For many people throughout the world, owning a property abroad is a dream. Some investors desire a second income by entering the buy-to-let market. Others see a holiday home, or a permanent home for work or retirement.
There are now thousands of foreign owners of real estate in Thailand, reaping the benefits of realizing their aspirations of owning a property in a tropical country.
Thailand has become a desirable location for foreign investors and there is no indication that the flow of investment is going to abate in the near future. Thailand continues to make investment relatively easy for foreign investors, and with its affordability, developers continue to feed the market.
Thailand’s Historical Conservatism Towards Foreign Real Estate Investors
From the 19th century onwards, successive monarchs brought land ownership back to the people, primarily for agricultural use. For many years this was to the exclusion of foreign ownership, and for good reason. Ruling monarchs and governments have maintained a policy that has primarily kept land within Thai ownership in order to prevent wealthier states from taking control of the real estate market in the kingdom.
However, maintaining indigenous control of assets, for the good of the economy, needed to be balanced against encouraging foreign investment. The Land Code Act created the option for foreign investors to lease land for 30 years, and given the correct circumstances this is renewable. In addition, the 1979 Condominium Act made it possible for foreigners to own single or multiple apartments and condominiums in their sole name.
Just as in any Country, Thailand Has Laws Governing Foreign Ownership of Real Estate
The Thai government is keen to encourage foreign investment whilst also maintaining the sovereign integrity of the nation’s assets. This has of course, over the years, required a balancing act of government policy towards foreigners wishing to invest in real estate.
Quite simply, land cannot be owned freehold by a foreign national. Arguably, this is a sound economic policy, specifically designed to ensure that real estate prices are not inflated by wealthier foreign investors at the expense of the indigenous population.
In many western cities, such as London, land and property values have increased to a level beyond the reach of the average citizen due to unabated foreign investment. Thais will not countenance this happening to their country. Successive Thai administrations have allowed foreign investment policy to evolve whilst ensuring that the Thai people will never have their kingdom sold out from under them.
Although a foreign national cannot simply buy what they want where they want, Thailand is not a closed door to investors. There are legal policies that allow foreigners to own property and to maintain a financial interest in land.
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What are the Options for Foreigners to Have a Financial Interest in Land Ownership?
What are the Options for Foreigners to Have a Financial Interest in Land Ownership? A foreigner can incorporate a limited company with which to buy land and then build upon it. However, the company’s shares must be at least 51% Thai owned. This may be an option for a foreigner with a trusted wife or partner, but there will always be a risk with this route to ownership.
Some foreigners opt to lease land for a period of up to 30 years, and then build a property on the land for their use. Within the lease agreement it is normal to have a renewal clause written in. But there are dangers with leasehold ownership of land.
It is possible that a land owner may refuse to sign the renewal at the end of the lease agreement. The litigation process thereafter is lengthy and expensive, and the outcome cannot be guaranteed. Another thing to bear in mind is that reselling a property on leased land is not easy, and the property value will be lower because of the leasehold status of the land.
Is It Easier for a Foreigner to Own a Condominium or Apartment?
Condominium and apartment ownership is by far the most popular and easiest way for foreigners to invest in real estate in Thailand. Since the introduction of the 1979 Condominium Act foreigners have been able to own such properties in their sole name. However, there is one important caveat in the act. Foreigners cannot own more than 49% of the total residences within an individual development.
This will not be of concern to most investors that want to invest in a rental property, holiday residence, or retirement home. But it must be taken into account by anyone considering a large investment in multiple residential units.
An investor buying a condo or apartment in one of the major cities may have difficulty if they want to sell the property on. With so much over supply of new builds, the resale market is slow to the point of stagnation in cities such as Bangkok, Pattaya and Chiang Mai.
There are Other Variable Considerations
When deciding which method to use in pursuance of buying real estate, each investor will have individual preferences and requirements in ownership. A house will usually give the resident more space, including a garden. A house on a well-chosen plot of land can also give the investor greater distance from their nearest neighbor. Very spacious condos are only found at the very top end of the market and will be expensive.
Some investors may want to consider the ongoing costs of owning a property. This is very likely to be greater when owning a house as opposed to a condo. The house owner will have the cost burden of repair and maintenance of the building and its land area. A condo owner will pay a relatively low monthly fee to cover repairs and maintenance of communal areas, leaving them with just the cost of internal upkeep.
A Look at the Current Trends Within the Real Estate Market
Foreign investment in real estate throughout the kingdom is still growing, and is being fed by the property developers. The International Monetary Fund states that 28% of this investment comes from China, while around 40% of foreign investment comes from outside Southeast Asia. Up to now the majority of this investment has been in cities such as Bangkok, Pattaya and Chiang Mai. No one can fail to notice the continual changing skyline in these cities.
High rise condominium and apartment blocks continue to make up the bulk of the new developments. The relentless building drive in the big cities is starting to have an effect on projected returns. Pattaya’s property market is beginning to stagnate due to a glut of property, Bangkok’s and Chiang Mai’s markets are starting to level off.
This obvious over supply is not wasted on The Bank of Thailand. They state that the recent growth figures across the whole of the nation for the last two years are unsustainable in the big city areas due to the level of development.
Their figures show that nationally, in 2018, the Thai economy expanded by a healthy 4.4%, and that is reflected in the condominium market, which showed that capital growth was up to 4.9% from 3.9% in 2017. With over supply continuing, the financial institutions point to a future negative impact on these figures. The cities which have been exploited to exhaustion will be the first to feel this pinch.
How Will the Future Market Shape up for the Foreign Investor?
