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While digging through my folders, I found an old posting that might be worthful for all thinking about buying/ owning property in Thailand.

 

Hopefully, it may help!

 

Get real about real estate

By Leslie Wright

Published in Pattaya Mail (http://www.pattayamail.com)

March/April 2000.

 

 

In recent weeks I have received several enquiries with regard to

buying real estate property. These have inevitably been from a

middle-aged (or older) expatriate who has decided to settle in

Thailand with the girl of his dreams that he met last month or the

month before, who loves him so much that she¹s leaving her place of

work in Soi 8 or Pattayaland Soi 2 to settle down in the nice little

house she¹s found for them somewhere along Jomtien Beach.

 

Usually, the enquirer wants to find out why the property cannot be

held in his own name, and if it¹s okay to put it in his girlfriend¹s

name.

 

Some of these enquirers are so naïve that they even ask how they can

obtain a mortgage on the property. ³Oh dear,² I think when I hear

these tales, ³Not another oneŠ²

 

For their own protection

 

At the height of the currency crisis in 1997, Thailand had agreed

with the IMF to liberalise its laws with regard to foreigners owning

real estate in Thailand.

 

The matter was debated in parliament and the press at great length,

and the usual jingoistic (some would say xenophobic) statements were

aired that if the protectionist laws were amended, we greedy farangs

would sweep in and buy up all the land in Thailand and exploit the

poor innocent Thais in our typical colonialist fashion.

 

(I wonder why the fact that Thais or anyone else with money can buy

any amount of landed property in the U.K. or U.S.A. is never aired as

a counter-argument, and neither the British nor Americans seem

terribly worried that their country is going to be taken over by

colonising Asians ­ but that perhaps is another topic for another

day.)

 

So the debate went on and on, and announcements were eventually made

that the law was going to be amended to allow foreigners to lease up

to 1 rai of land for up to 30 years, on which to build a residential

property ­ provided this was preceded by a remittance equivalent to 10

million baht of hard currency from overseas deposited in a bank in

Thailand.

 

However, like several other politically unpopular bills, this one also

is still pending, as far as I¹m aware.

 

Nonetheless, some local real estate firms trumpet in their

advertisements that foreigners can now own their own property. But

this is just a clever ploy to get you through their doors. The

mechanism which has been used for years to get around this

protectionist law has not in fact changed.

 

The facts

An expatriate can own a condominium in his own name provided not more

than 40% of the apartments in the condominium complex are owned by

foreigners. That has been the case for a long time already.

 

But if you want to buy a house or land, an expatriate can only do so

through a legally registered company, of which a single expatriate

cannot own more than 39% of the shares (recently amended from 33%),

and collectively not more than 49%.

 

You also need at least six Thai partners to hold the remaining shares

(although you can go a long way to protect your interests by being the

sole authorised signatory and ensuring these local partners sign their

undated resignations and share transfer deeds at the time of setting

up the company.)

 

Of course, you could avoid the costs & hassle of setting up a company

by putting the house in your wife/girlfriend¹s name. This will

undoubtedly make her very happy ­ even happier than the visits you

made to her favourite gold shop and motorcycle shop (which are the

usual precursors to visiting the real estate agency.)

However, what happens a year or two down the road when you have a

major disagreement about something, or her Thai Œhusband¹ shows up

(they all seem to have them squirreled away somewhere)? You, like so

many before you, may find yourself standing on Jomtien Beach with only

your passport in one hand and a bag of clothes in the otherŠand your

life savings gone.

 

Getting a mortgage

 

In U.K., U.S.A. or Europe, getting a mortgage on a property is almost

taken for granted. Few people are in a position to buy a property for

cash on the table.

 

The relatively low price of property in Thailand means that many

expatriates who decide to settle here are tempted to buy a residential

property, or a shophouse for their girl-friend to run a travel agency,

beauty salon, snooker hall or beer bar on the ground floor, while they

love ­ I mean live ­ upstairs.

 

Some of the more naïve ones imagine that they can just march into a

local bank and get a mortgage on the strength of the property and

their Œpersonal¹ guarantee on behalf of their girlfriend.

 

Sorry, but that isn¹t going to happen.

 

Unlike in the West, where the title to the property guarantees the

bank in the event of default, and an endowment or insurance policy its

money in the event of the borrower¹s dying, laws in Thailand to help

banks recoup bad debts were only implemented last year, and the

efficiency of the court system is such that it could take up to 10

years to recoup defaulters¹ bad debts.

 

Banks are not interested in holding real estate on their books, since

this is a non-performing Œdead¹ asset; they want to recover the money

they lent, to lend it to someone else and earn interest on the loan.

