Wednesday, July 17, 2013

Calls for Scottish stamp duty reforms to be copied across the UK

Britain’s most-hated tax is about to be overhauled – but only if you live in Scotland.

Home nations: Could a change in housing tax north of the border herald similar moves in England and Wales? Photo: Alamy

By Richard Evans

2:55PM BST 12 Jul 2013

13 Comments

Britain's most-hated tax is about to be overhauled – although only if you live in Scotland.

However, there are hopes that the replacement of stamp duty north of the border, which will see the end of the hugely unpopular system of "highest rate of tax on the whole amount", will be copied in the rest of the country.

"There's a referendum on independence coming up," said Ray Boulger, an expert on the housing market. "It will be an open goal for Alex Salmond if he can say to Scottish voters: look, we abolished this immensely unfair tax as soon as we had the power to do so but the Westminster government is happy to keep it." To neutralise this threat, the Coalition could announce its own changes to stamp duty before the general election, Mr Boulger added.

Stamp duty is hated for two reasons. First, the amounts involved can be huge, preventing some families from moving when they need a bigger home and making it harder for people to move when they are offered a job in another part of the country.

Second is the unique way in which it is levied. Unlike income tax, say, where higher-rate taxpayers pay 40pc only on that slice of earnings above the threshold, stamp duty is charged at the higher rate on the entire sum if it is above one of the thresholds.

This gives rise to huge jumps in the tax bill at the various thresholds – £125,000, the level at which 1pc stamp duty becomes payable; £250,000, where the rate rises to 3pc; £500,000, above which 4pc is charged; £1m, where the rate is 5pc; and £2m, at which the rate becomes 7pc.

For example, if you buy a home for £249,999, just below the £250,001 level at which stamp duty rises from 1pc to 3pc, your tax bill comes to £2,500. But pay £250,001 and the cost shoots up to £7,500 – an increase of £5,000.

A bill passed by the Scottish Parliament last month scraps this system, replacing it with one that works like income tax. This will get rid of the sudden jumps in tax bills at each threshold. The new law is due to take effect in April 2015.

How likely is it that the Westminster government will follow Holyrood's lead?

Jeremy Leaf, a north London estate agent and housing spokesman for the Royal Institution of Chartered Surveyors, said the change in Scotland was "very good news" for the prospect of a similar move in the rest of Britain. "There's nothing better than showing a new system works in a place so close to home – it's like having a pilot scheme on your doorstep," he said.

Keith Denholm of Allied Surveyors Scotland said the reform to stamp duty north of the border was "long overdue" and would be relatively easy to introduce in the rest of the UK.

Mr Boulger, who works for John Charcol, the mortgage broker, said Scotland's move "must make a similar change elsewhere in Britain significantly more likely". He added that a decision was possible before the general election in 2015.

"There's a good chance that the Government will announce a review in this year's autumn statement or next year's Budget," he said. "This would allow it to announce the scrapping of the existing system before the election."

He pointed out that the Chancellor had reduced the top rate of income tax from 50p to 45p because he believed that higher tax rates discouraged economic activity. "If he really believes that, how can he argue against a reform of the stamp duty system that is bound to allow more people to move house, boosting activity in all sorts of areas, from DIY retailers to removal companies?" Mr Boulger said.

The effect of stamp duty on the housing market has become more acute since the financial crisis. When first-time buyers could get 100pc mortgages, saving up the stamp duty didn't take too long. Now, however, deposits of at least 10pc are required, with the stamp duty on top. Falls in house prices since the pre-crisis peak have also wiped out the equity in many people's homes, so their savings are needed for a deposit when they move to another property and cannot be used to pay stamp duty.

Paul Gallagher, a tax partner at Ernst & Young Scotland, which wrote a report on the new regime, said the Scottish Government had spent a lot of time and effort looking at land taxes around the world in order to come up with the best system. "We would expect the Treasury and HMRC to be looking at it," he said.

A spokesman for the Treasury said it had "no plans" to change the stamp duty regime in the rest of the country.

