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Calls for longer property leases for foreign buyers in Thailand

June 13, 2011

The Joint Foreign Chambers of Commerce in Thailand (JFCCT) and real estate consultants are pressing for a review of the country’s policy regarding foreign ownership.

They point out that the foreign buying segment is a significant part of Thailand’s property market and should be less restricted and failing to change will see buyers go elsewhere.

JFCCT is lobbying for the introduction of a 60 year registered lease term, double the current 30 years. But neighbouring countries have 99 year leases for foreign buyers.

The impact of an effective improvement in foreign ownership legislation on the construction industry, the real estate sector, and associated services would be significant, says CB Richard Ellis.
‘Properly handled, the contribution to the wider Thai Economy could be significant without any material risk to issues of sovereignty or adversely affecting social or economic conditions,’ the company says in a new report.

‘Most of the successful property markets in the region are either totally liberal, for example, Hong Kong, or have recently dramatically reduced restrictions on foreign ownership such as Singapore. Markets such as the UK, in actual fact favour the foreign owner over domestic buyers notably in respect of tax. In response to the global crisis, Singapore has liberalized its foreign ownership laws and launched for the first time landed villas at Sentosa which were targeted at new overseas investors and have been a resounding success,’ the report says.

CBRE believes that ‘sensible changes to current policy would have a dramatic and positive impact on Thailand’s economy. At a time of fragile global economic recovery, any incremental income that can be gained from international investment should not be lightly ignored’.

Probably the major change in terms of encouraging inbound foreign investment into the ownership of resort or investment property would be allowing Thai banks to lend to foreign purchasers against the security of Thai real estate, it explains.

‘This would have considerable benefits as all current inbound investments are on a 100% cash basis. This would benefit residential developers, resort developers, construction contractors, and the Thai banking system. Sensible restrictions and controls could limit the level of debt and the banks could charge foreigners a premium over Thai borrowers, probably of one to two percentage points. Foreign investors would rush to take up onshore loan facilities should this be allowed. They would also, in our view, accept specific and tighter controls on repossession in the event of default.’

‘The ratio of no more than 49% foreign ownership in a registered condominium is set to prevent foreign control of landed property. If, however, in certain areas, for example, the resort markets, the ownership ratio were increased to match market demand, there would undoubtedly be a significant increase in foreign investment. Provided the condominium is managed by a Thai management entity and the rules and articles of association of a condominium prevent foreign owners acting in concert, there is little risk to fellow Thai condominium owners or to the local property market,’ it explains.

‘All in all, Thailand would see considerable gains in inbound investment. This could also be used to stimulate potential new resort areas, and Thailand’s policy to increase tourism revenue.’

It points out that it has seen an increase in buyers in neighbouring countries such as Cambodia. ‘These buyers are not entering the market because Cambodia is cheap. They are entering it because they have long term registered security of tenure on competitive quality property. In a world of global uncertainty, Thailand is likely to fair much better than many of its immediate neighbours and arguably several of the major global economies,’ it adds.

‘However, by simply adjusting the calibration of current foreign property ownership legislation with a view to improve inbound investment, there are major benefits to be made in real estate, construction, retail consumption, education, transportation, schooling, and tourism. It is Thailand’s choice whether it wants to reach out and take a share of this market.’

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