Thai Finance Minister Amnuay Viravan today will defend his US$4 billion property rescue scheme in cabinet against widespread criticism it fails to address the key problem - a massive oversupply of homes. The creation of a Property Loan Management Organisation (PLMO) to buy property loans from domestic lenders was announced with much fanfare 10 days ago. Critics argue that in its haste to prevent a financial meltdown, the government has not attempted to curb supply or encourage price cuts in the residential property market. In other words, the government is gambling the market will turn around by very early in the next millennium before its protection scheme for over-enthusiastic lending institutions runs out. This might bail-out the finance houses, but it won't help the property market. Developer Land & Houses executive director Adisorn Thanannarapan said: 'I'd like to see the government using tax cuts and cheap loans to boost demand.' Overall prices have fallen about a third since their inflated highs at the beginning of 1995 in the face of an estimated 330,000 empty homes, although prime properties are down less, by about 10 per cent. Yet a gap of at least 15-20 per cent still remains between prices properties are being offered at and those that may tempt buyers, according to Jones Lang Wootton (Bangkok) research head Craig Plumb. Thai developers are reluctant to slash prices partly perhaps because property - unlike the stock market - has been seen as a one-way bet and because of the stigma attached to price cutting. 'We've actually encouraged our clients to break ranks because they'll be the ones to achieve the sales . . . if you are in Hong Kong or Singapore cutting the price is a perfectly natural reaction to changing circumstances,' Mr Plumb said. Lenders naturally may be even discouraging more price cuts for fear their precious collateral will be eaten away forcing them to make more profit-sapping provisions for bad debts. This is why Asia Equity (Bangkok) property analyst Vikas Kawatra reckons the key to the success of the government's new scheme is getting decent property valuations. Finance houses and banks that must sell their loans to the new management company at a 'real market value' have a cushion against some discounting because they typically lend only about 70 per cent of the book value of a property scheme. Thus, if a 100 million baht (about HK$29.83 million) project is valued at 60 million baht, the finance house that lent 70 million baht must take a 10 million baht write-off in selling the loan to the management company. The PLMO will then add the 60 million baht debt to others to create a debt pool of up to 100 billion baht that will be packaged into seven-year zero coupon bonds backed by a government guarantee. 'I think the critics are too harsh because this [scheme] is designed to soften the blow to lenders,' Mr Vikas said. 'It's the only [property] rescue plan I've liked. But if the government wants to get the market moving, the valuations mustn't be fudged too much.'