Can you avoid the dreaded duty?

The perceived unfairness of the current stamp duty system, especially the sudden jumps in tax bills at the thresholds, has led some people to look for ways to avoid it. Here are some of the tricks used either now or in the past.

Selling fixtures separately

Anything that brings the purchase price of a home below a stamp duty threshold will have a big effect on the tax bill. So some buyers persuade sellers to charge for fixtures such as curtains, carpets and kitchen appliances separately in order to bring the price of the property itself below a stamp duty threshold. This is perfectly legal as long as the fixtures are priced reasonably, but sometimes inflated prices have been agreed to squeeze the house price into a low tax band.

Cash under the table

Even simpler is agreeing an artificially low price for the official transaction and topping it up to the real price with an undeclared payment to the seller. This is outright tax evasion and therefore illegal.

Using a company

You used to be able to avoid stamp duty by putting your home into a company, then selling all the shares in the company to the new owner, rather than the property itself. This was often used for high-value homes. However, the Treasury has now clamped down on the practice.

Selling two or more leases

You can divide a property into separate legal entities so that each is priced below a stamp duty threshold. For example, a house could be split into two leaseholds and a freehold, with the new owner simply buying all three.

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Further Progress on Housing Finance

By PHILLIP SWAGEL

Phillip Swagel is a professor at the School of Public Policy at the University of Maryland and was assistant secretary for economic policy at the Treasury Department from 2006 to 2009.

The House Financial on Services Committee will hold a hearing on Thursday to consider draft legislation for housing finance reform put forward by its chairman, Jeb Hensarling, Republican of Texas, that would end the taxpayer backstop on mortgages now provided through Fannie Mae and Freddie Mac and wind down the two companies over five years. Under the proposal, private investors rather than taxpayers would fund mortgages and take on the risks and rewards of housing investments.

TODAY’S ECONOMIST

Perspectives from expert contributors.

New rules would foster increased use of covered bonds, under which a pool of private assets rather than a government guarantee protects investors against losses. The legislation further seeks to ensure that smaller banks continue to play a role in housing finance. The Hensarling approach thus has the desirable features of moving to a housing finance system driven by private incentives while protecting taxpayers and ensuring the participation of banks of all sizes.

The government role in the new system would be sharply defined, with regulators focused on oversight and setting standards rather than providing insurance. The Federal Housing Administration would continue to guarantee mortgages under the Hensarling proposal but would focus on first-time home buyers with moderate incomes.

Currently, the Federal Housing Administration is involved with loans of up to $729,750, which is difficult to square with the agency’s mission to expand sustainable homeownership. As documented by Joseph Gyourko, a professor of at the Wharton School of the University of Pennsylvania, the agency has financial troubles of its own. (I testified about the need for its reform at a hearing in February of the Senate Banking committee). The Hensarling bill includes changes that would address this situation.

Mortgage interest rates will rise with any overhaul that brings in private capital, but this reflects that the system is now undercapitalized with taxpayers at risk. Before the financial crisis, private-label mortgages bundled into securities without a then-implicit guarantee provided by Fannie and Freddie had interest rates from 0.5 to 1 percentage point higher than loans backed by the two government-sponsored enterprises.

It is hard to know quite how much rates would rise without a government backstop, but the housing market is in an upswing and affordability remains high, so it seems likely that the housing sector would continue to recover even with higher rates from both changes in housing finance and the Federal Reserve’s eventual normalization of monetary policy.

The proposal for a fully private system contrasts with the bipartisan legislation introduced a few weeks ago by Senators Bob Corker, Republican of Tennessee, and Mark Warner, Democrat of Virginia, in which a government guarantee would kick in on covered mortgage-backed securities after private investors have first taken losses equal to 10 percent of the value of mortgages receiving the guarantee.

The Corker-Warner approach involves charging insurance premiums for the government guarantee, so the interest rate difference between the two systems ultimately depends on the insurance pricing. In general, though, a fully private system would be expected to involve greater changes in interest rates and the availability of mortgages with long-term fixed interest rates.

