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Investing in the Thai property market

Nov 23, 2017 | Emerging Trends, Thailand

Thailand has played a prominent role in the economic and political development of Southeast Asia for centuries. Thanks to its geographically location and sound infrastructure the country has been and remains a hub for trade and business.

Over the centuries it has acted as a form of buffer between colonial powers ruling other countries in the region. Indeed, Thailand is the only country not to have been colonised.

Although much of this has changed over the decades and even centuries, Thailand still plays an important role within ASEAN and the AEC. The country is surrounded by other developing countries that are seen as frontier markets such as Cambodia, Laos, Myanmar and Vietnam, all of which are only around an hours flight from Bangkok.

There is little doubt that Thailand is far more advanced than many of these countries putting it in a strong position to lead the region. Thailand’s domestic population is approximately 67 million but when include the 200 million people from the neighbouring countries you realise that potentially you could have a marketplace of around 270 million consumers. Cheap local, skilled labour also opens up the opportunity for exports further afield.

Thailand still aspires to be more like the US and Japan and this is certainly not a criticism of the country’s ambition. When you go around any stores in Thailand you will find western and Japanese products to capture this demand but when you enter the frontier markets you start to realise that these countries strive to follow Thailand’s lead, stocking their shelves with Thai produced goods.

It is surprising what products actually come from Thailand. Well-known brands such as Red Bull originate from Thailand whilst John West is now owned by a Thai company. The country also plays a prominent role in the technology market with Thailand being one of the top manufacturers of hard drives and internal memory for computers.

Thailand has progressed massively in economic terms in the last few decades, so much so that the country is no longer reliant on its neighbours for growth. The country has established itself in the automobile, electronics and hardware markets too making the Kingdom one of the world’s largest exporters of these types of product. Thailand has always had an appeal for tourists, a recent survey by Mastercard revealed that Bangkok is now the most heavily “touristed” city in the world – even pushing out the likes of London and New York.

The more countries thrive, the greater the demand for quality accommodation so there is little surprise that the Thailand property market is experiencing something of a boom period. Investment is coming from overseas but a growing Thai middle class, a socioeconomic group that barely existed two or three decades ago, is becoming more dominant. This has resulted in large numbers of upmarket condominium and housing projects being built.

As we mentioned, Thailand’s property market is one of the most popular markets, not only in Asia but increasing across the world. There are a number of reason for this. Obviously, there is a large expat working community in Bangkok, Pattaya and Phuket with equally large number of expat retirees living in these places and Chiang Mai. Many are property owners whilst others may be renting which then opens up opportunities for property investors. Attractive schemes are offered with rental guarantees, especially in the tourist hotspots.
It would be foolish to say that everything is perfect in Thailand, of course this is not the case as with every other country in the world. In recent years we have witnessed a military coup in 2014 and there are certain restrictions on the freedom of speech. Sadly, and one restriction that the country faces compared to its peers, is the fact that the education system is some way below par.

However, the many bright spots that Thailand has to offer certainly outweighs any negatives. This is the case for tourists, investors and expats. Thailand is extremely welcoming, in the most part, to foreigners and certainly to foreign investment. In the majority of cases, it is even possible for tourists to open a bank account in around 20 minutes so everything is being done to make the country an attractive proposition. This is reflected in the fact that Thailand is currently ranked 46th out 190 for countries for Ease of Doing Business. This is even more impressive when you find the country third in Southeast Asia, behind established countries such as Singapore and Malaysia.

One of Thailand’s strengths is its ability to adjust and reinvent itself to cater for current market conditions. On a similar note, the country has always managed to avoid being negatively hit by the tough times and has even been dubbed “Teflon Thailand” by some commentators. Indeed, through the bad times, Thailand has always managed to outperform its neighbours with exception of Malaysia.

Thailand is going through a period of change and adjustment. The present government is seeking to remove areas that had previously been seen as corrupt and move the country forward to become a major player on the world economic stage. Sadly, the much revered King died in 2016 and a new King has been inaugurated that may well once again bring around a period of change. As Thailand has proved in the past, major changes are quickly accepted and the country will continue to perform well long into the future.

The Purchase of Businesses in Thailand

It is only natural that those investing in Thailand will look to start their own company in the Kingdom. There are some restrictions in Thailand and the country is not as open as others in the region. As a very general rule, foreigners can only own 49% of company – although there are some exceptions, especially if you are a US citizen.

The Thailand-US Amity Treaty allows US nationals to own 100% of a Thai Limited Company something that is not available to other nationalities. On the other hand, there are options such Board of Investment (BOI) registered companies, that will allow 100% ownership. This is a complex area and something that is best discussed separately in a different article.