Although the boom years of property investment in the major cities may have gone beyond their peak, investment in real estate within the kingdom is still a very attractive proposition. With so much property development being undertaken, foreigners can negotiate good deals. Discounts of up to 30% are now common for agreeing a purchase “off plan”. This is when an investor pays a deposit, usually 10%, on an agreed purchase prior to—or during—the early stages of building.
For a foreign investor wishing to move to Thailand, perhaps for retirement, discounts of this level are great news, giving the buyer potentially excellent value for money. For investors looking for a return on their capital, big discounts will help to offset a moderate reduction in potential rental yield.
Investors who choose to purchase real estate in cities that are on the verge of a glut should also ask themselves a question: Will I want to sell the property in the future? For anyone that is thinking of buying a property and then living out their dotage in their own idea of paradise, then resale may not be of any concern. However, anyone that has a thought of selling and moving on in the future needs to consider how any property glut may affect the resale value and marketability of their property.
The real estate developers in Thailand are driven by the desire for foreigners to invest in Thailand; the two go hand in hand. There is a growing trend amongst investors to break the norm of buying just another anonymous concrete block of real estate in one of the over-populated cities. The discerning investor is looking further afield.
In our modern digital world, more and more people are able to work remotely from anywhere. This is reducing the necessity for people to be constantly working on site, leading to people living and working outside of cities such as Bangkok. Indicators show that there are increasing numbers of working-age people seeking homes in a more convivial environment. As a result of this, developers are looking for sites that satisfy the shifting demands of the market.
Similarly, there are more foreign retirees looking for a desirable home away from the historically traditional areas of expat living. The needs and desires of living requirements continually evolve; as such, the real estate developers evolve reciprocally.
New and Attractive Location Options are Opening up for Foreign Investors
Any real estate expert will say that location is the most important factor in buying a property. Purchasing a property in the right location will maximize any rental yield, whilst also holding value and resale desirability.
Hua Hin is one area that has always been attractive to Thais. A holiday destination, it has also had a small amount of condominium development aimed at the indigenous population. But it has never been subject to the abusive development that has occurred in the major cities.
Last year the Tourism Development Plan was announced for the Hua Hin area, which has put it under the scrutiny of the major property developers, with an eye on new development concepts. This new Tourism Development Plan for the area is aimed at projects being sympathetic to the local environment.
The emphasis is on harmonious low-level developments. The Tourism Development Plan is keen not to allow the area to be exploited by developers in the same way that has been seen in the cities. There is also a strict rule which does not allow any development within 200 meters of a high tide line anywhere along the 200 kilometers of coast.
Under the auspices of the Tourism Development Plan, developers are now acquiring sites in the Hua Hin area; they are using creative design, sympathetic to the local environment. They are introducing residential properties to the market which are far more idyllic than the norm. These developments are exciting and innovative and are far divorced from what has gone before. The leaning tends to be towards low level, quality residences at affordable prices. This is good news for foreign investors.
The developments in Hua Hin will be of great interest to foreign investors looking for rental return on their capital investment. They are also idyllic for foreign retirees. Quality, low-stress coastal living in a peaceful environment is now very much a reality.
Are There Financial Restrictions on Real Estate Investment?
There are very few financially restrictive rules that apply to foreign ownership in real estate. That said, investors need to be aware of the rules, and should diligently adhere to them for fear of breaching the law and perhaps losing out on an attractive property deal.
Firstly, an investor has no need to worry about a minimum or maximum financial investment—after all, Thailand wants foreign revenue to flow into the kingdom. A foreigner can invest as little or as much as they like in real estate.
A prospective investor new to Thailand will need to secure a bank account in the country in their own name. Any investor would be wise to canvass the main banks to be sure they obtain the banking product that best suits their requirements. It is advisable to do this with a trusted Thai speaker in order to minimize the risk of any important details being misconstrued in translation.
The investor must also show that all funds covering any real estate purchase have been transferred into the kingdom in the currency of their native country. This rule applies to the purchase of a single site or dwelling, or the purchase of multiple sites and dwellings. Failing to comply with this directive will result in the purchaser being unable to have their name on the deeds.
An Overview of Real Estate Investment in Thailand
As with any major decision a person makes in life, the positives and negatives of the argument need to be carefully weighed up. The sheer level of foreign investment in Thailand’s real estate market clearly shows that investors see far more positives than negatives from property investment in the kingdom.
Geographically, the spread of investment is evolving, with new desirable areas becoming the focus of fresh ideas in design and living standards. Shrewd and discerning investors are now looking at areas like Hua Hin, juxtaposed to the hectic, stressful living of the cities. Within the Hua Hin area, Pranburi has become of particular interest due to its lifestyle being far removed from cities such as Bangkok and Pattaya.
Investors need to feel that their capital has been wisely spent. Many investors have begun to question whether the city bubble is about to burst. We see relentless development in the cities, which is driving down returns on investments. Over supply is beginning to show rental return projections falling and capital growth stalling.
The resale market of property is a good indicator of the future for the industry as a whole. For a number of years, the resale market in Pattaya has been stagnant, with properties staying on the market for years. Inevitably this drives prices down. Slowly but surely these trends are spreading to other major cities.
Fortunately, there are forward-thinking developers who are learning the lessons of the unrelenting exploitation of the cities, and now offering genuine alternatives—ones that realize the aspirations of foreign investors who are becoming far more discerning in their expectations.
The perfect example of this new forward thinking can be seen in Pranburi. A new Grand Marina development is under way which offers a unique lifestyle opportunity for foreign investors. This is a low-rise, quality development in a pleasing environment with its own private marina and calm waterway to the open sea. The Grand Marina Pranburi project is perfect for an investment aimed at the rental market or for retirement living. Rental returns and capital growth projections are at levels unlikely to be equaled by any other current development.
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