 

Understandable, since they¹re in the money business, not the real

estate business.

 

Look at the numbers of non-performing loans (still around 43% of total

loans issued by local banks), and the high percentage of mortgage

defaulters, and that might give you some inkling why banks here have

virtually stopped offering new mortgages on real estate.

 

In Europe, banks can seize collateral property and sell it on fairly

quickly. Here, in a depressed property market, even auctions have

proven less than totally successful in moving those real estate

properties which banks have been able to repossess against defaulting

loans. More often than not the few meagre bids have not reached the

bank¹s reserve price, and the bank simply withdraws the property from

the auction.

 

Obtaining a mortgage anywhere will depend largely on the ability of

the borrower to repay the loan. This will be evaluated by the lending

institution on the basis of stability of employment income and past

credit record.

 

Nowadays, even local business people with good credit records are

having great difficulty obtaining mortgages. Typically, they have to

show they have at least the value of the mortgage on deposit in the

bank already, and are prepared to keep it there as collateral.

 

So if you¹re prepared to deposit the value of the property in the bank

­ in her name, of course ­ she might be able to get a mortgage if she

has a good employment record and her regular salary is sufficient to

repay the loan. And of course the property then has to be in her

rather than your name.

 

But to imagine that an expatriate boyfriend (who could leave the

country any time) will be accepted by any bank as guarantor of a

mortgage being applied for by a local lass whose employment record

comprises working in a go-go bar for a year or two, and whose average

bank balance has been perhaps 400 baht a month, is naïve in the

extreme.

 

 

 

Part 2

 

Last week I offered my opinion that the only reasonably secure way of

protecting your interests if you¹re thinking of buying a residential

property is by forming a company and making yourself sole authorised

signatory of that company.

 

Inevitably, some readers will disagree, and some will undoubtedly be

writing vehement letters of protest to the Editor of this publication

protesting that they¹ve been married to a Thai lady for X number of

months/years with no problems whatsoever, and that they¹re absolutely

sure she will never do the dirty on them as regards the property which

they¹ve been living in so happily, and which is registered in her

name.

 

Well, if she married a farang some years back, Thai law precluded her

continuing to own either land or a house in her name after that

marriage was legally contracted. So that would tend to indicate that

perhaps the Œmarriage¹ wasn¹t fully legal, or the land title slipped

through a bureaucratic loophole somewhereŠ

 

(More flurries of protesting letters will undoubtedly be spawned by

those remarks!)

 

Anyway, this unfair law was recently amended, so a Thai wife can now

legally continue to own land or a house which she owned before the

marriage, without fear that the authorities might negate the land

title if ever she tried to sell it. Similarly, a Thai lady legally

married to a farang can now own and ­ more importantly ­ register

property in her own name.

 

But like any other valuable investment, putting property in someone

else¹s name ­ no matter how much you may trust them at the time ­ is

fraught with danger, and leaves you potentially open to abuse.

 

Would you rather trust your life-savings to a bank or your

housekeeper? I know many of you cynics will say, ³Depends on which

bank.² But I think you get my drift.

 

Similarly with your house. There have been far too many reports of

gullible farangs being thrown out of the house they paid for ­ with no

recourse in law ­ to ignore the fact that it happens. And far more

frequently than most macho men would care to admit to their drinking

buddies...

 

Things to consider

 

Potential property investors ­ here or anywhere ­ should look at five

things: long-term demographics, supply, demand, tax, and inflation.

 

First, let¹s look at the supply & demand situation in Pattaya. There

are far more residential properties available than there are potential

buyers. Some have stood empty for years. So, one could reasonably

conclude that it is a buyer¹s market, right? Wrong.

 

Most people don¹t like to lose money. And Thai property owners are no

different. Having had to pay inordinately high interest rates to the

banks if they had a mortgage on their property (which they may still

be paying), or a substantial amount of pre-devaluation Baht if they

paid cash, they are fundamentally averse to suffering a loss on the

property ­ even, it seems, when they start running short of cash.

 

I know of several cases where people prefer to borrow money Œon the

street¹ for 4%-5% a month interest, using their property as collateral

against the loan, rather than try to raise a loan from a bank (which

these days is not only a difficult and lengthy process but might still

be refused), let alone sell their property at a loss.

 

Property prices were expected to drop by some 30% after the economic

crisis in 1997. But real estate agents will tell you that property

prices have fallen comparatively little in the past three years ­

unless the bank is beating on the owner¹s door demanding repayment of

a non-performing loan. It seems Thai landlords prefer to leave a

house vacant than suffer a capital loss on their investment.

