The Joint Foreign Chambers of Commerce in Thailand (JFCCT) should be congratulated for raising the issue of foreign ownership and seeking to improve inbound real estate investment into Thailand.
CB Richard Ellis (CBRE) Thailand adds our wholehearted support to a review of Thailand’s policy regarding foreign ownership. CBRE Thailand would like to state, on behalf of our clients who are principally Thai developers, “that the foreign buying segment is a significant part of the market.” Whilst typically in the Bangkok condominium sector foreign buyers represent approximately 20% of the market, in areas such as Pattaya, market demand is 80% foreign versus 20% domestic demand. The one location where foreign and local demand is equal and able to comply with existing legislation which restricts foreign freehold ownership of a condominium to 49% of the sellable area is Hua Hin.
In Phuket, the demand for resort property is virtually foreign. The impact of an effective improvement in foreign ownership legislation on the construction industry, the real estate sector, and associated services would be significant.
Properly handled, the contribution to the wider Thai Economy could be significant without any material risk to issues of sovereignty or adversely affecting social or economic conditions.
Most of the successful property markets in the region are either totally liberal, for example, Hong Kong, or have recently dramatically reduced restrictions on foreign ownership such as Singapore. Markets such as the UK, in actual fact favour the foreign owner over domestic buyers notably in respect of tax. In response to the global crisis, Singapore has liberalized its foreign ownership laws and launched for the first time landed villas at Sentosa which were targeted at new overseas investors and have been a resounding success.
CBRE believes it is useful to summarize the areas where sensible changes to current policy would have a dramatic and positive impact on Thailand’s economy. At a time of fragile global economic recovery, any incremental income that can be gained from international investment should not be lightly ignored.
Probably the major change in terms of encouraging inbound foreign investment into the ownership of resort or investment property would be allowing Thai banks to lend to foreign purchasers against the security of Thai real estate. This would have considerable benefits as all current inbound investments are on a 100% cash basis. This would benefit residential developers, resort developers, construction contractors, and the Thai banking system. Sensible restrictions and controls could limit the level of debt and the banks could charge foreigners a premium over Thai borrowers, probably of one to two percentage points. Foreign investors would rush to take up onshore loan facilities should this be allowed. They would also, in our view, accept specific and tighter controls on repossession in the event of default.
Secondly, the ratio of foreign ownership in a condominium. The ratio of no more than 49% foreign ownership in a registered condominium is set to prevent foreign control of landed property. If, however, in certain areas, for example, the resort markets, the ownership ratio were increased to match market demand, there would undoubtedly be a significant increase in foreign investment. Provided the condominium is managed by a Thai management entity and the rules and articles of association of a condominium prevent foreign owners acting in concert, there is little risk to fellow Thai condominium owners or to the local property market. All in all, Thailand would see considerable gains in inbound investment. This could also be used to stimulate potential new resort areas, and Thailand’s policy to increase tourism revenue.
Whilst a 60-year registered lease term proposed by JFCCT would be a clear improvement over a 30-year registered term, Thailand should be aware that neighbouring countries offer foreign buyers 99-year leases.
Thailand is clearly the most preferred regional location for retirement, and resort ownership. To date, Thailand has been lucky that buyers have been prepared to accept inferior title. This is not something Thailand can bank on in the future. The CBRE Resort Property team is based in Phuket, and whilst we have seen a recovery in the Phuket property market and sales in top luxury villas with prices of over US$ 5 million, we also note that our fastest selling project has been a resort development in Cambodia. These buyers have not bought based on Cambodia’s infrastructure, or other services which are at best fledgling or non-existent. They have bought because of the tenure. More interestingly, from a developer’s perspective, they are now paying prices per square meter that exceed many elements of the Thai resort market. Our last launch of Song Saa Villas in Cambodia’s Koh Rong archipelago has achieved in excess of US$ 4,500 per sq.m. or 135,000 per sq.m. in Thai Baht. These buyers are not entering the market because Cambodia is cheap; they are entering it because they have long-term registered security of tenure on competitive quality property.
In a world of global uncertainty, Thailand is likely to fair much better than many of its immediate neighbours and arguably several of the major global economies. However, by simply adjusting the calibration of current foreign property ownership legislation with a view to improve inbound investment, there are major benefits to be made in real estate, construction, retail consumption, education, transportation, schooling, and tourism. It is Thailand’s choice whether it wants to reach out and take a share of this market.
About the author:
CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2010 revenue). CB Richard Ellis established an office in Bangkok in 1988, followed by its Phuket office in 2004. CB Richard Ellis (Thailand) Co., Ltd. has grown to be a leading real estate services provider, offering strategic advice and execution for sales and leasing for all types of property, property and facilities and tenancy management, valuation and advisory, and research and consulting. For more information, visit the company’s website at www.cbre.co.th.