Will Ownership Restrictions Lead To Panic In Propery Market?

[george]

Thai anxiety

Will new restrictions on foreign ownership in Thailand lead to panic in the property market, asks Michael Sheridan

British villa owners in Thailand face uncertainty over the legal status of their properties, and might even lose control over their homes following a controversial change in company law by the country’s military appointed government.

With its low property prices and reputation for “sun, smiles and entertainment”, Thailand has been one of the most popular of the “emerging” markets. But it has not been all smooth going for the thousands of Britons who have already taken the plunge. In recent months, the Thai property market has been unsettled by a string of negative news including the imposition of capital controls, restrictions on tourist visas, a military coup, turbulence on the stock and currency markets, a wave of terrorism in southern Thailand and nine bomb blasts in Bangkok, the capital, on New Year’s Eve, that injured British visitors.

The latest blow was an announcement by the Thai government that it is to restrict foreign ownership of the companies that have been used by many British and other nonThais to buy holiday homes. Foreigners are banned from owning land in Thailand.

“The level of uncertainty is very high right now,” says Dan Tantisunthorn, head of research at Jones Lang LaSalle, an international estate agency. “Times are tough, but Thailand is dependent on foreign investment. So it’s not clear how all this will work out.”

Under Thai law, foreigners are permitted to buy flats (although no more than 49% of the floor space in any condominium building can be in the hands of nonThais), but buying a villa on its own land — the tropical dream depicted in the brochures — is more complex and requires the purchaser to turn to a Thai citizen for help.

The solution for many has been to buy through a Thai-registered company in which the foreigner holds only 49% of the ordinary shares, but, crucially, controls the firm by holding, for example, 80% or more of a separate class of voting shares. Thai nominees — typically a local lawyer or members of his staff — notionally hold 51% of the ordinary shares but exercise no voting rights. “Villas in Phuket and Ko Samui have changed hands for US$1m [£510,000] or more on the security of this structure,” says one resident British company director.

Now the practice has come under the spotlight as an unexpected side effect of last September’s coup. Ignoring protests from the international business community, the leaders of the government installed by the military have ordered rigorous enforcement of the law restricting foreign shareholders to 49% control of companies in protected sectors such as property.

The aim was to punish the family of Thaksin Shinawatra, the ousted prime minister, who reaped a tax-free fortune by selling off their telecoms empire to the Singapore state investment agency through nominee shareholders. But the clampdown on the use of voting shares has sown confusion throughout the economy.

“Property owners will need to consult their lawyers,” says one estate agent. “It’s possible that the nominees could demand control of the holding company to comply with the law, and nobody knows who would arbitrate the price if owners were forced to sell down their voting shares.” There are no reliable figures for the number of British homeowners in Thailand, but one experienced estate agent estimates it is in “the high thousands”, with about a third of those owning villas. More than 700,000 Britons visit every year.

Estate agents say the best way forward for people who are still determined to buy is to opt for a leasehold interest in a property.

“Probably, in our opinion, this is the soundest option for foreigners who want to purchase property in Thailand,” said Robert Collins, managing director of Savills estate agency in Bangkok. “There is a good selection of modern buildings and we find that for the British investor, Thailand always comes up as the preferred choice in this region.”

However, agents may find leasehold a hard sell. Thai law restricts leases to 30 years, so properties are frequently offered with a contract attached to renew the lease once. It is a far from satisfactory arrangement, however, and leading local real estate figures, such as Aliwassa Pathnadabutr, managing director of CB Richard Ellis, are lobbying the government to extend the maximum length of leases to 90 years, and also to allow foreigners to own up to 90% of a condominium.

In the meantime, Pathnadabutr has advised owners and prospective buyers “not to panic”. Claire Brown, of UK-based Claire Brown Realty, also warns against overreaction. “The basic facts haven’t changed,” she says. “Thailand is still one of the best places in the world to own an investment property. The tourists are still coming, infrastructure is improving, and if you buy a premium property you will have a steady rental income.”

However, interviews with estate agents, business executives and diplomats in Bangkok paint a picture of growing concern that, far from further liberalisation, there could instead be further unpredictable moves to placate national pride and to protect powerful Thai interest groups at the expense of foreigners. “There has been a change in the climate,” says one senior diplomat based in Bangkok.

One Thailand-based British executive recently lost a £48,000 deposit on a flat after discovering legal problems with the foreign ownership quota in the building. Another wealthy British owner tells of how residents of his upmarket block awoke one morning to find a Thai developer breaking ground for a 30-storey building next to them, with no prior planning consultation.

