Tuesday, June 5, 2012

First-Home Scheme Reinforcement

Due to the failure of the Finance Ministry’s first-home buyers scheme to attract attention from homebuyers, there are plans to revise the rules. So far, only 2 billion baht has been disposed. This is 18 billion baht short of the projected 20 billion baht. The original plan makes the plan available only until the end of 2012. This may be extended.

Details of the Scheme

This policy encourages new-home buyers by asking banks to provide interest-free loans to mortgage applicants.  The mortgage only lacks interest for the first three years.  In six months, this scheme has only managed to receive 2 billion baht of applications out of a budget of 20 billion.

This has frustrated Prime Minister Yingluck Shinawatra to the point of demanding that his finance officials work on ways to encourage more people to participate in this scheme.  Failure of the operation has been traced to the low 1 million baht home price ceiling, because Bangkok does not have many homes that are selling for below that price.  People in the city have more spending power than what the government is allowing for.

The additional million baht will not be interest-free and will instead have a normal rate, while the first million will retain the interest-free condition. The government’s populist policies have been criticised by both economists and academics, but the Finance Minister and Deputy Prime Minister has disagreed and attributed first-quarter growth to these new policies.

Proposed Changes 

Finance Minister Kittiratt Na-Ranong said that they are taking several steps to determine why the application for the loan is low. However, they are already ready to implement several changes including raising the price cap to 2 million baht. This is because 2 million baht is the baseline price of homes being sold in the market. They determine that many lose interest in the current scheme because they have no other means of paying the balance of the home price.

Kittiratt believes that this entice more Thais to avail of the scheme especially during this time when the market is slowing down. The first quarter is moving slower in than it did the same time last year. The change is anticipated to ignite the market’s interest to purchase homes instead of renting. This should be enough to reignite the market in the 2nd quarter.

The government are also planning to cooperate with different agencies and other companies for marketing and sales drives. Last March, different developers showcased their properties at the Queen Sirikit National Convention Centre in Bangkok. There were more than 600 properties were displayed The government is also approaching different financial firms, including banks, to offer different financials schemes to further encourage Thais to look into buying homes.

So far, several banks have responded by offering zero interest rates for the first six to twelve months.
The First-Home Scheme has received different criticism, specifically from the World Bank. The World Bank discouraged the Thai government to offer or extend populist projects. Kittiratt insisted that this project will help Thais improve their productivity and quality of life. 

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