Assignment: Writing Report
Access to Library and Information Communication
Topic:
Is it safe for foreigners to own land in Thailand?
Prepared by:
Abdul Rahman Nawawi (53060790)
Willy Zogo (53059842)
To:
Dr. Namtip Wipawin
Sripatum University 2010/2011
Abstract:
This report investigates about the current law and regulation for foreigners to own land in Thailand. A brief history of current law and regulation and its operation is initially outlined. The discussion then focuses on the advantages and limitations of owning a property in Thailand. In recent years the market in Thailand has opened up somewhat to foreigners who wish to legitimately own properties. However, there are some grey areas and expats who continue with the structures they put in place some years ago might be in for a shock if they are challenged.
Introduction
Under the Thailand Civil and Commercial Code foreigners have the same property rights as are available for Thai nationals, however it is under the Land Code Act B.E. 2497 (1954) prohibited for foreigners to own land in Thailand. As ownership of land is an essential element of any real estate (land and house) ownership it leads to the conclusion that, besides an apartment in a condominium, there is NO freehold ownership of real estate (land and house) available for foreigners in Thailand.
Under the Thailand Land Code Act foreigners may own land under the provisions of a treaty, however the last treaty allowing foreigners to own land in Thailand was terminated in 1970 and there is currently NO treaty with any country allowing foreigners to acquire and own land in Thailand. In fact anyone who contravenes with the above section shall be punished with a fine not exceeding twenty thousand baht or an imprisonment not exceeding two years, or both (section 111 of the Land Code Act).
Table of Contents:
Abstract……………………………………………………………………………
Introduction………………………………………………………………………
Discussion:
· Why invest in Thailand………………………………………………....
· Can foreigners own land in Thailand?....................................................
· A growing number of expats now own properties in Thailand.
Are you one of them and if so,
can you confidently say that you own your property legally?............
· If you are one of these owners, how do you feel about it all now?......
Conclusion……………………………………………………………………..
Recommendation……………………………………………………………….
References……………………………………………………………………….
Why invest in Thailand?
Thailand is a beautiful country with wonderful people and a pleasant climate. It has a stable government and a stable economy. It is reasonably foreigner friendly as far as buying/leasing land and setting up home. In most parts of the country, it is inexpensive for Americans, Australians and Europeans to buy land, buy or build a house and live here compared to a typical retirement destination such as Spain, France or Florida. Also, many people build or buy to rent out or use as an investment.
Hua Hin is currently experiencing a building boom unsurpassed in any other part of Thailand. Prices of land and property have in many cases more than doubled over the last 3/5 years and prices are still rising. It is possible to achieve up to 30% returns on investments per annum.
Can foreigners own land in Thailand?
The direct answer, unfortunately, is no, but there are ways foreigners can legally secure the right to use land and build or buy a house.
There are two preferred ways for foreigners to own land in Thailand.
- Buy the land in the name of a Thai person, usually your mate or someone you think you can trust, then lease it back for 30 years with an option to extend. Some developers already offer house sales using their own 30 year lease options.
- Start a Thai company in which you can own up to 49% of the shares and buy and own land through the company.
A growing number of expats now own properties in Thailand. Are you one of them and if so, can you confidently say that you own your property legally?
It is illegal for foreigners to own land in Thailand. As an expat you cannot own the land your house stands on. Strata title ownership is allowed. Most apartments and condominiums are strata title leasehold, allowing foreigners to own the units. However, the law caps ownership by non-Thais at 49% of the space in a given development. It thus does not follow that just because you find a leasehold condominium that you can automatically own a unit. The developer must obtain government approval to have a portion of the units foreign-owned and then there is a strict control over the allocation to ensure that majority Thai ownership is maintained. Developers have been known to be less than honest when it comes to this allocation. They have sometimes allocated space by means that the government disallows, and thus foreigners illegally own their units.The maximum allowable lease term in Thailand is 30 years, which is considered short in the western world. Leases cannot be legally arranged to run consecutively, removing that option for you to secure a 60-year lease, even though in practice this is often exercised.
If you wish to own a house there is the question of land ownership. Some expats have their Thai spouses own the property. This does not give security to you as the effective owner. Joint ownership is not allowed.
Some systems have been developed for the ownership of land through a Thai company. This is allowable but does not actually give you full proof protection. You are only allowed to own the minority of shares in a local company. Thus you still only have up to 49% ownership of the property in practice. To get around this, arrangements are often made for shares to be held by nominees. Lawyers arrange for a company registration where the legal practice staff are the other Thai shareholders.
Until recently there were seven Thai shareholders required for a Thai company. This was recently reduced to three. So the fact is that 51% or more of your house is owned by a lawyer and his Thai staff; maybe a secretary, accountant and driver. If you cannot substantiate that the capital for their shares was actually paid from their individual bank accounts, then the company registrar may declare your company illegal.
It is commonplace for the company to have small paid-up capital. Once it is established you make a loan to the company in order that it may purchase the house and land. So, in a practical sense you may own say 45% of a company with capital of 2 million baht. Your share is thus 900,000 baht. You bought the house for, say, 6 million baht. So you made a loan to the company of, say, 5.3 million. The legal situation is that you own 900,000 shares in a company that you do not control and that company owes you 5.3 million baht in loans. So the other shareholders could decide to sell the house, pay a dividend to themselves and not repay the loan. You would then be obliged to start legal action against these Thai shareholders through a Thai lawyer to recover what was actually all yours in the first place.
If you are one of these owners, how do you feel about it all now?
