Real estate outlook in Thailand

Property owners will face a new property tax starting in January 2020 (CBRE, 2019). Owners of undeveloped land are particularly affected. Many are therefore trying to manage the new burden early by developing these properties for commercial purposes to generate additional income, cover the tax, and avoid selling their land. However, they are taking risks by hastily implementing unsuitable development measures that could lead to losses. They might undertake projects for which there is no demand and end up owing banks more than the new property tax will generate. This can happen if property owners lack the necessary know-how, experience, or market knowledge (CBRE, 2019).

Even the construction of office space, retail space, or rental apartments will not be an effective solution given the impending tax burden (CBRE, 2019). The location or size of the undeveloped plots in question is likely the reason for this. Landowners may also lack the necessary business expertise or financial resources to undertake these projects themselves. They should first determine the amount of new taxes they will face. Then, they should explore the best options for generating additional income that can be used to develop their land. Alternatively, they can lease their undeveloped land for this purpose. However, not all locations are profitable for development or attract tenants (CBRE, 2019).

If they cannot find a suitable solution, landowners could be forced to sell their property (CBRE, 2019). Furthermore, a clear understanding of land use, particularly agricultural land which is taxed at a lower rate than other land uses, is necessary. Until the end of the year, they can only monitor the publication of supplementary legislation (CBRE, 2019). Until then, they have no option but to speculate and prepare as best they can for potential uncertainties.

Advantages of real estate investments in Thailand

Foreigners are generally not permitted to acquire outright ownership of land in Thailand (KPMG, 2018). They may only acquire and own houses, buildings, and condominiums on such land. In exceptional cases, the Minister of the Interior may authorize land acquisition, but only with the approval of the Board of Investment Thailand (BOI) and if the foreigner owns a BOI-sponsored business. The business must sell its land as soon as it ceases operations or relocates (KPMG, 2018).

Although foreigners cannot own outright land in Thailand, they can invest in apartments, condominiums, or villas (Chen, 2019). For example, condominiums and apartments in Bangkok command prices or rents that are two to three times higher than comparable properties in other cities. A similar trend is observed for condominiums near the MRT subway compared to other locations. A condominium located just 100 meters from public transportation costs at least 200,000 baht per square meter. Apartments located further away, however, are significantly cheaper or even less expensive (Chen, 2019).

Foreigners can purchase land outside of Bangkok, for example in Chiang Mai, Phuket, Pattaya, and Hua Hin, with a 30-year lease (Chen, 2019). Renting out a property is also an attractive option, as the income tax on rental income is very low due to various deductions. It is a maximum of 5% or even less (Chen, 2019).

Real estate investments in Thailand attract many people from all over the world (Property Showrooms, 2002). Entry prices are low, and Thailand offers an attractive range of rental properties thanks to its strong tourism program. Thailand is known worldwide as an exotic travel destination and an attractive business location. These advantages, which attract both tourists and businesses, promote sustainable economic growth and return on investment (Property Showrooms, 2002).

The Thai government recognizes the mutual benefits of foreign investment and is responding by facilitating market entry (Property Showrooms, 2002). A significant reduction in financial requirements is one measure being taken to encourage foreign investment in an unprecedented manner. Enthusiastic investors are taking advantage of these opportunities and acquiring properties at low prices. They are confident of achieving substantial and long-term returns once the political and economic situation in Thailand improves and the overall economy, particularly the real estate sector, reaches its peak (Property Showrooms, 2002).

Real estate investments in Thailand offer many advantages. Property prices are significantly lower than those in established European markets (Property Showrooms, 2002). Thailand is considered the fastest-growing market in Asia and has therefore attracted numerous foreign companies. The country is among the fastest-growing economies in Southeast Asia. The newly opened Suvarnabhumi International Airport (SBIA) in Bangkok is promoting the growth of commercial real estate in eastern Bangkok and thus facilitating access to Thailand. Thailand is also one of the most affordable destinations for travelers and businesses. It boasts first-class infrastructure and amenities in many locations. Real estate in Thailand is considerably cheaper than elsewhere. Increasing government spending significantly boosts rental potential. Private entrepreneurs are exempt from capital gains tax, stamp duties, and transfer fees (Property Showrooms, 2002).

Why consult a Thai real estate lawyer?

Thai real estate law applies to foreign investments and investors in Thailand (Thai Contracts, n.d.). There are four basic sources of law, with the Thai Land Code Act being specifically relevant to foreign real estate investments. As mentioned earlier, this law prohibits foreigners from directly acquiring and owning real estate in Thailand. It contains detailed provisions that foreign investors must understand and comply with when acquiring real estate in Thailand. These include, among others, land ownership, condominium ownership, leasehold, home ownership without land, land ownership by Thais married to foreigners, usufruct, right of residence, easements, real estate ownership by Thai companies, as well as transfer fees and taxes (Thai Contracts, n.d.). These complex details and requirements are often difficult for foreigners to navigate on their own (Thai Contracts, n.d.).

In principle, foreigners can only own land in Thailand if Thailand has a corresponding agreement with a country that permits this (Thai Contracts, n.d.). However, no such agreement exists. Any foreigner who violates this law can be fined or imprisoned for up to two years, according to Section 111 of the amended Land Law (BE 2551).

For this reason, foreign investors and companies are advised to seek advice from or engage a Thai real estate lawyer from the beginning of their project to have these laws, regulations and requirements explained to them, or to be represented in court if they come into conflict with the law in Thailand in relation to real estate.

REFERENCES: CBRE (October 31, 2019). Property tax forces landowners to consider options. Thailand Business News. CBRE Thailand. Retrieved from https://www.thailand-business-news.com/real-estate/74703-land-and-property-tax-forces-site-owners-to-consider-options.html

Chen, M. (June 12, 2019). Buying Real Estate in Thailand: A Guide for Foreign Investors. IQI Global. Retrieved from https://www.iqiglobal.com/blog/buying-real-estate-in-thailand-a-guide-for-foreign-investors/

KPMG (February 2018). Investments in Thailand. KPMG Proomichai Tax Ltd. Retrieved from https://assets.kpmg/content/dam/kpmg/th/pdf/2018/03/investment-in-thailand-Mar9-2-secured.pdf