Marc Holt, managing director of Bangkok-based Holt-Realty who has lived and worked in Thailand for more than 25 years, warns foreign-based buyers against rushing into the market, especially amid signs that property prices may be falling in reaction to the political uncertainty.

“If you are living overseas, sit back and watch events unfold,” he wrote in a recent newsletter. “I have a feeling that this year is going to be a very ‘interesting’ time in the Chinese meaning of the word.

“It will shake out the real estate market, that’s for sure! Many of the real estate agent ‘cowboys’ who have been operating, especially in Pattaya, Samui and Phuket, will decamp, leaving the field clear for the professionals. That can only be a good thing for the industry, and ultimately you, the buyer.”

Thailand may still be the Land of Smiles, but it is not a place where investors should place much faith in contracts, lease renewals or bureaucratic consistency.

--Timesonline.co.uk 2007-01-21

Claire Brown Realty, 07967 258 121, www.clairebrownrealty.com

Holt-Realty, 00 66 2693 4146, www.holt-realty.com

[Vespa]

No new news here.

[Sophon]

The aim was to punish the family of Thaksin Shinawatra, the ousted prime minister, who reaped a tax-free fortune by selling off their telecoms empire to the Singapore state investment agency through nominee shareholders.

And just how was this going to punish the Shinawatra family?

Thai law restricts leases to 30 years, so properties are frequently offered with a contract attached to renew the lease once. It is a far from satisfactory arrangement, however, and leading local real estate figures, such as Aliwassa Pathnadabutr, managing director of CB Richard Ellis, are lobbying the government to extend the maximum length of leases to 90 years, and also to allow foreigners to own up to 90% of a condominium.

Wouldn't allowing foreigners to own more than 50% of a condominium in effect mean that the land on which it stands would be foreign owned? Surely the reason why they only allow 50% of the condo space to be foreign owned is the same reason that they won't allow foreign majority owned/controlled companies to own land.

In a climate where they are tightening up on foreign companes I don't see this happening.

Sophon

[Dupont]

It's no new news here as Vespa rightly says.

However, these reports are starting to show up in places more likely to damage the Thai Economy than the Bangkok Post and Nation (and of course TV!).

When serious journalists from The Times, Time magazine, Forbes, Bloomberd, CNN, BBC etc start running these stories, people start to react.

Prior to last summer, a prospective buyer had little chance of googling up and real bad news on the property situation here. Now, its all over the place and this is going to put a lot of people off.

Whilst I am alright Jack in my property, loss of inward investment is a worry for future business plans. I for one, am not expanding this low season which means at least 5 Thai Jobs will not be created in Phuket. Small fry I know, but repeated 14,000 times (Estimate of foreign owned companies) and it will have a noticable effect.

As yet nothing has happened so the Government are not seeing any adverse effects from this stupidity. Further down the line, its going to be very difficult for them to stop the rot when it sets in, as they have totally lost credibility.

Now, they speak and its only a Nationalistic, Thai audience that they are addressing. Come the time they have to speak to the international business community... thats where things will come undone.

Not noticed any sign of Thais on the ground wanting to see an end to consumerism either, so the sufficiency economy is not going to be enacted at a practical level. Quite the opposite, the BOT were discussing reducing interest rates last week to stimulate local spending!!! As usual, they are all singing from different hymn sheets.

Edited January 21, 2007 by Dupont

[fisherd3]

Farang thought process will not affect or interpret or anything else Thai logic, if you can be bothered to write you don 't understand, take your money out if you can!!

[backflip]

"Wouldn't allowing foreigners to own more than 50% of a condominium in effect mean that the land on which it stands would be foreign owned? Surely the reason why they only allow 50% of the condo space to be foreign owned is the same reason that they won't allow foreign majority owned/controlled companies to own land."

No. You are confusing two different concepts. In Thailand, the purchase of a condo does not provide any rights to the land on which the building is constructed. The 49%/51% ownership rule has nothing to do with control of the land.

[jumnien]

"Wouldn't allowing foreigners to own more than 50% of a condominium in effect mean that the land on which it stands would be foreign owned? Surely the reason why they only allow 50% of the condo space to be foreign owned is the same reason that they won't allow foreign majority owned/controlled companies to own land."

No. You are confusing two different concepts. In Thailand, the purchase of a condo does not provide any rights to the land on which the building is constructed. The 49%/51% ownership rule has nothing to do with control of the land.