The Purchase of Real Estate in Thailand

The ownership of real estate in Thailand is another area that has a few restrictions, although in reality for most investors this is not an issue. The ownership of land by a foreign national is not permitted (except in the case below) but foreigners are allowed to purchase units in a condominium in ‘foreign ownership’ – i.e. in their own name. Once again, the restriction is placed at a maximum of 49% of all the living area, not the number of units.

The ownership of land is still a grey area. Technically, a foreign national can own land if they are investing more than THB30 million but this still requires special approval and cases where this has been granted are few and far between. Some people do purchase land through Thai nominee companies although this technically illegal and not an advisable practice. The government have been heavily cracking down on the practice in recent years so not only could you lose your property, you may be subject to criminal proceedings.

The Purchase and Sale of Property Off-Plan

The purchase and sale of property ‘off-plan’ is common practice in many countries and this is definitely the case in Thailand. The practice involves buyers purchasing units before ‘ground has be broken’ or whilst the development is in the construction phase. Those who take up this option usually enjoy significant discounts as it helps to finance the project.

There are of course risks involved with this practice so we would always advise everyone to conduct the necessary due diligence. The involves, but is not limited to, carrying out research on the developer, the project in question and the local market conditions. Obviously, it is not possible to account for every eventuality but this will minimise your exposure to risk.

What are the Laws Governing Taxation?

There is no annual tax imposed on condominiums per se. However, there will be annual maintenance charge by the condominium for the general upkeep of the building, the employment of staff, and the running costs involved with public areas such as electricity. Maintenance fees will vary from building to building so it is hard to give a completely accurate guide but very loosely you would be looking at around THB500 per square metre.

When properties are transferred at the Land Office there will be a 2% fee charged. This is based upon the government’s valuation of the property and NOT the price paid for the unit. On resale properties, this fee is typically paid 50/50 between the buyer and seller. When buying directly from the developer often this fee is paid by the developer but this should be treated on a case by case basis. There will also be the requirement to pay Stamp Duty of 0.5% – this is usually the responsibility of the seller.

The issue of Stamp Duty can be once again a slightly confusing subject. Stamp Duty will not be required to be paid if a property is sold with 5 years of being acquired. In this case, Specific Business Tax of 3.3% is charged instead.

Of course, if you have purchased your property with a view to renting it out, you will be subject to Income Tax on the rent you receive. However, costs can be deducted from this amount and individuals will be eligible for certain deductions meaning that the tax can be negligible – often below 5%. This has often resulted in some landlords not disclosing this income although this would be classed as tax evasion.

Are There Any Risks Involved with Buying a Property in Thailand?

If you purchase a property anywhere in the world there will always be an element of risk. That being said, Thailand has very strong and effective laws regarding the ownership of property, far more so than in the case with other countries in the region. The purchase and sale of the property is recorded on secure, computerised database. This is in place to protect both Thai nationals and foreigners alike and so long as everything is recorded correctly you won’t experience any problems with the government.

The potential risk and this is the case everywhere in the world, is from the developer or the seller. It is always wise to purchase a property from one of the two dozen or so major developers in the country who have excellent reputations and proven track records. These developers will be keen to protect their reputations so the chances of problems occurring are minimal.

Buyers may encounter problems with smaller, newly established developers who may experience problems with cashflow as well as issues regarding obtaining credit from lenders.

If you are not familiar with building inspections it is advisable to employ the services of a professional who can conduct a check on the property at the time of handover. It should be expected that there will be a few minor problems so a ‘snagging list’ should be drawn up. This will detail any issues that need to be rectified prior to transfer.

The Best Places to Invest in Thailand

Thailand has a number of large cities and resorts that are popular with investors. There are of course other towns, cities and villages that are available around the country but often these are not suitable for investors as firstly, there may not be any condominiums, and secondly, if the property is for investment purposes, these locations may not be desirable to tourists or other tenants.

Like many places in the world, capital cities are always attractive to investors. Bangkok is the largest city in Indochina with a population of around 16 million – Thailand has a population in the region of 70 million. The city is popular with expats and tourists so there is a huge market for investors. Of course, some areas of Bangkok will be more attractive than others so investors should always bear this in mind. Investors should look to invest in the following areas of the capital if they are looking to achieve rental returns that they strive for:

  • Sukhumvit
  • Silom/Sathorn
  • Ratchathewi
  • Lumpini
  • Riverside

As a general rule, properties that are located close to the Skytrain (BTS) or Underground Metro (MRT) are the most desirable places. Obviously, premiums will be charged for these types of property but it should also be recognised that these are the places where you will generate the greater returns. This applies to both to rental income and capital appreciation.

