Cost Structure Of A 30 Yr Lease

[Wol]

I have just discovered this great site during my initial research with a view to moving to Thailand - sorry if I haven't discovered existing answers to this question yet!

Can anybody tell me how the cost of a lease for land is worked out? I would guess that it might be 'cost (or value) of land/30 years + interest'? There may be many different configurations, but some idea would help me get my head around this concept!

Thanks, Wol

[johnnyk]

Its very simple.

The land owner figures out how much he wants and how much he figures you will pay.

He chooses the higher figure and generally wants it all upfront.

[Wol]

Its very simple.

The land owner figures out how much he wants and how much he figures you will pay.

He chooses the higher figure and generally wants it all upfront.

Thanks! That doesn't really tell me much, though. Can anybody give me an example, such as initial value of land and subsequent lease cost that someone has paid or is paying?

[johnnyk]

I'm not being facetious here but your question is very general.

There are many variables and I'm not sure if you are talking about vacant land in the country or land on a housing development or ?.

The initial value of the land is what the owner says it is, i.e. what he wants for you to have use of it for 30 years. If you think its less then you can offer less but the landlord sets the price and Thais don't usually like to drop their price.

In Thailand rural owners are often happy to let it sit, property taxes are pretty non-existent so no real incentive to do anything unless he feels he will get what he wants. What you think is likely immaterial to him.

Figures vary widely throughout the country. Bone-dry Issan scrubland is worth less than beachfront and so on.

So the cost of the lease is simply the figure he wants. Could be 250,000 baht for 30 years, could be 2 million, could be more. Might be negotiable, might not be. Legal costs, land registration costs are negotiable between you and him.

As an example, one development I know of in a beach town is 392 sq. metre plot, 1,666,000 baht for 30 years. Payable in lump sum. Then you choose the house model you want to build.

Thaivisa has a wealth of info. I suggest you check out Sunbelt Asia's listings to get an idea of lease prices for land and businesses.

Good luck.

[eljeque]

.... and at the end of thirty years, the land owner has had the 1,666,000 invested in other land that has been appreciating, and you have also been out the cost of building the house for thirty years, and at the thirty year mark, the land owner gets his land, and YOUR house, and has been earning money on the 1,666,000 for thirty years.

Don't do it.

[Wol]

I'm not being facetious here but your question is very general.

There are many variables and I'm not sure if you are talking about vacant land in the country or land on a housing development or ?.

The initial value of the land is what the owner says it is, i.e. what he wants for you to have use of it for 30 years. If you think its less then you can offer less but the landlord sets the price and Thais don't usually like to drop their price.

In Thailand rural owners are often happy to let it sit, property taxes are pretty non-existent so no real incentive to do anything unless he feels he will get what he wants. What you think is likely immaterial to him.

Figures vary widely throughout the country. Bone-dry Issan scrubland is worth less than beachfront and so on.

So the cost of the lease is simply the figure he wants. Could be 250,000 baht for 30 years, could be 2 million, could be more. Might be negotiable, might not be. Legal costs, land registration costs are negotiable between you and him.

As an example, one development I know of in a beach town is 392 sq. metre plot, 1,666,000 baht for 30 years. Payable in lump sum. Then you choose the house model you want to build.

Thaivisa has a wealth of info. I suggest you check out Sunbelt Asia's listings to get an idea of lease prices for land and businesses.

Good luck.

Cheers. I suppose the direction I was coming from (which I think you have now answered for me) was if I saw a block of land (stand alone/beachfront) for sale (e.g. US$100k), what would be the sort of lease costs I could expect. I now understand from you that that it probably has nothing to do with the 'For Sale' price and it is just what the landowner feels he can screw out of me over 30 years! There must be some market/competition forces that set some sort of reasonable lease figure Vs value of land? Maybe not! Thanks anyway.

Wol

[johnnyk]

Wol,

If the land is for sale freehold (fee simple - the way we buy generally buy land in the west) then the price is somewhere between what is asked and what the buyer is willing to pay.

HOWEVER, in Thailand individual foreigners can't buy freehold land in their own name. Period.

Many have done it by setting up a Thai company but this is now under threat.

Sometimes you may see Thai property listed as "for sale" but it often really means the lease is for sale, i.e. the right to use it for a set period (maximum 30 years) but not the land itself.

The actual value of the land and the lease amount may not be related to each other. Some may see potential in a piece of land and be willing to pay the lease price but this is harder to find nowadays. For example, beachfront land on Koh Samui or Koh Chang was real cheap to lease 15 years ago because fisherfolk owners didn't know its value to falangs.

No more, the owners now know very well what the land is worth and the sale price or the next lease will be much much more expensive.

[johnnyk]

.... and at the end of thirty years, the land owner has had the 1,666,000 invested in other land that has been appreciating, and you have also been out the cost of building the house for thirty years, and at the thirty year mark, the land owner gets his land, and YOUR house, and has been earning money on the 1,666,000 for thirty years.

Don't do it.

No, the landowner doesn't get the house. He must compensate you for it under current Thai law.

But this could be a long expensive court hassle when you are old.

The house might also burn down or

In any case there is no obligation to renew the lease nor is there obligation on heirs or successors to extend the lease after the first 30 years.

[quiksilva]

There are some rather complex calculations that I wont go into right now to determine the leasehold value of a property, that basically involve projections of annual rental income (at open market rental value as determined by comparable evidence) for each year of the lease. This is then discounted to todays prices (Discount rates of 10-12% being usual) and the accumalated result is the leasehold value.

A 30 year lease in this case may work out to approximately 80-90% of the open market capital value. [but thats a VERY rough rule of thumb!!]

Good luck trying to find a Thai who'll agree to this internationally accepted valuation practice though. As mentioned before they tend to want full open market capital value for a 30 year lease, payable as a lump sum upfront.