Note that the Corker-Warner proposal’s 10 percent first-loss private capital is much closer to the House bill than it would seem just from comparing the required private capital shares of zero (the situation now) to 10 percent (Corker-Warner) and 100 percent (Hensarling). The total losses of Fannie and Freddie in the financial crisis were about 4 percent of their assets, so the 10 percent capital level in the Corker-Warner proposal makes the government guarantee very far back; this is an immense amount protecting taxpayers. The proposals are different, but they share the common ground of seeking to put substantial private capital ahead of taxpayers.

One might expect considerable pressure for Congressional action in the event of a future housing crisis in which private investors hesitate to take on housing risk and American families find it costly to obtain financing. In the Hensarling approach, Congress could always enact legislation that provides a guarantee on new mortgages but not on old ones.

This would be along the lines of a proposal by Harvard professors David S. Scharfstein and Adi Sunderam (though they would have the government offer insurance on a modest share of mortgages even in normal times, to maintain the capacity to scale up when needed). This implies that the proposed new housing system would not be resilient to future crises; the Corker-Warner approach explicitly takes into account the inevitability of future financial market convulsions.

A further challenge for the House approach to housing finance reform is to avoid inadvertently recreating the implicit guarantee of the previous system, under which policy makers provided a retroactive guarantee when the crisis hit. Securities backed by Fannie and Freddie were about $7.5 trillion of the $57 trillion in total credit market debt in the United States in early 2013, with another $2.5 trillion in home mortgages not tied to government enterprises.

The Treasury and the Federal Reserve both intervened to stabilize money market mutual funds in fall 2008, when those funds were less than $4 trillion of the then $51.8 trillion in credit market debt. Policy makers judged that a lockup of this aspect of United States financial markets would have an untenable negative impact on the economy. Given the considerably larger size of the mortgage market, one might reasonably expect a similar intervention in a future housing crisis. In this case, government intervention could be seen as latent and unpriced.

Even with these challenges, the draft legislation from the House Financial Services Committee represents an important step toward an eventual reform of housing finance that better protects taxpayers and the economy from the misguided incentives and risks of the previous system. The Hensarling bill provides a comprehensive and thoughtful proposal for a fully private system that serves as a benchmark in the policy debate.

The Obama administration has not yet weighed in with its preferences for reform. Engagement from the administration would be the natural next step.

Seattle’s Foreseeable Housing Bust

By DAVID LEONHARDT

David Streitfeld reports from Seattle, where house prices are falling:

At the peak, a downturn in real estate in Seattle was nearly unthinkable. In September 2006, after prices started falling in many parts of the country but were still increasing here, The Seattle Times noted that the last time prices in the city dropped on a quarterly basis was during the severe recession of 1982.

Two local economists were quoted all but guaranteeing that Seattle was immune “if history is any indication.” A market-risk index from PMI Mortgage Insurance gave the odds of Seattle prices dropping at a negligible 11 percent.

These days, the mood here is chastened when not downright fatalistic. If a recovery depends on a belief in better times, that seems a long way off.

When we last listed the price-to-rent ratios in major metropolitan areas, Seattle’s was near the top of the list. Only in the Bay Area of Northern California and in Honolulu were house prices higher, relative to rents.

A sky-high price-to-rent ratio is perhaps the single best sign that an area is in a housing bubble. Real-estate agents, homeowners and even home buyers can tell a lot of stories to justify the bubble — stories about central cities or good school districts being immune to bubbles — but eventually people will realize that renting is a much better deal and more will do so.

There is no such thing as a market price that cannot fall.

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Tuesday, July 16, 2013

Housing market recovery in Mexico

Mexico’s housing market is heading for recovery, despite US woes slowing economic growth throughout 2011. House prices in Mexico were up 4.48% during the year to Q3 2011 (1.07% in real terms), according to the Sociedad Hipotecaria Federal (SHF).

Similarly, average house prices in the Affordable-Entry segment of Homex, a major developer, rose 1.9% q-o-q to Q3 2011. Prices in the Middle income segment were up by 0.6%.

