Expatriate Thailand Ownership – Do I Always Need To Pay Outright With Cash?

[stuartfoulkes]

In order to purchase a: house, business, bar, hotel, apartment, condominium or land, an expatriate usually has 2 options.

1. Pay with own cash

2. Borrow some money

In Thailand, there are commonly known restrictions for a foreigner / expatriate to own and if we assume all legal issues can be overcome for the minute, many customers still tend to purchase outright with cash & usually fits thinking patterns for either of the below rational:

· An outright purchase means paying no interest on a loan

· I want no hassle

· Cannot find a bank to finance

Whilst the later may be true in part, this is usually because methods reviewed are only mainstream ways of lending i.e. ask a local bank to lend you money. The bank is able to lend you the money because your bank will usually take 1^st and only legal charge over your property. This means, that should you default on your loan or disappear, the bank is able to liquidate the asset (house) to pay back the loan. In Thailand, local banks are not always able to lend to expatriates and therefore, the only feasible option tends to be, pay outright with cash.

Placing a large amount of cash into a new Thailand ownership carries a high degree of risk. The move to a new country that holds some of the most exotic places on earth can often cloud judgment of risk. Risk can always be mitigated or minimised and therefore, the purpose of this article is to discuss alternatives available for coming up with required funding to purchase a new life / venture.

In order to keep the articles fairly low in text, I shall provide the below over the next 4 weeks and this week, shall begin with Asset Finance.

Options available

· Asset Finance – Use a collection of existing investments / cash to lend against

· Hedge Fund – Use a hedge fund to act in the same way as a traditional bank

· Remortgage – Use an existing property to release equity

· New Mortgage (local bank) – Use a Thai bank to lend you money for purchase

Week 1 - Asset Finance

Asset Finance is an established product which has been running within banks for many years. The idea is that rather than use the property / business you intend to purchase as security against the loan, the asset of an investment can be used instead.

Let's take for example a client who holds several bonds / investments to the value of GBP1, 000,000 or currency equivalent. Follow the below steps:

1. Client sees business opportunity for THB25,000,000 (circa GBP500,000)

2. Client provides Offshore Bank "X" security over GBP1, 000,000 Investment

3. Offshore Bank "X" is then able to lend 50% of the Asset

4. Customer has loan for GBP500,000 at a margin of 2% above LIBOR

The scenario is now, that the client has purchased a property in Thailand with proceeds of loan, holds a loan valued GBP500, 000 (typical interest rate 3%) and has an investment of GBP1, 000,000 (yielding circa 6% from GBP bond) The position is covering loan payment interest with proceeds from investment and at the same time having a property in Thailand.

The risks then associated with holding a property in Thailand has been diversified across the property, loan, currency and investment.

In addition to the above example, an Offshore Bank is able to lend in many different currencies. Commonly, the example will involve an Asset in one currency such as GBP1, 000,000 but a loan in JPY since the interest rate is lower at 2.5%. This then means the client is paying 2.5% Interest on loan, but making 6% per annum on his Bond investment. Whilst this carries a further risk of currency appreciation, timing is essentially the key and if timed correctly, massive savings can be made.

Next week (Friday) – Hedge fund

[Nio]

The majority of people coming to Thailand that need to borrow money do not have any equity and/or limited assets.

Anyone with that amount of equity saved up in your example certainly knows how to get things financed without this article.

You also overlook the fact that now the person has a loan payment that needs to be serviced.

What happens if the person is not working or retired and has no way to service the loan payments?

There is no one solution fits all.

When dealing with foreign countries and currencies there are many variables that can happen such as coups, sars, war, economic policies of the govt, natural disasters etc.

There is risk everywhere in the third world and no magic silver bullets can solve this.

I believe the secret to surviving in the third world is to keep yourself debt free at all times.

Not having to make any more money than is needed to survive is the safest way because sometimes the additional money for loan payments is just not there.

[stuartfoulkes]

Thank you for your post and rightly, you raise some good questions / points. As I mention, the article only discusses options available and is only as a guide which is open for different view points and is by no means a "right way" approach.

In relation to my specific example, correct, a loan requires interest 2.5% (of the amount borrowed) charged each year although, the investment which runs alongide if earning 6% therefore services the loan payment and if retired/not working, will not need to worry about the income to fund the loan.

In some cases, your income could be supplemented by making the right investment initially since if you are paying out less on loan interest than you are on investment return, the supluss is an income.

Coups, Wars and Economic Policy will greatly change the investment you make and rightly so, threse kind of risks are hard to predict. With the GBP so weak against the THB at present, ideally we would want to keep the GBP on the expectation a strengthening GBP makes more THB in the future and thus, more value for money.

[caf]

SF Are you a financial adviser?

[tonywebster]

A couple of different fonts there showing that you have cut and paste this information from elsewhere. How about just writing it yourself, that will give you more credibility. Sadly for you I now feel that credibility has been lost because of the above mentioned and the failure to do any sort of introduction to yourself or the company you work for.

p.s. I am happy with my advisor thanks

[stuartfoulkes]

Thank you Caf and Tonywebster for your comments.

I have been in Banking for the past 10 Years (most recently Hong Kong) managing Assets and Finance. Now I have left the bank, since my role was due to move back to the Isle of Man. Being English and spending over the last year in Asia, I felt the time was right to leave and work for a company that voluntarily follows Hong Kong Monetary Authority regulations in Thailand.

You are correct in that the document is copied and pasted since I had edited the initial version in word and then pasted to Thaivisa. I like to keep track of my articles and therefore have a collection saved in word that I can refer.

I am simply sharing experience that I have gained through the industry and juristictions that I have worked.

Best Regards

Stuart

[SM7WGP]

But you forgot one thing a foreigner can not own property or even a business without a fony company or GF/wife

So he is real in pain if something happens.

So before you invest here bang your head against the wall 3 times and check if that did hurt.

Edited March 26, 2010 by SM7WGP