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Real  Estate  Buyers  Jittery,  Leasing  Looking  Better

      The recent tightening up of the old land ownership laws was probably long overdue, as it was written into the Kingdom’s 1997 Constitution, which simply stated that foreign nationals cannot own land, nor can they engage in the practice of buying or selling land. However, there were a few exemptions to this, and furthermore many smart accountants and lawyers used Thai nominees in registered Thai companies, in an attempt to get around these laws. Now that all these practices are falling under scrutiny, many have changed to leasing the land (for at least 30-years), and just retaining the ownership of the commercial building or dwelling, that is sited on the property. Condos remained pretty well unchanged, with foreign owners being able to own their individual condo apartments, up to a combined total of 49% of the total area of the entire building.

Murphy’s  Law’  Strikes
      The sales of condos were beginning to outstrip detached & semi-detached houses, and everything was going along just ’sweet & dandy,’ until the Thai government ‘threw a wobbly.’ This came about by them hinting that all condo owners would have to lodge an additional deposit in the bank, which would be equivalent to 30% of the value of their condo. Presumably this would also extend to anyone who owned their own house, or other real estate property, plus this requirement was to also extend to large amounts of money (in excess of $20,000 US.  Further to this, was the requirement that they would not receive any interest on such a deposit for the first twelve months, especially where it was being brought in for investment purposes.  This last point was exactly what the Thai Government was trying to achieve, in order to prevent short term speculators ‘playing the money market,’ because this was forcing up the value of the Thai baht, and making the sales exports of locally made products much more difficult. One real estate broker commented that it was also in his interests to see the level of the Thai baht remain low, in order to keep attracting foreign real estate buyers from overseas.  Ironically most of these buyers could also be considered as a type of foreign investor, even if they are only buying such dwellings for residential purposes. On the other hand, leasing does not attract too many of these problems, so even though most western Expats have some difficulty in ’getting their head around the leasing of property, (rather than being the sole owner), it can have many long-term benefits.

Oops’ - Our  Slip  Is  Showing
      There was an immediate ‘knee jerk’ reaction from both financial investors and property owners alike, who immediately ‘voted with their feet,’ and started to withdraw large amounts of capital back out of the Thai financial system. The effect was immediate, and somewhat severe, as it is rumoured that around 800 billion baht rapidly disappeared out of the national economy, in a matter of a week or so. The statistics for the Thai economy suddenly did not look very good, so on the 21st December 2006, the Bank of Thailand issued a statement, saying that foreign purchasers could still bring funds into the Kingdom for the purposes of buying property, without having to pay a ‘withholding tax.’ Whether other business investors who have to lodge funds in local banks for other reasons are to be able to receive interest for the first year, still remains uncertain, but in view of what has happened, this is most likely to be also relaxed.           

      It was pretty obvious that the Government had not anticipated such a ‘knee jerk’ reaction, but the jittery feelings of foreign investors after the military coup, left them a bit nervous, so their actions were understandable. However, for those of us who reside here, we simply viewed it as a political shake-out for the good of the country, that should have had relatively little effect on these foreign investors; - (maybe the foreign media were trying to get too much mileage out of it all).  Conversely, everyone in the Kingdom should be aware that we are under the control of a ‘military government,’ until the proposed national elections that have been set down for October 2007.


Future  Financial  Investment

       Even though this temporary government has stated that it will be tougher than the previous Thaksin led regime, it is very unlikely that property matters will change much under the proposed new constitution, but anti corruption laws are very high on the agenda. It is probably these factors, which have made investors very wary, in case new laws down the track make things more difficult for them to operate, and this will be foremost in the minds of some potential investors. If there was a further event that affected the economy and the investor confidence in a similar fashion, it is just possible that this could lead to a property glut, which would ‘snowball’ into a situation of similar proportions to those of the mid 1990’s. While the Thai Government’s aim to control the value of their baht currency and thereby control inflation is an admirable ambition, it is a fact of life that speculation exists in almost every country in the world, whether we like it or not. To this end, the exempting of small residential properties from land ownership restrictions, where the owner wishes to take up residence, could be a major step in the right direction. The trick for the Thai Government is to kerb the activities of blatant financial speculators, while at the same time attract and maintain the foreign investment, that is so vital for the progress of the Kingdom.

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