Doing Business in Thailand

There have been a lot of activities on the “nominees” front lately. It is an issue that resurfaces from time to time. Lately there has been the scandal of foreigners purchasing farm land through the cover of companies that have shareholders that may be deemed “Thai nominees”. This morning in the Bangkok post an article was published under the title “Nominees Ownership under watch”.

Mr. Patima Jeerapaet the Chairman of the property committee of the Joint Foreign Chambers of Commerce in Thailand (JFTTC) is reported to have say: “Let’s attract them [foreign investors] to do it within the proper legal framework” and later, “it is not disastrous that they enter to invest but they should do it right and legally. The thing is, do they know our laws”.

I do not really have an opinion on the land farm issue; my concern is with the matter of “residential ownership”.

While Mr Jeerapaet comments are right on the mark I cannot help to first remark that if so many foreign investors have purchased land and house for residential purpose through companies that have Thai shareholders that may be deemed nominees it is because the proper legal framework is not adapted. If Thailand was offering foreign buyers a valid leasehold option (for example a single 99 years leasehold term) there would not be so many foreign investors that would have chosen the corporate option. It is an issue of legacy. You can simply not ask a person to invest half of his/her life saving in a property knowing that he/she may not be able to transfer said property to his/her children. Give foreign investors a 99 years residential leasehold and the motivation to circumvent the law simply disappears.

As to invest “right and legally” the government and the legal profession are as much at fault than the foreign investors. The successive Thai governments are at fault for having failed to enforce the law for 30 years. Everyone knew of the issue but no one did anything about it until 2006. Most buyers that have purchased residential land through a company have consulted more than one lawyer before to do so. When a lawyer tell you, “look it is technically illegal but no one cares and the government has not sanctioned anyone for the past 30 years” you might convince yourself why not me?

What to do from here?  The issue is a torn that has to be solved. Forcing companies with Thai nominees to resale their property is not a viable solution. Most of those companies own plot of lands and houses located into projects that do not attract Thai buyers anyway because they were designed with foreign buyers in mind. So at the end of the day most of the properties will be impossible to sell quickly without a substantial loss.

Punishing the foreign investors and the nominees is not an option as well (legally it is). Imagine the international scandal if thousands of foreign retirees ended up sentenced to jail or to the payment of fines for having purchased a house through a company with Thai nominees. Forcing the resale within 1 year period is not enough. Confiscating the properties is not an option as well for the same reason. It would be unpopular.

Even if the foreign investors are guilty to have broken the law in the first place the fact that this went on for so long without any intervention of the authorities make it difficult for the authorities to punish without being themselves tarnished in the process.

There is no easy way out. Any attempt to resolve the issue will generate a lot of unhappiness and bad feelings but a solution has to be found.

At this stage Thai society is not yet ready to allow foreigners to own residential land freehold so another option has to be found.

I believe that a solution could be found as follows:

1. The Parliament extend the duration of leasehold from 30 to 99 years (non renewable).
2. Once the parliaments has modified the duration of the maximum lease period the government issue an amnesty bill that could for example invite any foreign investors that have purchased land for residential purpose through a company with Thai shareholders that may be deemed nominees to

-         Notify the land department and sell the property within a 3 years period (1 year is not enough) from the date of the notification,

-         Within the 3 years period the foreign investor would be given the opportunity to surrender the ownership of the land to the Thai Government. In exchange the foreign investor would be granted a 99 years non renewable lease on said land.

-         The foreign investor would retain the ownership of the house or building constructed on the land for the duration of the lease but at the end of the 99 years period the property of the building would revert back to the government. During the 99 years duration the foreign investor could freely 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.

At the end of the lease the Thai government would auction the property.

1. Of course this solution is not perfect but it has several advantages

-         The legality is reestablished, the land is returned to a Thai owner (in fine the government)

-         The foreign investors are offered two fair options which allow them to safeguards their investment  (selling within 3 years or lease for 99 years)

-         As to the government it would receive valuable land which he will be able to auction 99 years from now.

A delay of six months should be offered to foreign investors to contact the land department. Those who fails to do so could be punished.

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.

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 2009-08-25 12:37:59.

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2. Buying Property: Comparing Foreign Land Ownership in Asia
3. Thailand Property: Difference between condos and apartments
4. Thailand Property: Land Rights Classification: Minor Claims
5. Buying Property:Comparing Lease Duration Period in Asia
6. Thailand Property: How to check who owns a building?
7. Thailand Property: How are rights on buildings evidenced?
8. Investing in Thailand: Nominees Issue, the witch hunt?