Thai property sector will be adversely affected by the global crisis due to falling demand and strict housingloan policies, Bank of Thailand

The study said the global recession would reduce consumers' purchasing power and erode confidence, while commercial banks tighten their homeloan policies.

This will lead to many consumers postponing their decision to buy. Moreover, developers will delay their investment in projects.

Since the 1997 financial crisis, the realestate sector has improved gradually in keeping with the economic recovery, backed by lower interest rates and high expansion of housing loans.

The industry has played a crucial role for the economy due to the high value of assets for the household sector. Moreover, most people in the household sector must rely on loans to buy assets.

BOT executive Duangporn Rodpengsangkaha and her team found in their study that volatility in the price of housing depended on the peculiarity of the market, particularly interest rates, and supply.

Housing prices will be particularly volatile in places such as the United Kingdom, Hong Kong, Singapore and South Korea, where supply is slow in adjusting. Also, they use adjustablerate mortgages.

Volatility in the price of housing has a significant impact on economic stability. Past experience have shown that a bubble in the housing market has led to an economic crisis in both developed and developing countries.

The impact will be huge in countries where the ratio of people's ownership of houses is large compared to other assets, especially when housing prices fall sharply, the BOT said.

Moreover, the risk has increased since the housing market has become more relevant to the financial markets and financial innovation. This was revealed by the US subprime market fiasco, which has had a widespread impact on the world.

Housing prices in each country have different levels of volatility, depending on the economic cycle and the peculiarities of the market, the study found.

Moreover, monetary policy has an impact on housing prices in countries with adjustablerate mortgages, a highly developed housing market and nonrestrictive regulation of the industry.

"There is a lot of debate on using monetary policy to take care of the price of housing. It is difficult to do that in many countries if the economic cycle and housingprice cycle are not relevant, such as in the United States, Italy, Spain and Taiwan," said the study.

Source: The Nation 6 May 2009