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More Rumours of Pending Legal Change

With the new laws for foreign ownership. What do you think about…?

I commented, two months ago about the much publicized, proposed amendments to the laws concerning foreign ownership of land and the percentage of condominium units allowed under foreign ownership. Despite the fact that these decisions are still very much "under review", I continue to receive many inquiries assuming that the issues have been resolved. They have not.

Briefly, no final figure for percentage of foreign allowance in condominiums has been reached (the Fnumbers under consideration range between 49% and 100%) and the once bold proposal for freehold ownership of small plots has slipped first to foreigners with Thai spouses, to only those investing about a million dollars, and now in the latest proposal it seems that ownership will not be granted directly but rather through a holding shares in a Thai trust company that owns the land on your behalf. Hmmm. One has to ask "What’s changed"!

Foreign ownership of property, has long been restricted in Thailand (and indeed much of Asia) as a matter of national security (most recently, threats of encroachment on the Laos and Cambodian borders, during the Vietnam war and it’s aftermath) and great national pride.

The recent moves to relax the foreign ownership laws have had little to do with the economic principles of Free Trade or pressures from the WTO, nor seemingly are they intended to rectify the inequalities concerning the civil rights of Thai’s married to foreigners or the fact that Thai nationals may (and do) freely purchase property in just about any country in the Western world. They were conceived in great haste primarily as a quick fix for the countries foreign exchange and real estate woes - or in the view of the cynics, the financial woes of many members of the ruling coalition with private real estate interests.

It is thus of little surprise that even at the Cabinet level (it’s not got near parliament yet) that these proposals have become chopped and changed out of recognition.

What was once a clean clear proposal to allow foreigners to own small plots of land and condominiums (hardly an issue for national security), that might have, if pushed through quickly, had the positive financial effects that were originally intended and made the WTO happy at the same time - has degenerated into a rather pathetic attempt to appease all the parties in a shaky coalition - with the result that no one will get what they wanted. Such is politics!

It is my personal view that that an increase of foreign ownership in condos will in fact have little impact on overall foreign purchases. The properties that are in trouble have generally not sold well to foreign buyers and in those buildings the 40% allowances is far from utilized, while those properties popular with foreigners are already largely sold out (through nominee or lease structures). What will however occur is that the price differential in popular building between Thai Freehold and Foreign Freehold will diminish. Leaseholds with a contractual option for freehold upgrade will appreciate, and units with a big foreign ownership premium, will see values erode slightly.

It is in the area of house (on small land) purchases that I believe that there was (is still?) the greatest potential to encourage the new investment that the economy so badly needs. While there are several secure and perfectly legal way that foreigners can already have effective ownership of a house in Thailand (principally through lease of land and ownership of building) many are still deterred by the complexity of such arrangements - and a clear simple freehold of land and house would open up a whole new market.

We will have to wait, to see what, if anything, is eventually concluded in this matter. Even when a law is passed in parliament it takes another two to three months to be published and come into effect. In the meantime if you are considering a purchase of property in Phuket, just make sure that your purchase arrangements include a clause (which has in fact been quite common for some time now) allowing the conversion of leasehold to freehold if (when) the laws of Thailand allow foreign freehold ownership of land or a greater interest in a condominium.