How Much Are Banks Willing To Lend On Empty Land

[Khun Jean]

My wife has inherited some land 6 rai farmland (200.000 baht) and recently bought another 7 rai south of Muang Prachuap Khiri Khan.

Total worth estimated by the landoffice is around 4.000.000.

We have our eye on some beachfront land but would like to buy a little bit more to act as a 'buffer' between possible neighbours and want to sell or let it in the future when hopefully the price is substantially higher.

We place a bid for 3 rai beachfront and will pay that in cash. The rest of our money is intended to develop this land.

The extra land is 1 rai on each side, also beachfront.

We just recently (1 januari 2008) moved our business location to Bangkok and Hong Kong. I get a salary from HK and my wife from Bangkok.

The 5 rai will cost around 20.000.000 of with 12.000.000 wil be paid in cash. So we are looking for a 8.000.000 baht mortgage on the other 2 rai.

The land office already evaluated this land and it is just a little bit lower than we offered (about 5%)

Combined income is around 250.000 a month of which 190.000 is mine. I don't 'work' in Thailand and have no workpermit. But would be willing to change that if it offers us more posiibilities.

Our idea is to mortgage the 2 rai and as security the 3 rai paid in cash (or less when possible), But would like to do the transfer in 1 time as it is a part of a much larger plot (20 rai). We also have an option to rent/buy more if we want in the next 5 years.

We would be able to pay this mortgage of in about 5-10 years.

Can someone please help to give me some idea how the bank works in a case like this.

What are our changes?

Can i arrange this mortgage in advance of the land transfer?

I like being prepared before i go to the banks, any information is very much appreciated.

Jean

[soundman]

I can't speak for all Banks but Kasikorn are very apprehensive on lending money on un-developed land. If you have a business or development plan that may be a different story.

[monty]

Same for Bangkok Bank!

Not sure though for highly valued beach front land, but doubt that they'll go higher then 25% of what they value the land, which even will be quite a bit lower then what land and house values it!

They have been burned badly pre '97 with loans on land only!

Even when having a business plan, they will want to see the project at for example at 25% completion, and then they will release the funds in small steps (say 500,000 Baht per time) as the project progresses. Lots of paperwork, visits from the bank along with loads of pictures etc...

This will be a business loan though, where you pay the interests monthly on the outstanding amount, and pay back the principal when parts of your project start to get sold or making money!

[sonicdragon]

Generally speaking, the bank will be primarily interested in the source of funds for repayment of the loan. The value of the collataral will have a very small impact on their decision, as the last thing they want is to forclose on undeveloped land. They will ignore your income completely and only look at your wife's 60k. If she is self-employed they will want to see business accounts. A 60k income would not come close to being acceptable to the bank for an 8mm loan in my opinion. I would not hold out high hopes.

[Khun Jean]

A little more detail.

The land is not intended for business, but for a residence. It needs to be filled, around 50cm-100cm. The timescale is to fill the land and wait at least a year maybe 2 before building starts.

We might do some business like building some bungalows or a restaurant or maybe rent out some land but that will be at least 5 years in the future.

The 5 rai will give us some more beachfront as the land is quit deep. The seller is willing to devide the land so it will be more wide on the beachfront than in the back.

The other benefit is a bigger distance from neighbours and the oppertunity to build some beachfront properties later. The land in the back which has public road access can be sold if it is worthwhile.

Another possibility is a personal loan in my homecountry or in HK where my business is registered.

The 3 rai is already on a good location and wide enough for a house, the 2 rai just makes it even more attractive, we feel it is not a deal breaker at the moment.

The owner is willing but only until someone offers more or buys the whole lot. I think i have about 1-2 months to research the possibilities.

[blizzard]

raw land is worthless as collateral, of course their r exceptions. doesnt do bank any good having buffers , they aint gonna live there.

you make a lot, just save. what a concept.

[Crossy]

raw land is worthless as collateral, of course their r exceptions. doesnt do bank any good having buffers , they aint gonna live there.

That's our experience too. None of the banks were remotely interested in lending 2.5m against our 6m worth of riverside land (filled and ready for construction but nothing actually built). However TMB happily advanced against a smaller piece that has the restaurant car-park and toilets on it (not exactly developed, but seemingly enough to meet the criteria).

Dunno if it makes a difference but the loan was obtained by the restaurant business, not myself or the Missus directly.

[sonicdragon]

A little more detail.

The land is not intended for business, but for a residence. It needs to be filled, around 50cm-100cm. The timescale is to fill the land and wait at least a year maybe 2 before building starts.

We might do some business like building some bungalows or a restaurant or maybe rent out some land but that will be at least 5 years in the future.

The 5 rai will give us some more beachfront as the land is quit deep. The seller is willing to devide the land so it will be more wide on the beachfront than in the back.

The other benefit is a bigger distance from neighbours and the oppertunity to build some beachfront properties later. The land in the back which has public road access can be sold if it is worthwhile.

Another possibility is a personal loan in my homecountry or in HK where my business is registered.