 

Rent or purchase?

 

Then, look at the ratios between the purchase price being asked and

the rental price for the same property.

 

In the USA and UK, the Œstandard¹ rule-of-thumb for value/rental is

around 100-120 times. In other words, if your house is worth £100,000

and in a prime location and good condition, you can expect to get

perhaps £830-£1,000 a month rental income from it.

(Of course, you have to pay taxes, rates, maintenance costs,

insurance, agency fees, etc., so you may end up with only 5%-6% net

return per annum on your investment property. In real terms, not a

very good nor a very flexible investment. But that¹s another subject

for another day.)

 

Here in Pattaya, however, the rule-of-thumb ratio seems to be more

like 200 times.

 

For instance, the Œaverage¹ shophouse sells nowadays for Bt.1.3-1.8

million, depending on location. Those same shophouses would rent for

perhaps Bt.6,500 to Bt.9,000 per month respectively. Which means the

purchase price is about 200 times the rental price.

 

In other words, you would have sunk an amount of capital into buying

the property which would be equivalent to paying 200 months¹ rent

(which for those who don¹t have a calculator handy is 16 years and 8

months.)

 

Alternatively, the same Bt.1.3-1.8 million wisely invested in secure

medium-risk offshore investments could reasonably be expected to

generate an income stream averaging 10% p.a. ­ or Bt.130,000-180,000 a

year, while leaving the capital intact and securely yours.

 

Renting that property for a year would have cost you only

Bt.78,000-108,000 from this income-stream, so you would still have

money left over for fun or whatever.

 

Simple arithmetic tells you it makes better economic sense to rent

rather than having your capital tied up in a property which is

unlikely to appreciate much in value and almost certainly not beat

inflation, if past history of the property market is any indication of

future trends.

 

Location, location, location

 

Another point to consider is location. That property may be located

in a Œgood¹ area now, but who knows whether that area will have become

more popular or less popular 10 years hence?

 

³Ah,² you say, ³But that¹s how I¹ll make a capital gain!² Yes, if the

area improves. But you might have to swallow a capital loss if the

area deteriorates ­ and that has happened many times in many Œselect¹

spots of Pattaya which are booming one year and deserted the next.

(And, I freely admit, vice versa.)

 

So as far as making a capital gain on an investment property is

concerned, that is very much pot luck.

 

Housing estates and even condominiums are subject to the same whims &

fancies, it seems, although admittedly much less than commercial

property.

 

But consider whether you would be content living in the same house in

the same location for the next 16 years. Because that¹s the rental

equivalent of purchasing the property outright.

 

It is more likely that you will want to move to another location ­

perhaps quieter, cleaner, newer ­ sometime during that period.

 

Then you¹ve got the problem of finding a buyer for your house ­

perhaps in a deteriorating neighbourhoodŠ You could easily lose money

on your investment if you move, not to mention the taxes you will have

to pay either when you sell or buy the house.

 

Even buying a brand-new condominium has its pitfalls. For instance,

in Bangkok there are many blocks of condominiums which went up at the

height of the building boom which are standing three-quarters empty,

and the owners are now fearful that the lifts, security and

maintenance services will be cut off because there is not enough

income being generated from management fees to cover the operating

costs. How are they going to sell or even rent their condos then?

 

Fortunately, the situation is not that bad in Pattaya ­ although there

are always plenty of condos, houses, commercial shophouses, bars and

restaurants for sale to lucky buyers with cash to spend ­ just look at

this week¹s Mail Market section... Or perhaps it¹s the sellers who

are really the lucky ones?

 

 

Part 3

 

In the past couple of weeks I have offered my opinion on buying

property in Pattaya, first with regard to protecting your interests,

and secondly from the economics¹ standpoint of cost-effectiveness of

renting versus buying.

 

Coincidentally in the interim, there have been a couple of articles in

the national press about fraudulent practices that even I was unaware

of.

 

I have also received several enquiries from potential real-estate

buyers, who are concerned not only about shady practices that might

affect them, but also about the taxes they might be burdened with.

 

Let¹s look first at just one of the shady practices that has

apparently been going on ­ at least around Bangkok.

 

 

Earth moving developments

 

It has been reported that, in more than one instance, a piece of

prime real-estate in a good location was shown to a prospective buyer,

and a price agreed. When the land registration deed for the

newly-acquired property was subsequently examined, however, the

location of the land on the deed turned out to be in quite another

area from what the buyer thought he was buying.

 

Typically, that land was nowhere near the land shown, nor anywhere

near its value.