Stronger demand was evident in the 8% rise of mortgage loans granted during the year to April 2011. A rebound in economic activity helped. Mexico experienced 4.5% economic growth during the year to Q3 2011. The unemployment rate was down to 4.8%.

The impact of this economic growth on the banks’ loan portfolios is obvious; past-due loans both in Infonavit and in the banks were lower in Q2 2011. Bank loan defaults dropped to 3.4% in 2011, from 4.5% in 2009.

An expected surge of public investment in relation to the 2012 elections is likely to boost construction in late-2011 to 2012.

However, despite the economic rebound, both the manufacturing sector and domestic demand have been weakening recently, and the Mexican peso has continued to weaken against the US dollar.

The state drives house building

Over the past decade, Mexico’s homebuilding industry has been supported by a large need for homes, strong population growth, and aid from the state-supported funds INFONAVIT and FOVISSSTE. During the housing boom the ratio of self-built houses fell from 70% in 2000, to 30% of new houses in 2006. The growth of housing production, however, was interrupted during the financial crisis in 2008 to 2009.

In 2010, 375,769 new houses were available to be sold, according to La Asociación de Bancos de México (Mexican Banking Association). Around 70% of the units were intended for low-income and poor households or the ‘Social & Economic’ segment. 19% were for the ‘middle’ segment and 11% for ‘residential’ and ‘residential plus’ segments.

The government provides housing finance for low-income households mainly through INFONAVIT (Instituto del Fondo Nacional para la Vivienda de los Trabajadores or National Fund for Worker’s Housing Institute). The low-end segments are also served by Fovissste (Housing Fund for Public Sector Workers) and Sofoles (special-purpose non-bank financial institutions), sometimes co-financing with Infonavit. Sofoles also provides some mid-market loans.

As of Q2 2011:

Infonavit provided 66% of mortgages
Fovissste granted 11% of mortgages
Sofoles provided 0.21% of mortgages
Banks provided 20.03% of mortgages. Banks totally dominate high-end market segments.
Other entities granted 2.54% of mortgages

Housing subsidies were granted by CONAVI (Comisión Nacional de la Viviendaor National Housing Commission) (68%), and FONHAPO (Low-Income Housing Fund) (32%).

Almost all houses sold by developers get financing from one of four major sources. The increase in the amount allocated for mortgage financing is directly correlated with the expansion of developer-built housing.

Mexico’s ‘housing deficit’ – i.e., inadequately-housed households – is estimated at around 8.9 million. Infonavit has increased its 2011 financing target to 480,000 new loans from 475,000 in 2010 in aid to the reduction of housing deficit.

Construction starts saw zero annual change in Q1 2011, but the construction industry is expected to accelerate in H2 2011 and in 2012 due to an anticipated rebound in public investment brought by the upcoming 2012 election.

Better lending conditions

From 2005 onwards, banks aggressively increased their mortgage portfolios. New mortgage loans rose from MXN75 billion (US$5.3 billion) in 2004, to MXN 135 billion (US$9.5 billion) in 2005, and MXN 328 billion (US$23.5 billion) in 2009.

Most mortgages issued by banks have interest rates fixed for the duration of the loan term.

The mortgage market was around 10% of GDP in 2010. Mortgage interest rates remain high - the average rate for banks and Sofoles was 14.25% in October 2011.

Since 2000, banks have made significant changes that have led to better access to loans, and more favourable lending conditions.

Loan terms have been lengthened from 10 - 15 years in 2000, to the current level of up to 30 years.
Mortgage processing fees have been reduced to an average of 3%, from 6%.
Loan to value ratios have been raised to 80% – 90% from 65% or lower.

Effect of violence on the housing market

Although drug-related violence has been present in Mexico for the past three decades, the government was passively ignored the problem from the 1980s to early 2000s. This norm was broken when President Felipe Calderon took office in 2006 and implemented a militarized approach in dealing with drug cartels.

