Buying a Condominium: The 49% foreign ownership quota issue

December 24 2009 Categories: Condominium Ownership, Thailand Property No comments yet

This article was first published in the Property Report Magazine of May 2009 under the heading Beyond the Law

The 49% foreign ownership quota for condominium

One of the legal headaches limiting access of foreign buyers to the Thai real estate market is that Thai laws currently limit foreign buyer freehold purchases of condominium units to percent of the total area (reserved for private ownership) of a condominium building at any one time.

While this limitation is rarely a problem in Bangkok, it has become a serious handicap for condominium developers in resort areas, such as Koh Samui, Pattaya or Phuket, where foreign buyers often outnumber Thai buyers. As a result of this restriction , developers in resort areas are building up a stock of unsold units that Thai buyers are not interested in purchasing and that foreign buyers cannot purchase because of the current legal restrictions.

Why the 49% quota?

The logic behind these restrictions on foreign ownership is that any buyer (Thai or foreigners) who purchase a condominium will receive (1) the freehold ownership of their unit, and (2) a “ratio of ownership in the common property ______% in 10,000” .

Now the Common Property of a Condominium which is owned by the Co-Owners (all the condominium unit owners) includes:

(1) The land on which the building is situated,

(2) The land for mutual benefit,

(3) The structures of the building,

(4) Part of the building for mutual benefit,

(5) Tools and utilities for mutual benefit,

(6) Places for common services, and

(7) Other properties for mutual benefit. Act No. 4 adds the following properties as common property of a condominium including

(8) The office of the condominium juristic person,

(9) Immovable properties with obligations,

(10) Structures or systems for security or environmental purposes in the condominium (i.e. electricity, ventilation, air-conditioning, drainage and disposal and fire prevention systems etc.), and

(11) Other assets maintained by the common expenses collected from the Co-owners the condominium building itself, all the facilities and also the land on which the condominium is built on.

If the Government was to authorize a quota of more than 49% of foreign ownership in condominium buildings (said for example 70%) then this measure would have for immediate consequence to give to foreign buyers a majority interest ownership (in this example 70%) in the Common Property which also includes the land on which the condominium is built on.

In other words foreign buyers would own a majority interest in residential land which would conflict with Thai laws on land ownership.

Finally, the ownership of a condominium unit also includes the rights to become a member of the Juristic Person (or the co-owner(s) association) that manages the common property on behalf of the Co-Owners and as such to exercise the rights of vote attached to the ratio of ownership of the Common Property and to be elected as a member of the committee of the juristic person which may create more problems under Thai laws.

Of course the easy way out would be to suppress the quota. But things are not always so easy in Thailand especially in a political context where Thai press make its delights of the “foreign menace” on Thai land.

Towards a Possible Solution?

Is there a solution that could permit to sale to foreign buyers without changing the quota?

How then can we resolve this conflict in a way that would permit foreign buyers to purchase condominiums beyond the 49 percent foreign quota, without gaining control of the land?

A simple solution to this problem would be to allow foreign purchasers to buy units beyond the 49 percent quota, providing they agree to have their Common Property co-ownership rights suspended or freezed for a temporary period (as long as the unit is above quota).

If a foreign buyer was to purchase a condominium unit in excess of the foreign quota, said buyer could be requested by the competent officer to sign prior to the transfer of the unit a Letter of Affirmation at the Land Department. The content of the letter could be for example as follows:

Pre-Purchase Letter of Affirmation
For Foreign Buyers Purchasing Condominium Units in Excess of 49% Ratio of Foreign Ownership

At ____________

Date _________ Month_________ Year_________

I, Mr./Mrs./Ms._______________ and Mr./Mrs./Ms._____________________ ,
the foreign Buyer of the Condominium Unit No.____________, Floor____________,
Condominium Name___________________ , Soi_____________________, Street/Road________________________, District_________________,
Province ________________, do hereby confirm that I/we have been notified by a competent officer that the abovementioned condominium unit is being sold and transferred in excess of the 49% ratio of foreign ownership in this building and I/we understand and accept that, as a result of this sale, the exercise of the rights attached to the ratio of Common Property ownership in the aforementioned condominium unit shall be suspended for as long as the condominium unit I/we purchased is in excess of the maximum foreign ownership ratio set forth in Section 19 bis. I/We understand that I/we shall not have any rights of co-ownership of the Common Property and shall not be allowed to exercise the right to vote associated with our ratio of Common Property co-ownership and that I/we shall furthermore not be allowed to become a member of the Juristic Person Committee or hold any other rights resulting from our share of co-ownership of the Common Property for as long as our condominium unit is in excess of the aforementioned maximum ratio.

I/We further understand and agree that while the exercise of my/our rights are suspended I/we shall still be bound to exercise the resulting duties attached to our co-ownership of the Common Property ratio such as, but not limited to, payment of the annual common management fees, obey the Juristic Person rules and regulations and so on…

In addition, mention would be made on the Condominium Title stipulating that this unit is transferred in excess to the maximum foreign ratio and that the right of a share of the co-ownership of the Common Property is suspended and without effects for as long as this unit is in excess of the quota. Of course, a few articles of the Condominium Act would also have to be modified if such a change was to be introduced.

In this way, foreign buyers could be allowed to purchase condominium units in excess of the current maximum limitations on foreign ownership without taking a majority control of the Common Property that includes the land owned by the Co-Owners, as their rights of Co-Ownership of the Common Property would have been suspended as well as their rights to participate to the management of the juristic person.

A very unperfect solution?

What are the pitfalls of the proposed solution?

The pitfall is that it would create two classes of freehold owners. On the one hand, we would have foreign and Thai buyers with co-ownership rights in the Common Property and a right of participation to the affairs of the Juristic Person including voting rights and right to become member of the Committee and on the other hand, we would have foreign buyers without co-ownership rights into the Common Property and without the right to participate into the affairs of the Juristic Person (or which rights are temporarily freeze or suspended).

It is a matter of fact, however, that many condominium owners (Thais and foreigners) are more concerned by the rights attached to the unit itself than by the rights of co-ownership attached to the Common Property and the right to participate in the activities of the condominium building Juristic Person. It is also the fact that foreign/thai buyers rarely attend the condominium juristic person meetings in any case. This is especially true for condominium located in resort areas. In the case of foreign buyers, the fact that all the proceedings are in Thai language is another deterrent for the foreign buyers.

Therefore, I believe that most foreign buyers who purchase units with suspended rights would for the most part not object to these restrictions.

Note that the restrictions would not be permanent, but only for as long as there are foreign owners in excess of the 49 percent ratio. If foreign ownership fell below the 49 percent limit, the exercise of the rights attached to the unit would be reinstated. And if the unit was sold on to a Thai buyer, then the rights attached to the common property ownership would be immediately reinstated as.

While imperfect, this solution would certainly be preferable to the current status-quo.

Note: A version of this post was first published by Rene-Philippe Dubout on the 19/06/2009 and was first posted on his former blog www.howtopurchaserealestateoffshore.com. This post has been edited and modified

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

Originally posted 2009-07-27 10:27:19.

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