 

Let me hasten to add that I am not suggesting that this practice has

been followed by any Pattaya real-estate firm or property developer,

nor any individual seller.

 

But it is curious that one enquiry I¹ve received recently was from a

couple (a farang married to a perfectly respectable and charming Thai

lady ­ an exception to the typical relationship in Pattaya which I was

warning against in the first of this series of articles) who were in

the process of buying part of a local housing development, but were

experiencing great difficulty getting straight answers from the Thai

developer to quite reasonable and straightforward questions.

 

One of these questions was why the developer was selling a piece of

land which happened to have a house situated on it, but there would be

no paperwork or deeds pertaining to the house itself.

 

There may be a perfectly reasonable explanation for this apparently

anomalous transaction. But not being in the real-estate business I

have not as yet been able to discover the answer (which I suspect has

to do with paying taxes ­ or rather not paying them.) I¹m sure the

Editor will receive a flurry of letters from local real-estate firms

regarding this practice, and I look forward to their explanations.

 

The development in question may indeed be perfectly legitimate, and

the Thai developer merely a very shrewd businessman (or rather

businesswoman in this case) who was looking to maximise her return

from her investment. Or avoid taxes.

 

However, why she would be unwilling or unable to show the clients a

copy of the land title deed (which is a public document available from

the Land Registry) is certainly cause for concern in light of the

published case mentioned earlier.

 

 

Taxing issues

As I pointed out in the first of this series of articles, under the

current land ownership laws foreigners cannot own land or houses in

their own names. (This may change if a proposed bill is ever passed

into law ­ but how long that may take is anyone¹s guess; the last time

property laws changed here it took seven yearsŠ)

 

Hence many foreigners by-pass the protectionist law by purchasing a

house through a company. (I gather the Thai authorities are making

noises about passing legislation to close this loophole also; but that

may also take a long time ­ although when it comes to self-protection,

laws seem to be passed here with greater alacrity than when granting

concessions. But that¹s yet another example of TIT ­ ³This is

Thailand,² to borrow Mr Trink¹s favourite phrase.)

What many buyers (especially foreigners) fail to take into account

are the taxes that become due upon transfer of a property title,

however the property is purchased, and no matter whether through a

company or in their girl- or boy-friend¹s name.

 

Three taxes will have to be paid when the property is bought or sold.

But because of the peculiar local system of taxing property on a

rather arbitrary assessed value rather than true market value, these

could amount to as much as 30% of the purchase price.

 

When a tax bill arrives ­ often some two or three months after the

sale is completed ­ this could come as a nasty shock to a buyer, since

the seller often neglects to mention this liability during the

negotiations... (And after all, why should they tell you if you don¹t

already know or ask? As in all business transactions here or indeed

anywhere, caveat emptor is the rule: Let the buyer beware.)

 

In addition, if the house is purchased through a company, one has to

bear in mind that corporate tax is higher than personal tax, and the

cost of setting up the company has to be considered as part of the

initial investment outlay, even if this is a relatively modest

additional cost ­ perhaps around $1,000 all told.

 

 

An investment or a millstone?

 

Buying a property to live in is one thing; buying it as an investment

is another, whether in Thailand or indeed anywhere.

 

In the depressed property market currently prevailing in Thailand,

homeowners could suffer a considerable capital loss if they sell their

properties for what many would regard as true market value. Naturally

enough, they are reluctant to do so. This is one reason why property

prices have not come down as much as was anticipated after the

currency crisis of 1997.

 

If the homeowner bought the property on a mortgage or financing

arrangement, the loss will be compounded by the interest he or she

will have paid in the meantime, which until very recently was

inordinately high ­ not to mention the taxes that may have to be paid

on the property, either by the seller or the buyer.

 

Thus if you are looking at property purely from an investment

perspective, it could take many years for the overall costs to be

recovered. Even in developed markets, property values over the long

term just about match inflation.

 

In the meantime, there are all sorts of Œcharges¹ on the investment to

be considered: local taxes; insurance; maintenance & repair ­ which

could be a major expense should the tenants run amok and trash the

place, as recently happened to some friends of mine right here in

Pattaya!

 

I know of other cases where a property was bought as a long-term

investment, and has become a millstone round the owner¹s neck. The

property is sitting idle with no prospective buyers in sight, no

rental income, but still incurring a tax liability each year. It is

therefore a depreciating capital asset which is a drain on resources,

rather than an income-generating investment.

 

At the end of the day, it is entirely up to you whether you buy or

rent your home, and this is often an emotive rather than rational

decision.