Calderon may have been partially successful, but around 40,000 people have been killed during his campaign against drug cartels. News about drug-related violence has particularly turned off potential American baby-boomer home-buyers.

However, a BBVA Research study has suggested that violence has only a limited effect on housing sales, because the violence is very regionally concentrated. Between 2008 and 2010, 46% of homicides were in five states only: Baja California, Durango, Sinaloa, Chihuahua and Guerrero, according to the SSP (Secretaría de Seguridad Publica or Public Security Ministry).

Plus, low income segments account for 80% of the housing market. The key issue for this segment is housing finance and housing supply, not violence, to which their communities are less vulnerable.

Constitutional ban on foreign land ownership

Foreigners might invest more, despite the violence, if there was no constitutional ban on the foreign ownership of land. Under the current system of fideicomiso, foreigners can only indirectly own real estate, by setting up bank trusts. Although this is relatively safe, it rests on the credibility of Mexico’s banking system and property registry administration, which unfortunately discourages many foreigners.

Economic slowdown

Mexico’s economy slowed this year (2011) because of the weakness of the US economy, with GDP expanding 4.5% during the year to Q3 2011. Mexico had 5.4% economic growth in 2010, after -6.2% growth in 2009. The recovery was possible largely through strong exports. Mexico’s economy is highly dependent on the US, and in 2010, 74% of Mexico’s exports went to the US. Remittances, Mexico’s second-largest source of foreign currency, amounted in 2010 to US$22.6 billion, or 3% of GDP, well down on the 2006 to 2008 average of US$25.6 billion.

In 2012, GDP is expected to grow only 3.3% (OECD forecast), again because of the weakness of the US economy.

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Where to buy in Thailand

The Kingdom of Thailand is a tropical paradise surrounded by the rich Southeast Asian landscape and emerald equatorial waters. It is a nation of sunny islands in the south and urbanized metropolitan areas that demonstrate the continuous progress of this developing nation.

With more than 14 million international arrivals in the country, Thailand is one of the most popular destinations in Asia. It has one of the most active tourism industries in the world, and has become the gateway to the rest of the Asia-Pacific region and Indochina.

Thailand has a diverse landscape. In the north are mountains and forests, whereas in the northeast are semi-arid farmlands. The Central Plains cradle the country’s vast rice fields, and in the south are Thailand’s famed tropical islands and its long coastline.

Thailand is also dotted with centuries-old temples that stand as a reminder of the kingdom’s majestic past and the Thai people’s prevailing faith. Buddhism, the dominant religion practiced in the kingdom, shapes Thai culture. Thailand’s native culture is very strong; the country is the only nation in Southeast Asia never to be colonized by European powers.

Thailand is a constitutional monarchy. It is ruled by King Bhumibol Adulyadej (Rama IX), the ninth king of the Chakri Dynasty. He is the longest-serving head of state in the world, and the longest-ruling monarch in Thai history. The King functions as the Head of State, the Head of the Armed Forces, the Upholder of the Buddhist religion, and Defender of the Faith.

Despite numerous political and military upheavals, the nation’s respect towards the monarchy has remained consistent. And even with certain restrictions, and the demand for utmost respect for both the King and Buddhism, Thailand projects an overall welcoming atmosphere. It is not surprising that the country’s economy continues to flourish.

Thailand caters to both the luxury and budget markets. A favourite destination among backpackers and bargain hunters, Thailand’s dynamic market place offer a wide range of products and services, from inexpensive arts and crafts products to medical tourism. It is also becoming a global hotspot for ecotourism and adventure travel. From culinary tours to extreme sports to just lounging on the beach, Thailand has become the top destination for many holidaymakers and thrill-seekers around the world.

The kingdom once known as Siam strives to maintain a balance between embracing modernity and preserving its proud, national identity.

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Thailand now has a house price boom too

by Lalaine C. Delmendo

Thai house prices are now rising at a faster pace, mainly fuelled by the country’s robust economic growth.

