Real Estate Financing For Foreigners

[William]

REAL ESTATE FINANCING FOR FOREIGNERS

BBL in Singapore meets rising demand

NINA SUEBSUKCHAROEN
Singapore _ Foreigners keen on buying freehold condominiums in Thailand have always had great difficulty obtaining financing from Thai banks, until Bangkok Bank's Singapore branch pioneered the service two years ago.

Now the bank is extending its loan terms from 10 years to 20 and has also increased the amount available to 70% of the purchase price from 60% earlier.

''So now borrowers can get more benefits from the programme,'' said Torphong Charungchareonvejj, general manager of the BBL branch in Singapore.

He said the number of inquiries about the service had also prompted the country's largest bank to make information about financing for foreigners available from selected branches in Thailand as well.

The success of the BBL programme has prompted Singapore's United Overseas Bank, which also has a presence in Thailand, to make similar offers to non-Thai borrowers.

Bangkok Bank customers who borrow Singapore dollars to buy condominiums are charged the prime rate, currently 6% per year. Loans in US dollars are charged the USD prime rate, currently 8.25%, plus 0.5%, or 8.75%. Loans in euros are charged the euro prime rate, currently 7.25%, plus 1%, while loans in yen carry the yen prime rate of 2.85% plus 1.25%, for a total of 4.10%.

The maximum loan amount is US$800,000 or equivalent and the minimum is US$100,000.

Mr Torphong said the majority of the borrowers were Britons, French and Singaporeans with a lot of other Europeans showing interest. The average loan amount is S$250,000, or 4.95 million baht.

Based on the applications BBL's Singapore branch has handled, demand among foreigners is greater for condominiums in Bangkok rather than resort properties in Phuket. However, Mr Torphong notes that the bank does get applications to finance property in the resort island and in Hua Hun.

While many clients are buying property to live in, others are investors who are seeking returns of 5-7% a year plus capital appreciation, he added.

Bangkok is attractive to them because prices are relatively low compared with Malaysia and Singapore itself, where values have been surging in part due to large inflows of foreign investment.

Mr Torphong acknowledged that there had been a slowdown in condominium loan applications, reflecting political and economic uncertainties. However, property prices have not dropped, so some buyers believe they should conclude deals before prices start rising again.

''If we look long term, we are quite bullish about 2008. Hopefully the [new] government will provide confidence ... and by then the Thai economy should come up again, catching up with our Asian neighbours,'' he said.

''In 2007 we expect GDP growth of around 2.8% to 3.8% so 2008 should be much better because we will be coming up from a low base.''

Mr Torphong said he fully supported recent moves to stem the baht's rise against the US dollar, noting that relaxing foreign direct investment and foreign portfolio investment overseas is the right strategy. ''Since Thailand has an export economy, we have to export, but if the baht-dollar rate is too strong then we will have difficulty.''

The sharp upturn in foreign fund inflows has hardly been unique to Thailand, he noted. ''The whole world is now flooded with oil funds, given that the oil price is now $70-plus per barrel, so a lot of oil money does create a lot of supply. Of course, the other part is some funds are moving to this part of the world from the US and Europe.''

While Thai-Singaporean political relations have been strained over the past year, Mr Torphong said average Singaporeans still liked visiting Thailand and the bank continued to receive its share of loan applications from them as well.

Singaporeans enjoy the benefit of a liberal financial market and numerous products for personal investment compared with their Thai counterparts. Mr Torphong believes it will take time for Thailand to change its legal and tax frameworks to accommodate more financial products.

Among the financial instruments popular in Singapore are real estate investment trusts (REITs) which are commonly referred to as property funds in Thailand. Mr Torphong noted that Thailand's property-fund market was still quite small and illiquid but was likely to expand over time.

''[In Singapore] we have REITs for the hotel business, serviced apartments, shopping malls, industrial parks, even vessels. Almost everything can now be put into a REIT for fund-raising and this is how fast the market has developed.''

The Monetary Authority of Singapore (MAS), the central bank, has laid a broad foundation for the investments, which allow developers and asset owners to benefit by converting long-term fixed assets into cash for immediate use.

Mr Torphong also observed that Singaporean property developers are more willing than their Thai peers to sell fixed assets and reinvest the proceeds. ''That's how they look at their financial planning.''
Even big Singaporean companies see the benefits of turning assets into cash _ both DBS and Singapore Airlines have sold their headquarters buildings. ''So that is their mindset. Such large corporations securitise their fixed assets and make use of their additional resources.''

source: Bangkok Post 06.08.2007

[Marmite the Dog]

Bangkok Bank customers who borrow Singapore dollars to buy condominiums are charged the prime rate, currently 6% per year. Loans in US dollars are charged the USD prime rate, currently 8.25%, plus 0.5%, or 8.75%. Loans in euros are charged the euro prime rate, currently 7.25%, plus 1%, while loans in yen carry the yen prime rate of 2.85% plus 1.25%, for a total of 4.10%.

Surely everyone would borrow Yen rather than Dollars?

[Butterfly]

But I am assuming that banks in Singapore will lend only to Singapore expats, not Bangkok expats, to secure the loans.

[AntRobertson]

But I am assuming that banks in Singapore will lend only to Singapore expats, not Bangkok expats, to secure the loans.

Nope, as with all good capitalist ventures they'll take money (i.e. interest) off of anyone who can met their intial criteria, regardless of origin.

Very smart on their behalf if you think about, identify a hole in the market and move to meet it. Of course if it's a success we might just see the Thai banks changing their policies also.

[Butterfly]

^ ah, I will investigate this, but you have the currency question and the fluctuations can really fuck you over. Borrowing in SGD for THB transactions could be a loan disaster waiting to happen

[AntRobertson]

but you have the currency question and the fluctuations can really fuck you over.

Yup, very much so. I'd imagine there could well be a few expats on US$ packages crying into beers in bars scattered across the Kingdom. Relatively hefty % rates as well.

Still, if you manage it well it's definately a good option to have given the restrictions here. To my mind the best thing to do with regards any property is private finance, it's off the books so to speak so is great if you do eventually require a bank loan. Of course it's not always an option though.

[William]

you could also enter into a hedging arrangement to mininise both currency and interest rae concerns. but would generally agree that this will not be the cheapest way you can do this

[The Ghost Of The Moog]

The unavailability of Baht financing under this scheme is frankly a major downside.


I don't see many retail hedging products available to Joe Public, eg forex forwards.

[The Ghost Of The Moog]

Surely everyone would borrow Yen rather than Dollars?

....You take the risk that if the carry trade unwound, and the Japanese yen strengthened (making your repayments higher), and their interest rates doubled, you'd be right up the wazoo.

[AntRobertson]

The unavailability of Baht financing under this scheme is frankly a major downside.

If I'm understanding it correctly I think that's a requirement under the current regulations for foreigners purchasing property (condo) in Thailand.

That is to say the loan must be structured under a foreign currency owing to the requirement that funds to purchase must be shown to have orginated from overseas. Or, to put it more simply, more Thai red-tape / beauracry

[Marmite the Dog]

Surely everyone would borrow Yen rather than Dollars?

....You take the risk that if the carry trade unwound, and the Japanese yen strengthened (making your repayments higher), and their interest rates doubled, you'd be right up the wazoo.

I did like the way they added 1.5% to the Yen rate, just to make it a bit nearer all the other currencies.