Global Investments
International Limited

The Bank of Thailand's tough capital controls, although slightly eased after the stock market crashed on Tuesday, are scaring off foreign property buyers and will add further pressure to the market, says a local lawyer with many foreign and expatriate clients.

Under the new rules, foreigners who want to buy a leasehold property in Thailand will have no problem doing so if they can bring in Thai baht for the purpose, said Sally Ann Lefley, an associate at the Bangkok-based firm McEvily & Collins.

However, those buying freehold property, such as condominiums, will see the Bank of Thailand retain 30% of foreign funds interest-free for one year.

Ms. Lefley also said that even though Thai authorities are trying to stop foreigners from setting up Thai companies to buy land and houses, those who manage to do so can buy landed real estate without having to deposit 30£ with the central bank by using baht for the transaction.

James Pitchon, executive director of CB Richard Ellis, said yesterday that the central bank needed to further clarify how the controls on foreign capital inflows would affect foreign property buyers.

"We are still unclear whether it will affect overseas buyers," he said.

Should foreign real estate buyers have to deposit 30% of the purchase price with the Bank of Thailand for one year, it would be extremely damaging, Mr. Pitchon added.

He said the property was not a short-term speculative investment but a medium-to long-term one with most people buying houses and condominiums to live in. For this reason, funds used to buy property are not "hot money" as it cannot be sold quickly. By nature, property is illiquid.

Mr. Pitchon added that even if a 30% deposit with the central bank was not required, more paperwork generated by the new rules would still hurt the market.

Aliwassa Pathnadabutr, CBRE's managing director, added: "We've been contacted by many foreigners who are concerned about not only how these regulations will affect their property purchases, but also what the effect will be in the medium to long term on the condominium market".

Ms. Lefley said that investors should simply look to lease land because the government has been enforcing regulations that restrict foreigners from setting up companies to buy land.

"Just totally forget about trying to buy land through a Thai company," she said. "Things have taken place since the coup; it got very, very strict thereafter. So if a Thai company wants to buy a piece of land now, if it's 100% Thai, it's no problem. But if there is a foreign shareholder or director then the Land Office will investigate that company and check if the Thai shareholders are actually nominees for the foreign director or shareholder."

The maximum term of a lease in Thailand is 30 years and Thai law allows one renewal of 30 years.

"You can still buy a house or a villa; it's just the land that you can't actually buy," Ms. Lefley said. "So you can choose to lease the house as well as the land or you can choose to buy the house outright".

However, she cautioned that once the lease expires, the house, unless the lease agreement says otherwise, would actually become the property of the landowner.

"So whereas before sellers and buyers were concentrating more on freehold aspects, it seems that the sellers now are really getting to grips with leases and putting in more provisions, not only to protect themselves but also to protect the lessees," she said.

Even so, Ms. Lefley noted that foreigners are not shying away from buying land and houses as her law firm had feared.

"It seems more and more are quite accepting of the option to lease. They don't seem too concerned about owning a freehold so that they can pass it on to their family when they die; it seems a lot are looking at using the property for themselves and not looking to pass it down".

Bangkok Post - Business Section - Thursday, December 21,2006

• Foreign transactions related to current account activities, including trade in goods, services, income, transfers and aid
• Inflows for equity investment in companies listed on the SET and MAI (excluding unit trusts and warrants); investments in the Thailand Futures Exchange and Agricultural Futures Exchange of Thailand. All investments must be done through an SNS account (special non-resident baht account for equity
  securities)
• Foreign direct investments, defined as investments by non-residents where the investor holds at least 10% of equity capital and has management authority
• Property investments, including land and condominiums (but excluding property funds)
• Foreign borrowings transacted before Dec 19
• Currency swaps associated with rolling over existing exchange rate hedging contracts with the original financial institution
• Transactions worth less than US$ 20,000 or equivalent
• Foreign exchange bought or exchanged against baht from clients or authorized money changers in the form of traveller's cheques and banknotes
• Transactions with Thai embassies, consulates or government agencies located abroad; transactions from foreign embassies, consulates, UN agencies or international organizations located in Thailand
• Foreign currency borrowings of government agencies
  

• Investments in debt securities
• Foreign borrowings transacted after Dec 19,2006
• Transactions for other purposes not exempted above