Holt-Realty Newsletter, June 2006 -- Interior Ministry Update #1 of 3

Foreign Property Ownership Edict from Interior Ministry
By Marc Holt

There has been a new development in the property market I thought you should hear about. Even if you have already heard this news, I hope this newsletter will clarify things for you.

As we all know, Thailand has laws in place to restrict foreigners from owning property here in their own name. However, by setting up a Thai-registered company with the foreigner owning up to 49%, and nominee Thais owning 51%, many people have been able to buy land and houses.

The Interior Ministry issued a directive on May 28, 2006, telling all district governors to enforce the law and crackdown on foreigners using this loophole. Basically, land departments have been asked to use their power to investigate when registering land possession rights and contracts between parties. They may investigate both parties, if there is a foreign shareholder, and call them for questioning or have them send relevant documentary evidence. The order goes on to say that an investigation may be started where there is reason to believe that land is being bought for the benefit of foreigners, or it is reasonable to believe that a Thai holds shares as a representative of a foreign company shareholder.

For example, the provincial officers may order an examination of limited companies, limited partnerships and general partnerships "having the aim of carrying out business in immovable property. If a loan was taken by the Thai for the purchase of shares, then evidence of the loan is required."

However, the law does not specify which officials are responsible for investigating, nor does it say what will happen after the "investigation". It just says that "If after due investigation it can conceivably be believed that the request for registration....is to bypass the law, or it is believed that those involved are buying land for the benefit of a foreigner...the officers shall forward the findings to the Land Department to await the order of the Minister."

As no deadlines are set for the investigation, or how soon the Minister will deliver a judgment, there has been a lot of confusion and Land Department officers have been understandably reluctant to process transfer applications.

As a result, the property markets in Phuket, Samui and Pattaya in particular have come to a virtual standstill.

But this is Thailand, and the first things many lawyers involved in the property business did was look for loopholes, and they quickly found them. I won't describe them here for obvious reasons. Some property transfers I have heard about have already been carried out using the loopholes and they went through smoothly.

Despite this, there is so much confusion that the market may take a few months to settle down and get back to business as usual. Meanwhile, it is not the foreigners who are losing much. Anyone with properties already registered before the edict was issued are just sitting tight and waiting if they were intending to sell. If not, then they have nothing to worry about. But it is the Thais who rely on the property market for their income that are really suffering. Many developments have stopped work while the owners try to work out what to do. Workers are being sent home. They won't be asked to return until it is clear that property sales will be able to go ahead again. Other Thais employed in businesses that supply and support the property sector also stand to lose their jobs as a result. And let's not forget that the Land Offices are losing millions of Baht in revenue and taxes every day.

Credenda Associates financial services, can provide MORTGAGES to expatriates looking to buy a Thai property. By using your existing properties overseas as security we can release up to 75% of the equity. We can agree a mortgage in advance of purchase, and guide you up to the point of completion. All our mortgages have multi currency options and are interest-only with no redemption penalties; a bank approved repayment vehicle is used whereby you save regularly to repay the loan at a pre-determined date. Loans may be repaid between 5 to 25 years. Visit our website at www.credendaassociates.com. Or email your enquiry to services@credendaassociates.com

I have heard of a report on the Thai news that the government has called a meeting between government officers and people in the property sector to discuss the situation. I can't say at this stage where this will lead, but perhaps the edict will have an unexpectedly good result: It may have shown the government how dependent property sales are on foreign investors for a start. It may also show that the Thai government could find it much more profitable to consider allowing foreigners to buy and own their own land and home to live in. Of course, if this does come under consideration I am sure the government will impose some restrictions, but at least it may become much easier for foreigners to buy and own their own house and land in the future.

It was obvious from the start that the edict was really aimed at the many foreigners who have come here and opened up a Thai company with Thai nominee shareholders so that they could buy large pieces of land and develop housing estates. Now that it has become much harder for them to sell their homes many will be forced to sell their holdings and perhaps go elsewhere taking their money with them.

Soon after the edict came out I heard of one transaction that sailed through the Pattaya Land Department without any problem because the Thai company with a foreign shareholder was selling the property to a Thai. So, if foreign investor developers do decide to look elsewhere they should be able to sell their holdings to Thais. The only difficulty may be in how long it takes to find a buyer and whether they will get their money back and perhaps even a profit.

The current property boom has been driven largely by foreign investment money. The average Thai is struggling to buy a house and land, so nothing has changed for them. Again, this fact may well have some bearing on the decisions the government takes in the future. Would it be beneficial to the economy to let foreigners buy and own a land and house for their own occupation? Would it stop Thais buying that same land and house? The obvious answer will be that it won't make the slightest bit of difference at all. Property prices for foreign investors tend to be higher than anything many Thais can afford. In addition, most of the foreign investment has been in only four areas: Phuket, Samui, Pattaya and Bangkok, areas, with the exception of Bangkok where your average Thai is not interested in living.

LEASE PROPERTY IN THAILAND?

In my discussions over the last few months with some high-ranking people about why foreigners cannot own property, the invariable response was, "Why don't foreigners want to just lease property?"

When I explained that if we are going to live here, bring in our money, and generate income for a large number of Thais, why can't we own our own house and land instead? I told them that allowing us this small privilege would actually generate a huge inflow of foreign capital. They were stunned. Apparently, it had never entered their heads that letting us foreigners own a small piece of land in Thailand might actually benefit their country. Perhaps this edict has made them realize just how much money could be generated if they loosen up the law for us.

Of course, we can't expect them to just give us carte blanch to buy whatever we want. They may impose some restrictions, just as they have with the current law that allows a foreigner married to a Thai to buy up to 1 Rai of land in joint ownership, provided the foreigner invests 40 million Baht in government bonds or some other approved investment vehicle. Every foreigner I have spoken to about this has said, "No way! Why should I tie up my money this way without any real benefit?" A valid point and one the government should consider carefully if they do decide to change the land ownership laws.

So, where does this leave you, a potential property buyer?

Well, the first thing to do is to do nothing. Just wait and see. If you are interested in buying property here, spend the time checking the market on our website to see what is available and wait to see if it becomes easier in the near future. We are adding a lot of new developments right now, including some very reasonably priced condominiums.

You can still buy a condominium and own it outright, as long as no more than 49% of the building is owned by foreigners. Of course, you may find that the other 51% of the building remains virtually unsold because not many Thais like living in condos, and very few of them ever buy them.

As with many laws that are passed here that are subsequently seen to be unworkable, the officials involved may just decide to stop enforcing the edict after a little while. Nothing has really changed. The law the Interior Ministry asked officials to enforce has been in place for about 26 years. The only thing that has changed is that the Ministry decided it should be enforced now. So, that is what is happening. But as the result has not achieved what was intended, then the edict may be placed in a file somewhere and allowed to gather dust.

My advice? Just be patient and wait. The dust will settle and then I will send out another newsletter to bring you up to date with the latest information.

This has been declared:

The World's Funniest Joke -- by Spike Milligan

Two hunters are out in the woods in New Jersey when one of them collapses. He doesn't seem to be breathing and his eyes are glazed.

The other guy whips out his mobile phone and calls the emergency services. He gasps 'My friend is dead! What can I do?'

The operator says: 'Calm down, I can help. First, let's make sure he's dead.'

There is a silence, then a shot is heard.

Back on the phone, the guy says 'OK, now what?'

 Back to Top of Page