Thailand has always been one of the most popular spots for holidaymakers and investors alike. According to the Mastercard APAC Destinations Index 2018, Bangkok, Thailand’s capital and most populous city, remains the top destination in the region with more than 20 million arrivals, besting its figure of 19.3 million it achieved in 2017.
Thailand’s booming tourism sector has the country on the map for investors and accounts for 12% of the nation’s economy. This is not surprising as Bangkok is a vibrant metropolis with an amazing history, incredible food scene and fantastic local scene. More than just a place to visit for a holiday, Bangkok is also an exciting and riveting place to live.
A market that Singaporeans are fairly familiar with, Bangkok ranks highly as one of the preferred cities for Singaporeans to purchase real estate overseas. Many trusted local property developers, including City Development Holdings (CDL), CapitaLand and Frasers Property have ventured into Thai property markets. One of Thailand largest developer, Sansiri PLC, listed on the Thailand Stock Exchange has offices in Singapore to cater to the demand for Thailand properties from Singaporeans.
Restrictions on overseas investors
While foreigners are not allowed to own land in Thailand, one may do so in the name of a company registered in Thailand with at least 51% Thai ownership. Alternatively, one can choose to own landed properties with 30-year renewable leases. Buyers can renew such leases for further 30-year periods at the Department of Lands for up to 90 years. Such lease renewals cannot be registered, and the lessee cannot sell, transfer or sub-lease the property.
Due to the legal restrictions, most overseas buyers choose to purchase a freehold condominium, where foreigners can own up to 49% of the total units. Buyers can assign a Power of Attorney to transfer the ownership of the property, which will be carried out at the Department of Lands.
Financing the overseas property
Foreigners buying a property in Thailand will have to pay a reservation fee of approximately 10% of the purchasing price as a deposit before the purchase contract is signed.
The next phase includes a 30% down payment to the developer to secure the booking. The ownership will be transferred when the balance 70% is paid in full upon completion of the project. The payment scheme can differs from one developer to another.
Foreign buyers tend to raise financing at home and then transfer it into a Thai bank account with the purpose of transfer indicated on the remittance advice. A Foreign Exchange Transaction (FET) form will then be issued by the Thai bank to be used as proof for the transfer of ownership at the Department of Lands.
New guidelines and restrictions for property loans were introduced by Thailand’s central bank on 1 April 2019. Second-home buyers will be restricted to a maximum loan of 80% of the property value if the first mortgage is less than 3 years old or if the property is priced at THB 10 million (US$324,000) or higher. Third- and subsequent home buyers will be restricted to a loan not exceeding 70% of the property value.
Other costs include a one-time sinking fund and transfer fees of 2% of the registered value during the purchase of the property.
There is a tax on the property ranging from 3% to 8%, depending on various factors such as how long you have owned the property. If the property is registered in the “tabien baan” (a government-issued booklet listing all the people registered at a particular address in Thailand) for at least one year or the owner holds the property for more than five years, this tax is exempted.
While there is no capital gains tax in Thailand, the income from the sale of the property will be taxable if the property is sold within five years from the date of purchase. This ranges between 1% and 3% of the sale price, depending on how many years you have actually owned it. Stamp duty and withholding taxes apply during the sale of the property.
Choosing the right property
Demand continues to rise in Thailand. Nationwide, land and building transactions rose by 3.8% y-o-y to THB 266.15 billion (US$8.62 billion) in the first quarter of 2019, following a 7.7% growth in 2018, according to the Bank of Thailand.
Residential prices for Bangkok properties are largely stable with some slowing observed in recent quarters amid current economic conditions and stricter mortgage-lending rules.
Apart from the price, factors that overseas buyers consider before making a purchase include whether the area has important, recognisable landmarks and its connectivity which is affected by its accessibility to the mass transit system and whether it is benefiting from a direct connection to tourist areas and business districts. The Bangkok metropolitan area, in particular, is a popular investment location, especially when the Bangkok City Plan comes into effect in 2020.
If you are on a lookout to invest in Thailand property, choose locations with advanced infrastructures. Apart from Bangkok, other high-demand areas for foreign investors to consider investing in include the beach resort areas like Phuket and Pattaya, as well as Chiang Mai, the country’s second largest city.
Managing the portfolio
As with any overseas investments, foreign investors would not have as much knowledge of the local rental market or channels to get their properties rented out versus the local developers.
In Thailand, many property investments are increasingly being sold with an option of engaging a professional property management company which has keen insights in the market, as well as experience in managing such properties. This minimises the amount of knowledge, time and effort needed by investors to start earning a return on their investment, attracting investors who are seeking passive rental income.
All in all, as an overseas property investor, there is a need to properly assess the market and investment viability before investing in a foreign market.
Article originally appeared in List Sotheby's International, Singapore.