paid, seizure and subsequent sale of the property cam be a major headache for the lender.

Of course, Thai banks do lend money for property purchases, but the credit scoring system that is in place is quite rigid. The system is entirely geared towards satisfying the bank that reliable payment can be made so that the security pledged will only ever have to be used as a last resort. For foreigners, Tisco, TMB and HSBC are among the few banks in Thailand that will consider granting a mortgage, but loans are usually over periods of not more than 10 years, and usually only for condominium units.

As for the offering in the market from private consortiums and developer, there are some very tempting offers on the market at present, since loans appear to be easy for foreigners to obtain, regardless of income. The offerings fall into three groups: privately financed secured loans on property already owned, usually over a period of one or two years; developer finance to assist with a purchase, usually offered by the project owners, and usually over three or five years, and more recently, mortgages offered by robust financial institutions that work together with developers to provide longer term financing.

Offshore lenders such as Bangkok Bank’s Singapore branch and UOB Bank also provide selective financing for foreigners who wish to buy a condominium unit in Thailand, however some of these schemes have high minimum loan thresholds. That said, there is likely to be an increase of activity in this space as the Thai property market becomes ever firmer.

For the former services, especially a private lender offering a cash advance against property already owned, the process can be very quick and often simply relies on the property being pledged as security. Usually no credit checking is required and the onus is on the borrower to make the payments under the agreement. This type of arrangement is often referred to as a ‘sale with right of Redemption’ and so upon repayment of the loan, the property is returned back to the borrower. Whilst Thai banks appear to be uninterested to offer such arrangements, private consortiums are starting to fill the gaps.

Typically, interest rates are still quite competitive considering the void in the market. Land transfer fees do have to be considered as an expense, as do any arrangement fees, but again, fees of a similar magnitude are often levied by mainline banks anyway, and so the process should still be seen as quite reasonable, It is certainly worth ensuring that any contract is watertight and that all of the paperwork is correctly issued.

In conclusion, with property prices firming up in Thailand, and mortgage financing on the part of foreign buyers therefore becoming ever more sought after, it is likely that the market for loans and mortgages for foreigners will flourish in the Kingdom, just as the property market has done.

Source: Thailand Property Report Magazine