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Foreign Ownership Under Scrutiny

By on Oct 27, 2009 in Residential

The current restrictions on foreign ownership in particular the restriction of foreign ownership to 49 % of the sellable area of a condominium at the limit on the current length of lease to 30 years with options to renew will affect Thailand’s resort property markets which in the case of Phuket or Koh Samui are almost totally driven by Thai demand.

Our view and that of many other participants in the Thai real estate industry is that reforms are needed that will address both maintaining the attractiveness of Thailand  for foreign retirement and second home buyers and the Thai concerns about ownership of land by foreigners . We continue to believe that acceptable solution would be extending the maximum period of a lease term to 99 years and an increasing the maximum area of a condominium that can be acquired by foreign purchasers.

We have stressed before the economic benefits of retirement and second home buyers who are large consumers of services and whose presence boosts local economies and allows them to move away from traditional hotel based tourism market which is very vulnerable to both political and economic events.

FOREIGN PROPERTY OWNERSHIP
Scrutiny of nominees about to get serious
Bangkok Post – October 26th 2009

In-depth scrutiny of the shareholding structures of companies suspected of holding land plots and having exceeded the foreign shareholding limit will start next year, according to the Department of Business Development (DBD).

The focus would be on companies suspected of being nominees, said Samruay Daengduang, director of the department’s Business Enforcement Bureau.

“We should have a clear regulation on nominee checking. It should clarify for which purpose foreigners are holding the plot, such as for a residence or for business,” he said.

The bureau would work with the Lands Department, the Department of Special Investigation (DSI), provincial governors and Commerce Ministry offices in 20 major provinces and tourist destinations.

Checks began on suspected nominee firms in 2008 but only at random in the first year to get an overview. This year the department has selected clearly suspected targets and would start in-depth scrutiny next year, he said.

“We will ask the Lands Department for help in taking a look at the size of land plots that suspected firms hold. Then we will check their shareholding structure,” said Mr Samruay.

According to the Phuket Lands Office, around 250 plots were in the scope of the Lands Department and the DBD for checking. Then both departments would select which are in the risky group.
“If we do not have enough authority to act, we will co-ordinate with the DSI to help us,” Mr Samruay said. “Since the DSI began checking into nominees in the past year, the number of cases of wrongdoing has been reduced.”

Thanan Tanpaiboon, president of the Phuket Real Estate Association, said the government should have a policy and procedure to close legal loopholes as it was earning fewer benefits than it should.

“Foreigners illegally holding land plots in Phuket have been a problem for over a decade,” he said. Phuket is a major tourist destinations attracting 4-5 million arrivals each year, some of whom turn into property buyers.

Mr Thanan identified four property holding methods used by foreigners:

The foreigner has a Thai spouse acting as a nominee to hold a property. As the property will be personal property of the spouse, the foreigner who is the real owner rents the property for 30 years from the Thai nominee. Most properties in this category are houses on land plots smaller than one rai with prices of between one million and 10 million baht.

The foreigner sets up a Thai firm in which he holds 49% or less and the Thai partner 51% or more. The Lands Department will check the Thai partner to verify sources of funds. The Thai partner will sign a document to transfer all shares to the foreigner without an actual transfer taking place. The foreigner then has authority as a director to make any transaction. Most properties in this category are land plots priced above 10 million baht and intended for development.

The foreigner sets up a 100% Thai firm which will not be checked by the Lands Department. As soon as this company obtains the land transfer, there will be a transfer of some shares to the foreigner. Most property in this category involves large land plots for investment or development of residential, hotel or resort projects worth hundreds of millions of baht.

The foreigner sets up a foreign firm in which he holds more than 49%, which is regarded as illegal, and will mortgage property with other foreign companies.

Aliwassa has been the Managing Director οf CBRE Thailand for a number of years. As a Thai national, Aliwassa is extremely knowledgeable about the sale of property in Thailand, specifically large scale high value condominium developments largely in Bangkok.

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