I'm afraid your wrong on this one...

[Naam]

The solution for many has been to buy through a Thai-registered company in which the foreigner holds only 49% of the ordinary shares, but, crucially, controls the firm by holding, for example, 80% or more of a separate class of voting shares.

i learned that this version exists only in this forum. why not leave (as in my case) 61% of shares AND voting rights in the hands of thai nominee shareholders but keep SIGNED BLANK share transfer certificates in your hand enabling you to transfer shares to any thai citizen whenever you please?

i am well aware that this the nonplusultra of procedure but at least the new demands concerning "voting rights" are met.

opinions?

[Geppis72]

Hi Dr.Naam,

I'm under the option you mentioned actually :

"keep SIGNED BLANK share transfer certificates in your hand"

I have about 35% and none preferred shares.

When the house will be ready I will rent it from the company.

All this issues for me are not good at all, I really would like

have more clear situation, the only possible options under my opinion

in the future of the property market :

1) open up the market under certain rules (less then 1 rai, zoning maps etc etc) =

prices goes up like a rocket again and Thais and Thai Govt. will enjoy as well (tax included)

this could even restore part of the confidence in the country

2) Close up further the ownership matter =

Lots but really lots of people will be very disappointed and together the

recent events will effect dramatically the country economy for years, even

the tourist industry will be heavy hint down.

Think the consequences is not a typical Thai Style but I really

believe this country have good potential, unfortunately looks to late already...

Edited January 23, 2007 by Geppis72

[quiksilva]

Thai law restricts leases to 30 years, so properties are frequently offered with a contract attached to renew the lease once. It is a far from satisfactory arrangement, however, and leading local real estate figures, such as Aliwassa Pathnadabutr, managing director of CB Richard Ellis, are lobbying the government to extend the maximum length of leases to 90 years, and also to allow foreigners to own up to 90% of a condominium.

Wouldn't allowing foreigners to own more than 50% of a condominium in effect mean that the land on which it stands would be foreign owned? Surely the reason why they only allow 50% of the condo space to be foreign owned is the same reason that they won't allow foreign majority owned/controlled companies to own land.

In a climate where they are tightening up on foreign companes I don't see this happening.

Sophon

I agree I dont see condo laws changing anytime soon, what I would like to see however is legislation improving the security of tenure of leaseholds so that they become a mortagable interest in land with an inherent right to renew.

I see this as something far more palatable to the Thais and if handled similarly to the LL&T Act 1954 of the UK it would be quite palatable to foreign investors too.

Edited January 23, 2007 by quiksilva

[backflip]

mdeland,

"I'm afraid your wrong on this one... "

Now is the perfect time to explain why my response is incorrect.

[trajan]

The solution for many has been to buy through a Thai-registered company in which the foreigner holds only 49% of the ordinary shares, but, crucially, controls the firm by holding, for example, 80% or more of a separate class of voting shares.

i learned that this version exists only in this forum. why not leave (as in my case) 61% of shares AND voting rights in the hands of thai nominee shareholders but keep SIGNED BLANK share transfer certificates in your hand enabling you to transfer shares to any thai citizen whenever you please?

i am well aware that this the nonplusultra of procedure but at least the new demands concerning "voting rights" are met.

opinions?

What you are describing is clearly illegal under current law....a Thai nominee holding shares on behalf of a foreigner (to avoid application of the Alien Business Law) is illegal (with criminal and civil penalties)....

that is why people for decades have been setting up holding companies (wth minimum capital) with 49% ordinary shares (held by foreigners) and 51% preference shares (held by Thais but with diluted shareholder voting rights but with preferential dividend rights)....the Thai shareholders are NOT nominees in those circumstances and it is legal under current law....HOWEVER the current military-installed ministers are proposing CHANGING the law to make this structure illegal to engage in ABL restricted business activities....

[trajan]

I agree I dont see condo laws changing anytime soon, what I would like to see however is legislation improving the security of tenure of leaseholds so that they become a mortagable interest in land with an inherent right to renew.

I see this as something far more palatable to the Thais and if handled similarly to the LL&T Act 1954 of the UK it would be quite palatable to foreign investors too.

people have been lobbying for years to extend the maximum registratable leasehold from 30 years to 90 or 99 years (tantamount to ownership with mortagable interest)....but the best that was passed was a 50 year leasehold possibility for "commercial purposes"....the only 50 year lease that was registered (that Ive heard of) is the Sky Villas at the Ascott on South Sathorn Road....if you buy a leasehold condo there you get 50 years)...

