(Notes from the seminar “Housing Finance in Thailand” given by Kitti Patpong-pibul, Chairman of the Housing Finance Association in Thailand)
The economic history of Thailand in the second half of the twentieth century has been highly determined by the international dynamics and it has impacted directly over the housing finance, policies and provision.
The financial crisis of the late sixties and early seventies in the United States produced by the high inflation that followed the end of the Vietnam War lead to the end of the dollar-gold convertibility and to the securitisation system for subprime mortgages. The crisis also affected the Thai housing market. Most of the projects were foreclosed by the commercial banks.
The Thai government reacted to the housing crisis writing the first law related to housing development in 1972. The following year they institutionalised the housing issue creating the National Housing Authority (NHA) which has been successful until today selling houses and providing cheap loans for the demand. The NHA operates with limited funds provided by the government and consequently it relies mainly on self-funding from the loans and sales.
Again the oil crisis of 1981 affected the housing finance schemes internationally, including Thailand. The Government Housing Bank (GHB) had to change the lending system from fixed rate to variable rate. A new system of adjustable mortgages automatically extendable started operating successfully and also allowed Thailand to overcome the second oil crisis of 1989 without affecting the housing market.
The lower risk provided better returns for the commercial banks and there was a continuous housing boom from the eighties, only slowed down by the Gulf War. However, also from that period the Thai government promoted foreign currency borrowing without knowing the risks. Subsequently, the Thai economy busted in 1997. The commercial banks stopped lending house mortgages and people migrate to the GHB that has the money during the crisis.
In the current times the GHB is the biggest mortgage lender in the country with more than a third part of the market, with interest rates from six to seven per cent. From 2002 the GHB is providing mortgages in the context of the low-income housing programme Baan Eur Arthorn and also is a relevant actor in the Community Organizations Development Institute (CODI) financial structure of loans and housing provision.
The GHB finances CODI to provide loans for low-income communities gathered under savings groups. These are the borrowers and CODI evaluates their ability to repay in the long term. CODI charges a two per cent interest to the groups and they charge a six per cent to the individuals interested on taking loans. The margin is used by the saving groups mainly to develop a welfare system within the communities.
The main difficulty is that cheap funds can only come from the government basically from tax money. The market is not able to do that because the operational costs and risks are too high. Then, the main issue is to use tax money wisely as CODI is doing.
The challenge of scale the financial strategies is determined by the local situations and it is about getting money from the rich. People always look for the best return for their money so there is no cheap money. The GHB is able to help the poor just because their operational costs are lower under the same risk conditions and because the amount given to CODI is very small for the bank. It is small because housing is not a political issue and as a consequence, it provides low political benefits.