Its worth noting that a security of tenure of a leasehold interest is not protected by any statuory legislation so the contract actually ends when the landlord kicks the bucket!

Note that if the two of you do manage to live out your days to renew in 30 years time, expect to pay the full amount again. Only this time the price to enjoy those premises for another 30 years, will be at the most likely higher future market value.

Plus if you wish to assign the lease in the future it will only ever be worth LESS than you paid for it, because its value decreases as the remaining term of the lease becomes shorter.

Caveat Emptor!

[johnnyk]

'nuff said.

[Wol]

.... and at the end of thirty years, the land owner has had the 1,666,000 invested in other land that has been appreciating, and you have also been out the cost of building the house for thirty years, and at the thirty year mark, the land owner gets his land, and YOUR house, and has been earning money on the 1,666,000 for thirty years.

Don't do it.

Thanks guys - good advice which has saved me a long, and probably painful learning curve.

Unless you have more money than sense, it seems that you would seriously have rocks in your head to try and live permanently in Thailand! Renting sounds the best bet and put the rest of your money into something more sensible (which wouldn't be hard!!)

Cheers, W

[MaiChai]

I guess it depends on how rich you are how you would feel about loosing it all at some point? I am not rich, so I have the view now in Thailand that if you cant own it don't buy it. Includes car, motorbike, etc. My Thai lawyer also said this to me! Law regarding foreign ownership of property needs a severe review IMHO. I would buy house and put land in daughters name, but in terms of putting it in a 'friends/gf/wifes' name on the basis of how Thais move in and out of relationships/friendships, this is a big no no!

Rental in Thailand is really cheap. Remember the rental price has to be what working Thais can afford to pay. So I really wonder about buying. Maybe buying secondhand properties is a good long term investment, but then the ownership issue is key to success in this?

I believe new houses/condos loose value initially; I mean who would buy your condo at the same price you paid for it. With good estate management and location maybe the property will appreciate, but probably after some years? Look how many run down condos are around (needing painting/looking shabby)?

Second hand Thai houses are a bargain in my opinion. Walk down to your local bank and ask to look at the properties they have on file (probably reprosessed and legally 'clean'). Even if you don't like the house so much, if you own the land (the real asset) then you can always rebuild the house?

I think this is all common sense?

Edited January 24, 2007 by MaiChai

[Khun Bob]

Second hand Thai houses are a bargain in my opinion. Walk down to your local bank and ask to look at the properties they have on file (probably reprosessed and legally 'clean'). Even if you don't like the house so much, if you own the land (the real asset) then you can always rebuild the house?

Anyone care to comment on their experience of buying a house or condo from a thai bank ?

Did you pay the price quoted ? If you got the land on a 30yr lease and the land owner is not your wife or family, I would be interested to hear what you did...

Cheers

[Arkady]

There are some rather complex calculations that I wont go into right now to determine the leasehold value of a property, that basically involve projections of annual rental income (at open market rental value as determined by comparable evidence) for each year of the lease. This is then discounted to todays prices (Discount rates of 10-12% being usual) and the accumalated result is the leasehold value.

A 30 year lease in this case may work out to approximately 80-90% of the open market capital value. [but thats a VERY rough rule of thumb!!]

Good luck trying to find a Thai who'll agree to this internationally accepted valuation practice though. As mentioned before they tend to want full open market capital value for a 30 year lease, payable as a lump sum upfront.

Its worth noting that a security of tenure of a leasehold interest is not protected by any statuory legislation so the contract actually ends when the landlord kicks the bucket!

Note that if the two of you do manage to live out your days to renew in 30 years time, expect to pay the full amount again. Only this time the price to enjoy those premises for another 30 years, will be at the most likely higher future market value.

Plus if you wish to assign the lease in the future it will only ever be worth LESS than you paid for it, because its value decreases as the remaining term of the lease becomes shorter.

Caveat Emptor!

A usufruct agreement is better than a standard lease because it is still binding on the new owners, if the lessor sells or dies. You need the lessor's permission to sublease or reassign in either case and your heirs do not inherit your rights if you die. I don't know if you can get around this point by using an offshore company as the lessee, if the owner agrees. I don't see why not as a Thai company can lease. It lead to complications with the Land Dept but you can use an offshore company to buy a condo. So why not?

[quiksilva]

Agreed an usufruct is the way to go if you just want to enjoy habitation rights.

I cant see how having an offshore firm as a lessee would make much difference to be honest. The lessor can agree to assign/sublease to whoever they want because its really just a personal contract (albeit registerable at the land office if the term is greater than 3 years).

The point is a lease is only good for the life of the stated term or lessor who grants it, and it comes to and end whenever either of those expires. This is why banks wont lend on this type of real estate interest here, its not secure. [Well there is one exception to that and thats Siam Commercial Bank who will lend on Crown Property Bureau leases where renewals are seen as much more likely, so if you must lease lease from the CPB!]

This will continue to be the case until such time as Thailand introduces legislation that provides greater security of tenure for leasehold interests with some sort of equivalent to the UK's Landlord and Tenant Act 1954 where upon a right to renew is guaranteed and can only be witheld under certain specified provisions.

However, dont hold your breath for this to happen either, because as with other similar proposals (eg 90 year leases) it practically amounts to giving away a freehold interest which is contrary to the whole purpose of these planned FBA revisions; i.e. to satisfy the so called Thai "sense of nationalism".

Edited January 29, 2007 by quiksilva

[Naam]

"Agreed an usufruct is the way to go if you just want to enjoy habitation rights."

*****

i understand that a "usufruct" can be registered in the land office respectively on the chanote. is there a limitation to one person or is it possible to register it in the names of a foreign married couple?