Doing Business in Thailand

Assuming that Thai authorities take as announced a hard stance in relation to the matter of “companies that own land with Thai Shareholders that may be deemed nominees” and assuming that the company do not fight back the accusations. What would happen then?

Current Stance of Thai Authorities

Sanctions may or may not be taken against the nominees and the foreign owner (it seems to date that no sanctions are taken) but one thing is certain is that the land department will order the company to sell the property to a Thai buyer within a period of 1 year and this is where the main problem is.

If the company owns a big piece of land to be developed selling within 1 year may be possible but for all the companies that own a small plot of land within a project on which is located a private house the situation may be far more complex and the forced sales may not work at all.

Consequences of the Forced Sales Option 

The first problem is that most of those properties have been developed by foreign managed developers that cater for the need of foreign buyers and by definition the only Thai buyers in this type of projects are the Thai wives of foreign investors.

Thai buyers do not purchase properties in this type of projects. Therefore forcing the companies that own those properties to sell them to Thai buyers within a 1 year period would simply be mission impossible. There would be more properties for sale than real Thai buyers. The “lucky sellers” would have to consent huge discount to be able to sell to Thai buyers.

The foreign shareholders of the “companies that own land with Thai Shareholders that may be deemed nominees” would not only be upset of being forced to sell their properties but upset of the loss resulting from the forced sales.

This matter would affect so many foreign investors (several thousands) that it will not stay unnoticed. At one point the international press would start to cover the matters and you will see pictures of the “retiree victims” and their “tragic stories” destroying in matters of weeks Thailand reputation as a safe place to purchase real estate.

A Consensual Solution

An alternative solution must be found that takes into account the fact that the foreign investors who may deemed to have circumvented Thai law are not solely responsible for this situation and that could permit to achieve three objectives:

1. Return the land into Thai hands; and
2. Preserve the rights of the foreign owners; and
3. Preserve Thailand reputation overseas

I thought a lot about it and the only solution that would permit to fulfill those three objectives would be a solution I already presented roughly in a previous post. I added a few features to my first draft. I’m aware that my solution is far from perfect but I don’t see any other that could permit to fulfill the three objectives above.

The proposed solution would be as follows:

1. The lease duration and right of superficies is extended to 60 or 90 years; and
2. The government issue a bill that offers amnesty to foreign buyers that have used “companies that own land with Thai Shareholders that may be deemed nominees” or “Thai individuals” to purchase land that would be subjected to the following conditions:

 (1)  The foreign buyers must notify the land department within 12 months after the enactment of the bill, and

 (2)  The foreign buyers must either:

 (i)                Sell the property within 3 years to a Thai Buyer, or

(ii)             Surrender and transfer the ownership of land title deed to the Government that would for good consideration grants to the foreign buyer either

If the company or Thai individual own the land and house

 -          A 6o year’s lease agreement on the land and house + a renewal option of 30 year.

-          A 90 years lease agreement of the land and house with no renewal option.

 If the company or Thai individual only own the land

 -          A 6o year’s lease agreement on the land + a renewal option of 30 year.

 -          A 90 years lease agreement of the land with no renewal option.

 -          The foreign investor would remain the owner of the house for the duration of the 60 years lease + period of renewal or for the 90 years lease duration.

 (3)  During the lease period (60 years + 30 or 90 years) the foreign investor could

 (i)                Assign the lease and sale the house to another foreign investor but the lease would be assigned and the ownership of the house would be transferred to the third party foreign buyer only for the remaining duration of the lease originally granted by the Government to the foreign investor

(ii)             Sell the lease and house to a Thai Buyer

(4)  The foreign buyer would pay the cost of registration of the lease agreement and be liable of any tax applicable on the property (land & house tax or the new property tax)

 (5)  At the time when reselling the property the foreign investors would pay the normal taxes due in case of resale of a property

(6)  If at the end of the entire lease period the foreign investors was not able to sell the property said property would be auctioned. The foreign investor would receive the auction payment after deduction of taxes applicable and auction fees.

I did not provide for fine or punishment into my proposed solution because as I was explaining in my post “Buying Land: The Nominees Witch Hunt (3): The Scapegoat” the responsibility for what happened was collective and to punish only the foreign investor would be unfair.  

Furthermore the objective of the solution is to have as many of the foreign investors that have used “companies that own land with Thai Shareholders that may be deemed nominees” or “Thai individuals” to purchase land to willingly participate. Adding sanctions would simply dissuade many people to participate.

Also exchanging a quasi freehold ownership against leasehold is punishment enough.

Finally, the main purpose is the restoration of a situation where residential land would be back into Thai hands.

As I was saying above I’m totally aware that there are still flaws in what I’m proposing above. But the point is that this issue has to be solved and that we have to start from somewhere and the other alternative viable that is to say allow foreign residential ownership is not an option that may become available for years.

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

© Copyrights 2009 – Rene Philippe Dubout – This article may be reprinted if information about the author, the websites, and the URLs remain intact.

Originally posted 2009-11-02 09:59:13.

Related posts:

1. Buying Land: The Nominees Witch Hunt (1)
2. Buying Land: The Nominees Witch Hunt (3): The Scapegoat
3. Buying Land: The Nominees Witch Hunt (2)
4. Thailand Property: Nominees under watch
5. Buying Property: Two issues to consider before buying a land
6. Investing in Thailand: Nominees Issue, the witch hunt?
7. Buying Land and House: What and Where to Buy?
8. Buying Land: The Thai spouse right to own land freehold