Tropical Beach House - The Dream and the Reality
Mark, a British national working and living in Hong Kong, inquired "I am interested in buying a villa in Phuket for which I need to secure a mortgage" and Charlie from Singapore wrote "Your columns in the Gazette have been most helpful . If I want to buy a condo unit, is there mortgage financing available"
Sadly for prospective buyers keen to purchase, but unable or unwilling to commit the full price in hard earned cash and developers keen to enlarge their market penetration alike, property purchase financing or mortgages have never been very readily available or user friendly in Thailand.
There are several obstacles that restrict finance in general and foreigners access to property finance in particular. These are in essence - the under developed and general conservative local banking system, the restrictions placed upon those bankers by the Thai central bank after the recent (1987) failures of the Thai banking system and over the ensuing few years - the severe credit squeeze, then relative to foreigners, the complexity involved in local banks assessing the ability of non resident foreigners to repay loans, the general limitations regarding foreign property ownership and last but not least, from the borrowers perspective, the high cost of money in Thailand relative to global market rates.
Against that highly restrictive backdrop, it must be noted that liquidity
in the local finance market has improved considerably over the last year and the government is also working
hard to stimulate the economy by encouraging consumer spending and generally
easing consumer credit and housing loans. Interest rates have also fallen
to (for Thailand at least) historically low levels.
None of this credit easing has however done a lot to solve the problems faced by foreigners seeking finance to buy property in Thailand. Charlie who plans to buy a condominium (where typically 49% of the units may be acquired freehold by foreign buyers) may have a better chance of success, but for Mark who wants to buy a Villa (and we assume will be leasing the land upon which it is built) will not be able to use the property he is leasing (but does not own) as security for any loan he may require - and even if the owner is prepared to allow the property to be pledged to secure a mortgage, the bank will not be willing to allow the lease to be registered. Catch 22.
If Mark happens to have a Thai wife or has a company in Thailand, who could acquire the land freehold, he will be, like Charlie with his freehold condo, have a indirect route to own property and thus seek to provide the income security to underwrite bank finance for his wife's of companies borrowings - but will then face the complexity of substantiating his source of income (we assume offshore) to his bank in Thailand.
While the situation is easing and a few loans are bing granted to foreigners, particularly in the condominium sector, it is still far from simple. Generally it will be simpler (and cheaper) for a foreigner wishing to secure finance for a property lease or purchase in Thailand to secure funds from his home bank by pledging his primary residence or stock portfolio as the collateral.