Global Mortgage Finance
(Thailand Property and Land Finance Specialists)
Article 2 - Thai Property Finance, What does the Lender look for?
Through several years of Delivering Results and having now established a reasonable referral network of developers and agents around Thailand, perhaps now it is time to help broaden the horizon for what properties/collateral can be found suitable to finance.
Whether you may be a Developer, Foreigner or Thai individual, finance can be provided against all sorts of collateral and typically, an aim would be to inspect and individually asses each and every building before approval can be granted. Once granted, only a valuation report will be required in the future to re-finance.
During an average month, any number of enquiries could be received, which ones make it through as approved and ones which don’t depend on a number of circumstances. This article is to open up a little for the readers to understand a bit more about what a lender may look for and what may be considered suitable collateral, for refinance.
Liquidity of Collateral
The first and foremost factor upon a large number of lenders lips is Liquidity which in turn could be assessed primarily by Location. A common error an individual often makes when preparing a presentation to approve their building or application for finance, is that they prepare based on a view the lender is interested in a business proposal. I.e. long term rental yields/profitability of the asset etc. Whilst this is a factor, a lender is often only interested in lending money in exchange for collateral and not, maintaining a property portfolio, managing property is a separate business. In circumstances of default, the lender would than wish to liquidate the asset sooner rather than later to repay the loan which may be left in arrears. A Condo unit may be in a great location, offer decent rental yields and good facilities but, if there are low sales on the building, it may suggest low liquidity and therefore, would perhaps see a decline or, lower loan to value granted.
What factor will determine the liquidity of an asset is also commonly known amongst buyers of property, you will often hear, Location, Location and Location. Prime location will almost always be easily liquidated or easily sellable.
Condo/Property Assessment During a review on the property when considering for finance approval the main list of points to consider are:
Sea View / No Sea View Facilities
Build Quality & Specifications
Parking / Transport/ Accessibility
Government Supplies – Water, Electric
Local Attractions / Conveniences
Natural Disasters, Flood Risk
Price Sq.m./w
Property / Land Restrictions & Allowances
Location
You may now be wondering, why it is necessary to look at all of these points just to lend on average only 50% of the property appraisal value….. after all, assuming a property is worth more than double what is lent on today’s value, why would one need to know these factors?...... The answer is simple, liquidity. A property with several good factors may bode well from the investors perspective today however, there needs to be a good clear exit strategy in times of loan default.
Assume a loan is lent on a condo unit with no or little, car park facilities….. What are the chances the unit could be sold quickly in the future, particularly if the unit is in Bangkok and nowhere near public transport links….. With several thousand other units available offering car park facilities…… which would you most likely prefer to buy?......
How about if a Condo building has over 1000 units available, all with similar specifications, over 40 floors, some facing the sea and some facing another construction site…… Would you prefer to buy at the top or bottom of the building…..or perhaps a different project altogether…..?
The thought processes one goes through to buy a property are also, part of the same thought processes a lender will go through in order to determine liquidity.
Documentation Required
Once a property has been determined suitable and approved collateral to offer as security for finance, it is now imperative to ascertain back ground checks on the client and their ability to repay. Remember, the lender is not interested in a good yield on the property and is not just comfortable with lending 50% against the value of property, ability to repay the loan should also be satisfactory. This can be broken down into 4 sections.
1. ID & Verification
2. Ability to Repay Loan (Income proof) A) Employees, B) Self Employed
3. Evidence of Wealth
4. Property Documents
In essence: Who is the client, Where will the money come from to repay the loan, What evidence is available to show client is a good standing citizen and finally, What property are they looking to buy. Sometimes, a lender may even see clients offer a cheque guarantee for every installment just to help ensure the loan is granted!
When looking at self-employed individuals, it is not uncommon for salary payments to be kept minimal and therefore, it is asked for the company’s registrations documents, list of shareholders and last 2 years audited accounts. Again, it may be asked why you need this information and the usual rationale, is that as salary payments are kept minimal, by providing this information, you can see what percentage income is relevant through the company and this can be used to form part of your ability to repay the loan. After all, a director of a company may sound good but is only substantiated if there is turnover going through the company. A director of nothing or a director of something….
Another common question when dealing with a Mortgage application is “why do you need to see my spouse passport?” and “why do you need a copy of our marriage certificate?” In Thailand, it is a legal requirement for a Spouse to give consent to both Mortgage & Borrow. I.e. If you Mortgage without consent and at a later date, the spouse find’s out, you will be required to deregister the transaction at the land department which would most likely cause many difficulties and expenses. In essence, if you are single, there is no requirement however if you are married, you will almost certainly require spouse consent regardless of where in the world you were married.
Approval Process
In a western world, banking and mortgage transactions is most commonly computer generated, given sign off by the computer initially or if in America up until recently, approved with no more than a passport. In Thailand, it is good to see that people make decisions and people make approvals. You may find that after submitting all documents, additional questions are asked; this is simply part of the process and therefore is imperative to be patient. In some institutions the work flows are very efficient and often, you will not be asked too much for additional documents. It is simply more a note/reservation, just to ensure you are prepared here in the land of smiles and that the finance will come for those who are supportive of the application process.
Why deal with a high profile lender?
Thailand is full of both Foreigner and Thai entrepreneurs all offering various different lending facilities and in some cases, you may even find the title deed is handed over to the lender completely, until your loan is repaid. As part of the public listed company and part of the MBK Group, our company is prime and perfectly positioned to offer confidence to the borrower, we are here tomorrow. In addition, we only lend after carrying out due diligence on both the property and borrower and you could almost assume that if we have the property on our books, we are confident there is liquidity in the property so perhaps our “approved list” could be used as a guide to help your first time lower risk property purchase.
At MBK Guarantee Ltd. Foreigner staffs are also recruited alongside expert Thai staff and therefore, can communicate clearly in both English and Thai. In summary, consider a lender liquidity or exit strategy in the loan application and you should bode well for finance.
Rates could be expected at a reasonable 2.00% Margin for Condo Loan and up to 5.625% Margin for Villa/Land/House assets. Terms can range between 3 – 10 Years and 50% Balloon payments are optionally available.
(Published Bangkok Business Brief, 17th September 2013)