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.
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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.
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.
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.
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.
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getting started - Gilly Rich - Editor
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:
The foreign national
must be a permanent resident, or
Investment promotion
privileges must be obtained from the Board of Investment, or
The funds used
to buy the condominium must originate from a third country.
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.
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.
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.
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.
