Pros and cons of expanding foreign rights to property ownership

Real estate entrepreneurs have spoken out about the government’s proposal to extend long-term land lease rights to 99 years for foreigners buying condos and increasing the condo purchase quota to 75%.

They highlight benefits such as investment incentives and economic stimulation but stress the need for strict conditions to prevent nominee issues and putting in place location and voting rights restrictions.

Issara Boonyoung, chairman of the Trade Association for Real Estate, Design and Construction under the Thai Chamber of Commerce, noted that previous governments have proposed allowing four groups of foreigners—high-wealth individuals, retirees with stable incomes, online workers wishing to reside in Thailand, and experts—to own residential land up to one rai. The Board of Investment (BOI) Announcement 6/2565 allows BOI-approved foreign legal entities to own land for offices and for housing for executives and workers.

This policy, which has been in place since 2001, includes proposals to amend measures allowing foreigners to invest 40 million baht to own up to one rai of land.

“All these measures faced criticism, with many warning they amounted to selling out the country’, even though some had been in effect for a long time. As a result, the government revoked the amendments that would have allowed the four groups to own land.”

Preventing nominee use a must

There have been cases of accounting and law firms illegally setting up Thai companies to hold land for foreigners using nominees, depriving the country of tax and fee revenues.

This has led to the study of three long-term lease laws:

The Civil and Commercial Code of 1925 limits leases to 30 years and treats them as personal rights, which end upon the death of either party.

The 1999 Property Lease for Commercial and Industrial Purposes Act allows leases up to 50 years, extendable by another 50 years. This law creates a property right, allowing leases to be inherited, subleased, or mortgaged.

The 2019 Rights over Leasehold Asset Act, is similar to the 1999 Act but limits leases to 30 years and is applicable for various uses. Proposals have been made to extend these lease durations.

Preventing nominee issues

For Thai lessees: Allow diverse uses, such as long-term agriculture, permanent forest planting for carbon credits, and residential, commercial, and small industrial purposes, with flexible lease durations based on investment size. As property rights, these leases can be inherited and used as collateral.

“If there are concerns about Thai nominees leasing on behalf of foreigners for agricultural purposes, restrictions could limit leases to residential use only, although this would disadvantage Thai lessees seeking long-term agricultural and other investments,” Issara said,

For housing projects for low-income earners on state or private land, long-term leases exceeding 30 years can be used as mortgage collateral with financial institutions due to their sufficient duration, maintaining the lease's value.

For foreign leases, the conditions are as follows:

Limit the leased area to a maximum of 1 rai.

The land must be used for residential purposes only. If construction or occupancy does not occur within three years, the highest land tax rate of 3% per year will be applied to prevent speculation.

Set higher registration fees and annual taxes for foreigners compared to Thai citizens.

The revenue from these measures can be used to establish a housing fund for low-income individuals, supporting initiatives like zero-interest loans for the first three years, mortgage insurance funds, or direct housing purchase subsidies for low-income earners.

“Extending lease durations beyond 30 years and up to a maximum of 99 years is a matter the House of Representatives must consider carefully, weighing the benefits and drawbacks of such extensions,” Issara said.

Two-in-one measure to stimulate economy and real estate

Surachet Kongcheep, managing director of Property DNA, said the Cabinet’s resolution for the Ministry of Interior to study the feasibility of amending two laws to stimulate the sluggish real estate market is an indirect economic stimulus measure.

This would likely incentivise foreigners or investors interested in long-term real estate investments, as they would have significant rights over the leased land, second only to the landowners. This property could then be used as collateral for loans to develop projects or secure long-term leases not intended for investment purposes.

Foreign nationals have long faced challenges obtaining loans from financial institutions in Thailand. The extended lease durations of up to 99 years, compared to 50-90 years in countries like Vietnam, Cambodia, and Myanmar, and even 30 years in Indonesia or 60 years in Singapore, could attract more interest in large land plots from the government, agencies or state enterprises. Vietnam’s special economic zones may allow leases up to 70 years, and Laos reduced its special economic zone concessions from 99 to 50 years under the new investment law.

Increasing foreign ownership quota in condominiums

Foreign buyers have become a significant segment of Thailand's condominium market. Allowing foreigners to own up to 75% of condominium units may require additional regulations. This should not be a blanket allowance across Thailand but should be restricted to specific areas such as Bangkok, selected municipal areas, or other specified local administrative areas, similar to the provisions in the 1999 Condominium Act. Additionally, sale prices to foreigners should be set higher than those for Thai buyers.

“This would prevent foreigners competing with Thai buyers, particularly those with low and middle incomes. For example, Indonesia sets a minimum price of 10 million baht, while Malaysia has set it at 16 million baht, ensuring that the competition does not impact local buyers. Developers targeting foreign buyers can focus on higher-priced projects. Transfer fees, mortgage registration fees, and related taxes should be higher for foreigners, and they should be required to hold the property for at least three years before selling," Surachet said.

Limiting voting rights

Moreover, foreigners who own condominiums should be required to stay in the property for more than just a few days. If foreigners own more than 49% of the units, they should not have voting rights in project meetings to prevent them from imposing regulations that overly favour foreigners. The implementation should have a clear time frame, as in 1999, when foreign purchasing power was needed to stimulate the real estate market after the 1997 economic crisis.

Allowing foreigners to own up to 75% of condominium units should come with measures to ensure that current and future developers do not exclusively target foreign buyers. Some developers might focus on selling the 49% quota to foreigners quickly and gradually selling to Thai buyers, potentially using nominees in the form of juristic persons to buy units within the Thai quota. Changing the quota to 75% could help address the unsold condominium inventory, benefiting developers.

Potential long-term impacts

If the changes are permanent without a clear time frame, long-term impacts are likely to occur. The market could become increasingly driven by foreign demand rather than domestic purchasing power. Foreign developers might enter the Thai market independently, bringing their own buyers, which could affect the working, living conditions, and welfare of Thai citizens in the long run.