The Thai price index for single detached houses rose by 4.63% (1.48% inflation-adjusted) during the year to end-Q1 2013, the highest year-on-year increase since Q2 2009, based on figures released by the Bank of Thailand (BOT), the country’s central bank.

The condominium index which soared by 9.39% (6.1% inflation-adjusted) is actually a more relevant index. Condominiums are what Bangkok people tend to live in (and foreign buyers). The longer-established detached houses index may over-represent the rural population.

Likewise, the price of other property types and land also increased during the year to Q1 2013:

The price index for townhouses rose by 6.86% (3.64% inflation-adjusted)
The residential land price index increased by 4.85% (1.69% inflation-adjusted)

Property demand is rising fast. Total transactions by value, including both land and buildings, skyrocketed during the year to Q1 2013 by 35.3%, to THB219 billion (US$7 billion). 64% of all these transactions took place in the Central region.

Total outstanding property credits rose by 13.3% during the year, to Q1 2013 to THB1.86 trillion (US$59.7 billion), according to the Department of Land, Ministry of Interior. Of these credits THB1.37 trillion (US$43.95 billion) were personal housing credits, while the remaining THB490.5 billion (US$15.7 billion) were real estate development credits.

Thailand’s economy expanded by 6.4% in 2012, a sharp improvement from a meagre growth of 0.08% seen in the previous year, but still lower than the 7.8% growth recorded in 2010, according to the International Monetary Fund (IMF). The economy is projected to grow by about 5.9% in 2013.

Condominium glut

In the third quarter of 2010, there was a sharp drop in housing transfers in Greater Bangkok, because of the expiry of property tax incentives in June, according to the Real Estate Information Centre (REIC). Transfers fell 42% from the previous quarter, with a large number of transfers rushed through before the tax incentives ended.

In the same quarter, developers launched more than 23,000 condominium units onto the market to release pent-up supplies, according to the Colliers International Thailand. The launches were mainly in the low to medium end market, with reduced unit sizes, compensating to some degree for increasing land prices throughout the city.

The take-up, however, has been low, with buyers are increasingly likely to shop around before making a decision, notes Colliers. In Bangkok, take-up rate in Q3 plunged by to 51% from 77% in Q2, and 67% in Q1.

Nevetherless new condominium units near mass-transit routes will see price spikes of at least 5% in 2011, accprding to the real estate development firm Supalai Plc, due to higher construction costs and land prices. Customers will have to accept price increases as land for new condominiums in areas close to mass transit is very scarce. On the other hand, stable prices are expected for low-rise units.

Decreasing yields

The average rental yield in Bangkok is now around 6.2% in May 2010, down from around 7.2% in 2009, according to the Global Property Guide research. Higher yields are realized from condominiums measuring between 45 and 80 sq. m., with yields of around 7%.

In Pattaya, foreigners are shifting from buying residences to renting, at monthly rentals ranging from THB 50,000 to THB 90,000, according to Clayton Wade of Premier Homes Real Estate. Demand for rentals in Pattaya grew strongly when the baht began strengthening against the US dollar.

Interest rate hikes

In July 2010, the BOT raised its key interest rate to 1.5% after maintaining it at 1.25% since April 2009. The rate was further increased by 25 basis points to 1.75% in August, and to 2% in December.

There were concerns, however, about the BOT’s timing, given the weak economy in October. Baht appreciation may occur as interest differentials with the US widen, while higher costs will hit borrowers when banks follow the rates increase. However so far, the Government Housing Bank (GHB) interest rate has been constant since May 2009, at 6.75%.

The BOT explained that a negative real interest rate is inappropriate when the economy is expanding. With the key rate at 2% and inflation around 3.4%, the real interest rate is -1.4%, suggesting that further interest rate rises may occur.

BOT’s preventive measures

The BOT has released new rules in response to public anxiety that Thailand faces the risk of another property bubble, particularly in the condominium sector.