[thaigene2]

Thai anxiety

However, interviews with estate agents, business executives and diplomats in Bangkok paint a picture of growing concern that, far from further liberalisation, there could instead be further unpredictable moves to placate national pride and to protect powerful Thai interest groups at the expense of foreigners. “There has been a change in the climate,” says one senior diplomat based in Bangkok.

--Timesonline.co.uk 2007-01-21

That's the real story...yessir..

[ThaiPauly]

So in essence then if you buy under the leasehold scheme you get a 30+30 year lease and when that is up your children..or your grandchildren (as you would surely be dead) loose control of the property.?

Is that the way it is?

[johnnyk]

"In essence" you get 30 years. Period. Full stop.

Anything more is a personal agreement (i.e. promise 555) and both signatories have to show up at the Land Office to register the next 30 years.

Personal agreement is not binding upon heirs or successors to the property.

The 30+30+30 is a fib put about to lure unsuspecting falang into thinking its tantamount to ownership.

www.samuiforsale.com

[jumnien]

Will ownership restrictions lead to panic in the real estate market? Many of us foreigners hope so. It sure would be nice to buy quality properties at a massive discount. However, this is unlikely. Any softening in asking prices will be met with increased buying interest. It's rather hopeless really. The promises of a immenent buyers market (high availability, low prices) have been made by pessimistic farang for many, many years and all we've gotten are promises...

[JRinger]

After a lot of time spent on house drawings, architects, engineers, contractors, etc., we are no longer going to build our dream house due to the new laws established/enforced by the present government.

The budget was 15 to 20 mb but if I wire that amount from the U.S. and 30% of that money is kept for a year and 10% or 1.5 - 2 mb is forfeited because of the new laws, it's just not right and I refuse to be a part of it. We've already put up a wall and planted alot of trees, dug the swimming pool but will now just fill it with fish since no concrete was poured yet.

I think alot of us falang are left with a sour taste in our mouths and even if they scrapped the new law I wouldn't trust this government or a new one to reinstate it again, then scrap it, then reinstate it, etc.........

I would think 20 mb would feed quite a few families for awhile but it appears the present government doesn't give a hoot....as said by many over the years:

"Don't invest more than you're willing to walk away from"

Edited January 26, 2007 by JRinger

[wilko]

I know a few people with multiple properties who are very keen to sell, because of the new company laws and buyers who are put off buying by the capital import laws...that would seem to suggest big supply and small demand.

However....many people will still want to stay in Thailand, so I suppose the answer is to rent a house of a Thai citizen, the rents will stay high and tso the property prices will stay high. So I guess the answer for farang property owners is to sell to a Thai.

[johnnyk]

Except that Thais generally will not buy 2nd hand property.

They prefer new for a variety of reasons like face, ghosts etc.

And if they are willing to do so and sense falang panic they will offer peanuts.

Just my opinion.

[cclub75]

The budget was 15 to 20 mb but if I wire that amount from the U.S. and 30% of that money is kept for a year and 10% or 1.5 - 2 mb is forfeited because of the new laws, it's just not right and I refuse to be a part of it.

You're perfectly right. However, it seems that BOT could scrap soon their stupid capital control...

The pressure is high on their shoulders.

Bad news start to pile up. In one or two month, the fiasco will be so obvious (FDI put on hold, blow to real estate market, stock market still in the swamp, currency up side down, problems for thai companies to get funds abroad, local investments frozen, and more importantly : lost of confidence etc.) that... well they could ease their stand.

Maybe you should wait a little bit more.

[Naam]

The budget was 15 to 20 mb but if I wire that amount from the U.S. and 30% of that money is kept for a year and 10% or 1.5 - 2 mb is forfeited because of the new laws, it's just not right and I refuse to be a part of it.

inspite of all the information spread that investment in immobile property does not invoke any restrictions rubbish like the above-mentioned is still spread on this forum.

please get correct information instead of confusing forum participants.

[JRinger]

The budget was 15 to 20 mb but if I wire that amount from the U.S. and 30% of that money is kept for a year and 10% or 1.5 - 2 mb is forfeited because of the new laws, it's just not right and I refuse to be a part of it.

inspite of all the information spread that investment in immobile property does not invoke any restrictions rubbish like the above-mentioned is still spread on this forum.

please get correct information instead of confusing forum participants.

Rubbish?