 

But after taking into consideration the significant capital outlay,

bureaucratic complications, peripheral costs, taxes and inflexibility,

my advice would have to be ³Rent don¹t buy.²

 

---

 

 

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I definitely agree that renting is better than buying in Thailand in most cases. If buying, the shell company also seems best: getting a good lawyer to set things up and provide nominee directors. However, I was under the impression that 30-year leases on land or houses were reasonably safe (even renewable 30-year leases). I am not intending doing this myself but do have friends who have done it. Am I wrong about this?

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For instance, the Œaverage¹ shophouse sells nowadays for Bt.1.3-1.8

million, depending on location. Those same shophouses would rent for

perhaps Bt.6,500 to Bt.9,000 per month respectively. Which means the

purchase price is about 200 times the rental price.

 

In other words, you would have sunk an amount of capital into buying

the property which would be equivalent to paying 200 months¹ rent

(which for those who don¹t have a calculator handy is 16 years and 8

months.)


I never thought of viewing it this way, add to this u may eventually move gives more credence to long term leasing or monthly rental. :up:

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Hmm - Interesting thread and I have read the article before. Unfortunately the author does not practice what he preaches as he himself has apparently purchased a large 9 or so rai plot of land. Perhaps he is correct in much of what he says but I know of a number of people that are making quite substantial amounts of money renting out housing in the Pattaya area.

 

For the uninformed, there are a lot of hurdles and problems but for someone who gets through the maze, the rewards are there. key as always in property is location, location, location.

(and not to mention a decent lawyer and a lot of common sense!!)

 

Cheers

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Quote:

--------------------------------------------------------------------------------

 

For instance, the Œaverage¹ shophouse sells nowadays for Bt.1.3-1.8

million, depending on location. Those same shophouses would rent for

perhaps Bt.6,500 to Bt.9,000 per month respectively. Which means the

purchase price is about 200 times the rental price.

 

In other words, you would have sunk an amount of capital into buying

the property which would be equivalent to paying 200 months¹ rent

(which for those who don¹t have a calculator handy is 16 years and 8

months.)

 

--------------------------------------------------------------------------------

 

 

"I never thought of viewing it this way, add to this u may eventually move gives more credence to long term leasing or monthly rental. "

 

Shophouses are a waste of money and you do risk a lot because you have no control over your neighbours and the surrounding area. That is why detached houses are now so common for new builds and shophouses/townhouses are hardly ever built new anymore. Too many problems with common facilities such as dividing walls, maintenance etc. Renting a shophouse is always a better proposition as you can just walk away from it.

 

 

Similar with older villages where the houses are all bought down if one or two owners do not upkeep the house and you end looking on an overgrown eyesore. many many areas in Pattaya have this problem. Similar with broken or worn out roads and so forth. These are some of the warning bells that should be going off in peoples minds but all so often they never even consider it :doah:

 

Cheers

Cheers

 

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britTim says:

" definitely agree that renting is better than buying in Thailand in most cases. If buying, the shell company also seems best: getting a good lawyer to set things up and provide nominee directors. However, I was under the impression that 30-year leases on land or houses were reasonably safe (even renewable 30-year leases). I am not intending doing this myself but do have friends who have done it. Am I wrong about this? "

 

No your not wrong in terms of the principles of law but dont forget not many Thai girls understand the law :o - To them possession (i.e the freehold) is the 9/10th's of the law and a piece of paper does not mean squat. Imagine taking your GF to court to get this resolved. She will claim she was duped and did not understand it properly and then claim you are a bad man etc etc, all for living in a house - end result is that you might win, but no doubt she will have a few men friends trying to convince you to leave early with the aid of a crowbar or two. IMHO, any inference of ownership by a Thai Girl will always end up with that result if things go bad. Set up a company, tell her its your house and nothing to do with her if you split. She knows she has no claim to the house and I suspect will be far easier to deal with for you the owner.

 

Cheers

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Hey Pete,

 

Is this information up to date?

I thought that the laws were again changed recently?

 

My understanding was that you can own outright, in a specified area, where there was no more then 40% of foreign owned investors.

 

Please correct me if I am wrong :)

 

Cheers

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There are certain circumstance under which a foreigner can own real property in Thailand. For the details, see:

 

http://www.thai-la.net/pr/land_eng.pdf

 

Inspired by this link, I set out to find more of Leslie Wright's articles. For those who may be interested, here are archives posted at the following URLs.

 

http://www.westminsterthailand.com/Articles/articles2000.htm

http://www.westminsterthailand.com/Articles/articles2001.htm

http://www.westminsterthailand.com/Articles/articles2002.htm

http://www.westminsterthailand.com/Articles/articles2003.htm

 

 

RickF

 

 

 

 

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