Boom
Time In Bangkok
Cheap
Credit Fuels The Property Market
by Andy
Guest
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After years in the doldrums, Bangkok’s
residential property market has re-awoken with a vengeance. Property prices
in the capital surged by an average of 16% last year and the trend is set
to continue, with new building projects dotting the city and new life being
breathed into the ‘ghost-scraper’ construction sites abandoned after the
1997 economic meltdown. Major real estate developers have said that they
will be investing over B100 billion (US$2.5 billion) in residential property
in the central business district alone, within the next three years. With
24-hour working the norm on most construction sites, Bangkokians are likely
to be lulled to sleep by the sound of jackhammers for some time to come.
The market has received an injection
of confidence from the sustained recovery of the Thai economy – despite
the effects of a severe downturn in the all-important tourism industry
buffeted by the effects of 9/11, the Bali bombing, the SARS crisis, the
war in Iraq and the latest disaster, the bird flu scare. The Taksin government
is predicting economic growth of 8% growth in 2004, and Thais are figuring
that if the economy can not only survive, but also grow, during these uncertain
times, then it is fundamentally strong enough to keep them in their jobs
for the foreseeable future. |
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Paradise
Beach - Thailand
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Banks and finance houses that are
lending money again for property purchases are fuelling the boom, with
advertising hoardings throughout the city shouting out the latest deals
available. Led by the Government Savings Bank, financial institutions are
pumping billions of Baht’s worth of cheap credit into the marketplace.
The bank loaned B68 billion (US$1.7 billion) in the second quarter of 2003,
nearly doubling its lending of B37 billion (US$0.92 billion) in the comparable
period in 2002. Housing loans from government sources amounted to 46% of
the total in the first half of 2003. Thailand’s new found position as a
net trading creditor, fuelled by rising exports to China and other East
Asian countries, means the government has cash in hand to stimulate the
previously sluggish housing and retail sectors.
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The mix of new housing
developments is changing. Real estate companies continue to focus on luxury
developments of over B3 million (US$75,000) per unit to meet the demand
of Thailand’s expanding middle class, but there is now greater emphasis
on building houses and condominiums that meet the budget of the ordinary
working family. New starts in the mid-range band of B2-3 million (US$50-75,000)
per unit are increasing and developers are taking up the government’s challenge
to build affordable homes that cost under B2 million for the army of workers
previously shut out of the market. Thais are becoming much more demanding
in terms of both the quality of building materials used and the type of
property they want, with townhouses and detached homes on managed housing
estates in the suburbs becoming increasingly popular. The reason is partly
improved infrastructure, with the Skytrain and soon to be opened Mass Transit
Subway system making the business districts more easily accessible from
the outskirts of Bangkok. Northern districts such as Ram Intra, Rangsit,
Nonthaburi, and Chang Wattana are the hotspots of housing estate development,
while the downtown areas surrounding Silom, Sathorn, and Sukhumvit Roads
remain the most active areas for new condominiums. |
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What does all this mean for the
expat wanting to buy property in Thailand? Firstly, the rules governing
foreign property ownership have not changed. In some respects, this is
good news, since potential foreign investors have an established set of
rules to follow, but the downside is that the rules are still overly complex
and highly restrictive. Foreign nationals are not permitted to own freehold
titles, the only exception being where the foreign national has invested
a significant amount of money (about US$1 million) in stocks, securities,
or companies, and has Board of Investment Promotion (BOI) approval, in
which case the BOI may recommend that the foreign national be permitted
to hold a freehold title not exceeding an area of 1,600sq.m. The only other
ways for foreign nationals to own freehold titles are to form a private
limited company that then owns the title, a mechanism the Thai authorities
are starting to take a dim view of, or to have a Thai national (usually
the foreign national’s spouse) hold the title – a very risky option. Officially,
foreign nationals can hold leasehold titles and usufructs for a period
of 30 years, but in practice, leaseholds can be obtained for a 90 year
period using the “30+30+30” mechanism, whereby a 30-year lease is agreed
between the freehold title holder and the lessee, and two legally binding
extension contracts for further 30-year periods are concluded. The easiest
way to own property in Thailand is still by purchasing a condominium. Foreign
nationals wishing to buy a condominium have to fulfil one of the following
three conditions:
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The foreign national must be a permanent
resident, or
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Investment promotion privileges must
be obtained from the Board of Investment, or
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The funds used to buy the condominium
must originate from a third country.
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| The last condition means
that anyone with sufficient funds is able to purchase a condominium in
Thailand. Currently foreign nationals are restricted to buying condominiums
only in Bangkok and Pattaya, unless approval has been obtained from the
Board of Investment (BOI). There are some restrictions on the number of
condominiums in a building that can be owned by foreign nationals. This
is usually 49% of the total number of condominiums, but under BOI privileges,
this can be waived.
Secondly, the real bargains to be
had following the Asian financial meltdown of the late 1990s are becoming
more difficult to find, as Thais are aggressively snapping up houses from
desperate owners still in negative equity. The effect of inflation means
that prices are starting to reflect their proper market value. |
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Thirdly, real estate prices are
predicted to rise steadily over the medium to long-term, as long as the
government takes care not to allow the kind of bubble economy that caused
so much damage in the 1990s. This is a double-edged sword for the foreign
property investor. On the one hand, people who enter the market early enough
are likely to see a good return on their investment. On the other hand,
getting in on the market is going to cost more.
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The foreign property
market has slowed down considerably due to increased competition and rising
prices and consequently the market is starting to respond in an attempt
to maintain inward investment. Many foreigners resident in Thailand ask
whether they can get a mortgage or loan from a Thai bank to purchase property.
Until recently, the simple answer was no. Even now, the “main street” Thai
banks are unwilling to lend money to foreign nationals for almost any purpose
–companies with foreign shareholders find it difficult to obtain business
overdraft facilities. However, the more progressive finance houses are
starting to take an interest in the market for financial services provision
to expatriates. Leading the way is the TISCO Finance Public Company Limited
http://www.tiscogroup.com/en/index.htm,
which will consider giving housing loans of up to 90% of the value of the
property to foreign nationals who are domiciled in Thailand and have the
“right credentials”. Whilst each case is judged on merit, successful applicants
are likely to be permanent residents, or be able to prove several years
of residence in Thailand on a non-immigrant visa, and have proof of a secure
monthly income in the form of offshore earnings or a permanent job in Thailand
(for which a work permit must be presented). Applicants need to show evidence
of solid banking record in Thailand, and lenders may seek additional evidence
of long-term commitment to the country, such as having a Thai spouse or
dependent children. Obtaining a loan from a Thai finance house is not likely
to be easy, and negotiating the maze of foreign property ownership rules
will possibly be made even more difficult by the fact that the funds for
the purchase originate in Thailand, but the availability of housing loans
for foreign nationals is at least a step in the right direction. |
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Bangkok is central to the Taksin
government’s vision of making Thailand the hub of the Southeast Asian economy.
With steady growth predicted and a revived housing market, there has never
been a more exciting time to invest in property in the City of Angels.
If only something could be done about the traffic.
Notes: Financial figures in this
article were obtained from The Bank of Thailand. Exchange rate quoted:
B40 to US$1
Waiver: Readers should obtain advice
from a reputable professional before entering into contracts. The author
accepts no responsibility for actions taken by third parties arising from
the contents of this article.
Andy Guest can be contacted by
e-mail at andy@mosaicsd.com -
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