The second city of Chiang Mai is also a popular place for foreigners to purchase condominiums. The city has a large expat community, consisting largely of retirees, but it is also increasing in popularity with tourists, especially those coming from China. Although the market is maybe not presently as buoyant as Bangkok, Pattaya or Phuket it certainly has huge potential for investors.

The downside for the property market in Chiang Mai is that many of rentals are short term. This paves the way for Airbnb although rentals of under 30 days in condominiums are officially illegal unless the building has a hotel license. As yet, Chiang Mai has not explored some of the opportunities that are being explored in Pattaya and Phuket (see below) in terms of rental guarantee concepts.

Resort cities such as Pattaya and Phuket offer investors some great opportunities but it is important that you choose your property correctly. The market in both of these resorts has changed significantly in recent years. A decade ago, most visitors, investors and expats came from the west – the US, Europe and Australia. This gradually shifted towards visitors coming from Eastern Europe – particularly Russia and nowadays the majority come from China.

It is worth noting that different demographic groups require different things and the current trend is for Chinese tourists to come for short-term breaks. This means that traditional condominiums may not be as attractive to investors as had previously been the case. This is something that was recognised by developers and hoteliers who realised that they needed to alter their marketing strategies.

Many of the well-known developers are now offering investors something that is often referred to as a ‘rental guarantee concept’. They are selling properties that are purely aimed at investors and offer guaranteed returns of x% per annum for a set number of years. The returns are paid on monthly basis – effectively meaning that the property enjoys 100% occupancy, something that is largely unheard of in resort cities that experience high and low seasons.

The returns are generally far higher than the returns offered by banks and are offer a lower risk than many stock market related investments. For those looking to invest in Thailand and gain returns from the property market, these types of investment are probably ideal. Such has been their popularity, other connected schemes, such as property funds, are starting up with investors only required to make an initial investment of $10,000.
Another resort town in Thailand is Hua Hin.

The property market here is considerably different to that in Pattaya or Phuket. A large proportion of the rental market comes from local demand and there is a lower supply of properties. This lower supply is likely to remain constant due to the cities proximity to the Royal Palace.

The fact that much of the demand for rental properties comes from the local area means that properties are less affected by low and high seasons. This, in turn, means that traditional investments in condominiums are still excellent opportunity and rental guarantee concepts are likely to be deemed less attractive. Of course, there are still many risks involved and properties will need to be privately managed or property agent used. This can be time consuming and expensive, although if successful, very profitable.

The Role of Real Estate Agents in Thailand

Real estate agents tend to aim more at the western markets and certainly serve a purpose. A reputable agent can be hugely beneficial to buyers, seller, landlords and tenants, bringing all parties together. There is always an argument that they do this purely to earn a commission but in reality, most agents work hard to secure the best deals for everyone.

A quality real estate agent can erase a lot of the stress involved with purchasing a property and advise you on the best course of action. Locals do tend to strike their own deals privately or through internet forums which is great if you are au fait with all the rules and regulations, but could potentially leave you exposed and vulnerable – especially if you can’t read or write Thai.

However, for balance, there are some agents who give the industry a bad name so it is worth conducting research and consulting with others before choosing the agent that you wish to work with. Well established agents have been around a long time for reason – generally, they are good at their job and know the local market.

Thai Investment Visa

A one year investment visa is available to those individuals investing THB10 million or more in the Thai property market. The visa is renewable indefinitely so attractive to those looking to live in the Kingdom who may not be of retirement age and don’t wish to work in Thailand. The visa is also available to those investing in the Thai stock market or those investing in bonds or mutual funds.

Conclusion – Is the Thai Property Market a Good Investment?

The strategic location of Thailand makes it the ideal base for those looking to do business in Southeast Asia. Thailand is arguably one of the most developed countries but still enjoys relatively low property prices. This allows investors to “piggyback” on the achievements of less developed neighbours whilst still enjoying many of the comforts associated with developed countries.

The Thai property market is widely perceived as being stable and although it may not have the same potential as perhaps Cambodia, the risks are viewed as being far lower which naturally gives it instant appeal. The Thai Baht is also a stable currency that is steadily gaining in strength which once again demonstrates the success of the Thai economy.

As mentioned, Thailand has always managed to remain largely unaffected by economic and political events and if it has felt any impact it has managed to recover quickly. Overall, the prospects for Thailand in the short, medium and long-term appear very bright. Investing in Thai property now, especially the rental guarantee concepts, would be a wise move with real estate prices inevitably rising over the next few years.

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