One of the options is for you to have your Thai spouse or a trusted friend to own just the land. You could even structure a company to do this if you feel confident that you can get over any objections the government might have. Next, you lease the land for your exclusive use for 30 years. Then you buy the house. There is no law that stops you actually owning a building in Thailand. This will at least give you much more protection than the usual way foreigners are coerced into the company structure.Many expats decide to buy their own homes here as they feel they want to spend the rest of their lives in Thailand. Others feel that an investment property will be a good opportunity for the future. Whatever your personal reason for ownership, make sure you plan well for the future and can make an appropriate exit if and when the time occurs.
There are more and more financing options becoming available to foreigners hoping to buy property in Thailand, and over the coming weeks we will be covering these in more detail.
Conclusion
Although property ownership in Thailand can be problematic, it is not impossible. You will however need three essential requirements:
(1) An ability to think outside of the box to construct a mechanism that best suits your needs;
(2) Plenty of patience; and
(3) Enough cash not to worry about the money you just invested in the Thai property.
It is the last of these you should keep in the forefront of your mind: never invest in Thai property more than you are willing to walk away from.
Recommendation
Exceptions to the Prohibition
1. Board of Investment (BOI) incentives:
Sec. 27 of the Investment Promotion Act authorizes the Board of Investment (BOI) to grant a foreign owned company permission to own land for the purpose of conducting the promoted activity. The area of the land must be approved by the BOI, which will review the land and proposed construction plans to determine that the land's size is suitable for the promoted activity. The use of the land must be limited to the promoted activity, and if the promoted business is later dissolved the land must be sold within one year of the termination of that business. The BOI exception to the prohibition against foreigners owning land is primarily limited to the ownership of land and factory for a promoted manufacturing activity.
In addition to permitting foreign ownership of land for the purpose of conducting a promoted business, BOI privileges can authorize a foreign owned company to conduct business activities which would otherwise be prohibited under the Alien Business Law. Thus, the indirect impact of the Alien Business Law on foreign land ownership can be reduced under BOI privileges.
2. Condominium Act (No. 2) of 1990 (as amended April 27, 1999)
Sec. 19 of the amended Condominium Act authorizes qualified foreigners to own individual condominium units provided that the total area of foreign-owned units within the condominium project does not exceed 49 percent of the total area of all units within the project. In Bangkok and other municipalities to be designated in ministerial regulations, the 49% limitation does not apply. The following foreigners qualify for condominium unit ownership:
a. Individuals having permanent residence status in Thailand.
b. Individuals who have been permitted to enter Thailand under BOI privileges.
c. Juristic entities registered in Thailand but being classified as "foreign" under the Land Act.
d. Juristic entities, which have been granted investment privileges by the BOI.
e. Individuals or juristic entities, which have brought foreign currency into Thailand for the purpose of purchasing the condominium unit.
Strategies
Despite the broad scope of the prohibition on foreign ownership of land and condominiums in Thailand, and the narrow scope of the exceptions, a variety of tactics can be used to minimize the impact of the prohibitions. These include, for example:
a. Forming joint venture companies with majority Thai ownership but adequate safeguards for the foreign minority interest.
b. Long term leases with rights to renewal.
Sec. 27 of the Investment Promotion Act authorizes the Board of Investment (BOI) to grant a foreign owned company permission to own land for the purpose of conducting the promoted activity. The area of the land must be approved by the BOI, which will review the land and proposed construction plans to determine that the land's size is suitable for the promoted activity. The use of the land must be limited to the promoted activity, and if the promoted business is later dissolved the land must be sold within one year of the termination of that business. The BOI exception to the prohibition against foreigners owning land is primarily limited to the ownership of land and factory for a promoted manufacturing activity.
In addition to permitting foreign ownership of land for the purpose of conducting a promoted business, BOI privileges can authorize a foreign owned company to conduct business activities which would otherwise be prohibited under the Alien Business Law. Thus, the indirect impact of the Alien Business Law on foreign land ownership can be reduced under BOI privileges.
2. Condominium Act (No. 2) of 1990 (as amended April 27, 1999)
Sec. 19 of the amended Condominium Act authorizes qualified foreigners to own individual condominium units provided that the total area of foreign-owned units within the condominium project does not exceed 49 percent of the total area of all units within the project. In Bangkok and other municipalities to be designated in ministerial regulations, the 49% limitation does not apply. The following foreigners qualify for condominium unit ownership:
a. Individuals having permanent residence status in Thailand.
b. Individuals who have been permitted to enter Thailand under BOI privileges.
c. Juristic entities registered in Thailand but being classified as "foreign" under the Land Act.
d. Juristic entities, which have been granted investment privileges by the BOI.
e. Individuals or juristic entities, which have brought foreign currency into Thailand for the purpose of purchasing the condominium unit.
Strategies
Despite the broad scope of the prohibition on foreign ownership of land and condominiums in Thailand, and the narrow scope of the exceptions, a variety of tactics can be used to minimize the impact of the prohibitions. These include, for example:
a. Forming joint venture companies with majority Thai ownership but adequate safeguards for the foreign minority interest.
b. Long term leases with rights to renewal.
Reference:
R.Dubout.Rene-Philippe.2009. How to Safely Buy Real Estate In Thailand. TheEbookSale Publishing.Limerick Ireland
Fernquest. Jon September 08,2010. Is it safe for foreigners to own land in Thailand. Bangkok Post.
www.encyclopedia/ foreigners to own land in Thailand
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