Maybe you know more than the manager of the bank where I frequently wire funds to from the U.S.

According to him, I can not send money without a special form (forgot the name) indicating that these funds were for investment, including all sorts of details. Nothing mentioned about building a house.

He told me funds for building a house were subject to these laws, i.e., 30% held for one year, no interest and if I couldn't prove the funds were used for "INVESTMENT PURPOSES", manufacturing, export, etc., then 10% would be forfeited.

Maybe you need to call my bank manager to teach him about Thai laws, tell him this is rubbish, etc... perhaps your bank has a different policy...or, what you think you know to be reality is perhaps, illusion.

I would welcome other qualified responses before labeling such posts as "rubbish".

Edited January 27, 2007 by JRinger

[bingobongo]

Thailand risks losing property buyers to neighbours

http://www.theedgedaily.com/cms/content.js...0c4b00-4055e058

[JRinger]

The budget was 15 to 20 mb but if I wire that amount from the U.S. and 30% of that money is kept for a year and 10% or 1.5 - 2 mb is forfeited because of the new laws, it's just not right and I refuse to be a part of it.

inspite of all the information spread that investment in immobile property does not invoke any restrictions rubbish like the above-mentioned is still spread on this forum.

please get correct information instead of confusing forum participants.

Dr. Naam

Could you kindly post some official "correct information" in Thai and/or English to help set some of us "confused forum participants" straight? and by "immobile property" I'm assuming you are referring to the house structure itself and not in any way related to the land that even us confused forum participants know all to well we are not allowed to purchase or own...

Edited January 28, 2007 by JRinger

[JRinger]

Maybe you should wait a little bit more.

Indeed, although from what I've seen, at this point I wouldn't put much trust in this or any other government in the future to stand by and not overturn any new laws in regards to foreigner's.

Open the door one day and shut it the next with no warning or grace period to speak of.

[thaigene2]

The deposit rules are still confused by many. My understanding is that it is not relating to property purchase. I assume this land is owned in your Thai wife's name? If it's in a company name then you have more problems than just a 30% investment issue.

To me the main issues to resolve are Visas (why buy a place if you aren't sure one year to the next whether you can actually live here), Right to Remain as Spouses of Thais (in Thailand the farangs married to Thais are 'visitors' who come as 'non-immigrants' to 'support' their Thai wives and families - in other words, unlike other countries where one is married to a national, they can kick us out whenever they want), General anti-foreigner sentiment/xenophobia (will the hi-so Chinese Thais use farangs as a sacepgoat one day when times are bad - and will average uneducated thais swallow it - almost certainly)?

My view...I will wait (probably a long time now) before spending anything other than rent, food and school fees...despite rising baht..I'll keep my money offshore too).

[sinam]

Always have a plan B. I have many friends who have previously spent time in Asia and loved it but who have chosen various reasons to build their lives in the West. They have all told me if things don’t work out they always have Thailand or Asia as plan B. Those of us building our lives here should also have a plan B. It’s normal no matter what the circumstances are whether political, economical or personal. I think we get tunnel vision and focus too much on one aspect of the big picture…

Si Nam

[thaigene2]

Always have a plan B. I have many friends who have previously spent time in Asia and loved it but who have chosen various reasons to build their lives in the West. They have all told me if things don’t work out they always have Thailand or Asia as plan B. Those of us building our lives here should also have a plan B. It’s normal no matter what the circumstances are whether political, economical or personal. I think we get tunnel vision and focus too much on one aspect of the big picture…

Si Nam

jing jing - tu trong - 100%

[Phil Conners]

The budget was 15 to 20 mb but if I wire that amount from the U.S. and 30% of that money is kept for a year and 10% or 1.5 - 2 mb is forfeited because of the new laws, it's just not right and I refuse to be a part of it.

inspite of all the information spread that investment in immobile property does not invoke any restrictions rubbish like the above-mentioned is still spread on this forum.

please get correct information instead of confusing forum participants.

Dr. Naam

Could you kindly post some official "correct information" in Thai and/or English to help set some of us "confused forum participants" straight? and by "immobile property" I'm assuming you are referring to the house structure itself and not in any way related to the land that even us confused forum participants know all to well we are not allowed to purchase or own...

Sorry but I think you're the one who is confused. The 30% withholding "thing" does NOT include funds transferred with the purpose of buying a house. This was explained clearly the day after they made the law.

If your banker don't know the rule that you have to indicate funds are for purchasing a house you need to get a better informed banker.