The BOT’s new rules take effect in 2011 and 2012.

for condominium units under THB 10 million (USD330,300), bank loans must be limited to 90% of a home’s value, from January 1 2011
low-rise housing loan-to-value (LTV) ratios are capped at 95%, starting January 1, 2012.
for larger loans, banks must increase risk weighting to between 75% and 100% of the loan value. At present, the risk weighting is set by the BOT for the property sector at 35%.

Risk weightings are used to calculate the minimum amount of capital required to support lending. The higher the risk, the greater capital is required by banks leading to increased overall costs in the form of higher interest rates.

Still no property bubble

In fact, a bubble is unlikely in the Thai property market as prices have risen naturally in the past three years, according to the Government Housing Bank (GHB), a state-owned lending agency. GHB’s president Khan Prachuabmoh insists that there is nothing unusual in the present situation, despite the substantial recent increases in low-end supply.

Real demand, not speculative demand, exists for low-rise housing below THB 3 million (USD99,100), which accounts for 70% of the market, according to Housing Business Association (HBA) president Issara Boonyong. The remaining 30% of demand comes from investors, who buy homes to generate rental income. The 23,000 registrations of new condo units in the first nine months of 2010, compares with 29,000 registrations of low-rise residences, adds Boonyong.

Demand for residential projects is expected to grow by at least 7% in 2011 despite the BOT´s measures to control the property sector, says Thongma Vijitphongpun, chief executive officer of Pruksa Real Estate.

The new rules are unlikely to affect demand, he adds, as down payments on residential projects are usually at least 10%. This is true for both condominiums and low-rise residences.

The low-rise residence market is expected to recover after the mass transit system expands to Bangkok’s neighboring provinces including Nonthaburi, Samut Prakan and Pathum Thani, according to deputy-governor Teerachon Manomaipibul of the Bangkok Metropolitan Administration.

Demand for rental units in city condominiums continues to grow from both local and foreign tenants as returns are higher (6-10% per annum) compared to saving in a bank, since interest rates for saving deposits linger below 2%, according to Asian Property Development’s senior vice-president Poompat Sinacharoen.

Mortgage lending up!

Somewhat confirming this, the preliminary figures for personal housing credit in Q3 2010 stood at THB 1.058 trillion (USD35 billion), up by 14.7% y-o-y, according to the BOT. The strong growth may be due to the special mortgage campaign launched by the Siam Commercial Bank, the biggest mortgage lender in Thailand.

The campaign allows borrowers to pay monthly installments as low as THB 1,000 (USD33) in the first year for each THB 1 million (USD33,000) taken out, tied with a special interest rate of 1% during the period. The campaign was offered until the end of December 2010.

Outstanding mortgages were 11% percent of GDP in 2009, only a percentage point up from 2008.

Strong baht, record-low inflation

Thailand’s economy expanded by a robust 6.4% in 2012, a sharp improvement from a meagre growth of 0.08% the previous year, but lower than the 7.8% growth recorded in 2010, according to theInternational Monetary Fund (IMF). Thailand’s economy grew by an average of 5% annually from 1999 to 2007.

In the first quarter of 2013, real GDP increased by 5.3% from a year earlier, a sharp decline from the 19.1% growth recorded in the previous quarter. On a quarterly basis, seasonally-adjusted real GDP contracted 2.2% in Q1 2013, according to the National Economic and Social Development Board (NESDB). The weaker-than-expected growth in Q1 was mainly attributed to the strengthening of the Thai baht and the eurozone debt crisis.

Thailand’s 2013 growth forecast has been revised down to 4.2% to 5.2%, from an earlier projection of 4.5% to 5.5%, by the NESDB.

In April 2013, the Thai baht hit a 16-year record high at US$1 = THB28.96, but it has since been impacted by the “Bernanke shock”.

Inflation slowed to 2.3% in May 2013, the lowest level since November 2009. The baht’s appreciation is helping contain inflationary pressures, by reducing import costs in local currency terms. The Bank of Thailand (BOT) expects inflation to average 3.4% for 2013, down from 3.02% the previous year. As a result, the BOT cut repo interest rates to 2.5% in May 2013, from 2.75% since October 2012.