The 3 rai is already on a good location and wide enough for a house, the 2 rai just makes it even more attractive, we feel it is not a deal breaker at the moment.

The owner is willing but only until someone offers more or buys the whole lot. I think i have about 1-2 months to research the possibilities.

Most banks in HK offer an unsecured loan representing 3 months salary. If you are self employed or the majority owner of your employer then the bank will want to see 3 years of audited accounts. Larger loans typically require collateral - land or property in Thailand would not be acceptable collateral for a HK bank. There are specialised finance companies that may offer more.

[Khun Jean]

raw land is worthless as collateral, of course their r exceptions. doesnt do bank any good having buffers , they aint gonna live there.

you make a lot, just save. what a concept.

Sometimes borrowing is cheaper. Don't want to take out money that is making 10-15% at the moment. A mortgage will be about 7%. It seemed more economical.

Saving the money will take at least 20-24 months. In that time the land will be already sold.

What i didn't know is that the bank valuate raw land very low. I would think land with some buildings that is only useable for certain people is more difficult to sell.

Learning all the time!

My best bet is a deal with the owner to rent the land until the money is available. That is already requested to the owner. I just hoped for some more options.

[torrenova]

Think about owner financing.

Lets say the rent is Bt20,000 per month (I am just using ficticious numbers here for illustration) and the purchase price is Bt2,000,000. If you paid say Bt120,000 per month, rent being Bt20,000 and a capital payment of Bt100,000 then you would clear the debt in 20 months and the seller would have received 20 x 120,000 = Bt2,400,000.

So there is an effective interest rate as an incentive for the seller and you "guarantee" the Bt2,000,000 purchase price in 20 months time at a cost of the Bt20,000 rent per month (total Bt240,000).

You can play with the numbers and seek legal advice on how to structure such a deal and see whether the numbers work for you and if so, you could make the proposal to the vendor.

[blizzard]

what investment is makinyou 15%?

land loan amount 8,000,000 baht($243,000). yor anual income of 3,000,000 baht($91,000). not good ratios sir. in usa rule of thumb is one can afford housing of 3 times annual income, and thats with house included.

unless you have a ton in other assests you going in way over your head sir!

[Khun Jean]

what investment is makinyou 15%?

land loan amount 8,000,000 baht($243,000). yor anual income of 3,000,000 baht($91,000). not good ratios sir. in usa rule of thumb is one can afford housing of 3 times annual income, and thats with house included.

unless you have a ton in other assests you going in way over your head sir!

Yes, i would have thought the 15% makes you curious. I did say 'at the moment'.

The land deal has to be made soon, and that money is not 'free' on time, and i would like to not put more into land than necessary. As long as i can make more than the bank charges on interest i would come out positive. Lets just say, i like volatile markets.

Rule of thumb in other countries is different. I was wondering what the rule of thumb is in Thailand. I could care less about the usa rule is i am absolutely not interested in buying something there. Maybe i borrow it in dollars, and pay back in baht. 555555 (oops did i just hint how i get 15% at the moment)

Terranove:

A deal like that is being discussed. Only difference is the timespan. Were thinking about 5 years or more.

Edited February 4, 2008 by Khun Jean

[blizzard]

if you de get a "deal" you prolly are overpaying for your piece of beachfront paradise. normal sellers dont give deals to owner financed buyers without hosing the buyer. sellers usually go for owner financing when no one else is buying. or when buyer is a bad credit risk. or both, why is noone else buying, becoz its not a good buy.

a rule of thumb in usa, dont put too mut faith in govt. setimates.

[blizzard]

forget my previous post.

rule of thumb in usa. if you cant pay cash for raw land , you probably cant afford it.

[torrenova]

if you de get a "deal" you prolly are overpaying for your piece of beachfront paradise. normal sellers dont give deals to owner financed buyers without hosing the buyer. sellers usually go for owner financing when no one else is buying. or when buyer is a bad credit risk. or both, why is noone else buying, becoz its not a good buy.

a rule of thumb in usa, dont put too mut faith in govt. setimates.

Perhaps but didn't the OP state that they were willing to rent the land with a view to future purchase ? Owner financing is a valid option when both parties achieve their objectives but you are right in that the vendor will usually look for a much firmer price than for a cash sale.

[percy2]

Possibly a lease with option to purchase is what you need.

Cheers

[Khun Jean]

Yes, Percy2. That is what we are trying to get. We suggested a few ways. Owner financing, lease with buy option, and borrowing from the bank which seems very difficult. A pity my salary is not used in their calculations.

For many thai people, who were just farmers or fisherman it is not easy to grasp all the legalities of lease and sales contracts. The landowner is very cautious, there are many stories about farang and especially Bangkok people who intimidate them to sell quickly only to find out later that they were screwed.

I respect that and hope the landowner trusts us enough to agree with the lease/option to buy. As i said before it is not crucial but it would be nice to have this 1 rai 'buffer' on each side. The land is very deep and 1 rai has about 10 meters frontage. Enough to be seperated from future neighbours, we all have seen that Thai like to build very close to eachother.

Edited February 5, 2008 by Khun Jean