Monday, November 23, 2009

Long Leases in Thai Property Market

Long Leases in Thai Property Market

Because of the longer stay - usually one month to three months in a year - they spend four to five times more during their visits in comparison with other tourists. This target group is therefore a segment that Thailand should concentrate upon, looking for quality over quantity. Ninety-nine per cent of the buyers of high-end resort homes - costing US$ 3million (Bt94.5 million) to $10 million - are foreigners. However, Thailand does not permit non-Thais to own freehold land and limits the lease term accepted by law to a maximum of 30 years.

It is quite common for such buyers to buy villas in Thai resort areas on leases of 30 years, along with two to three choices for renewal by 30 years each (30+30+30), and the prices happen to be similar to the freehold value. However, with this structure of lease, in the 30th year, 60th year and 90th year, both the freehold owner and the lessee will require to physically meet each other to renew the lease even though the complete amount has been paid.

It would therefore be advantageous to all parties if a less taxing and simpler process was established to enable long lease terms to foreigners. It is believed that, the most suitable lease period is 99 years, which would imply that such leasehold properties could be sold at near to freehold values. The lease would be registered for 99 years with the land department, once the payment of the lease value is over. This would make Thai property market more favored for overseas investors than other Asian countries and would definitely create more demand for resort homes in Thailand, in the mid- and high-end market.

In other markets such as Vietnam, which is one of Thailand's major rivals in the tourism and real-estate industry, long lease of 70-years is being offered to foreigners, with choices of multiple extensions. Meanwhile, China offers up to a maximum long lease of 70 years and Singapore, in some promoted areas such as Sentosa Cove, offers long lease of 99-years to foreigners. Malaysia offers both freehold and long lease of 99-years to foreigners considering the location. In Europe, lease terms of 99 years are common.

The increase in the lease term for foreigners will also benefit the investment market. As of now, foreign institutional investors, such as foreign property funds, who would show the desire to invest in large office buildings or hotels, may bypass Thailand, where freehold ownership is not allowed and the current lease term of 30 years is too short for it to be economically possible to own or develop large projects. Longer leases would stimulate investors to secure properties.

To boost the Thai property market in the long term, the basics of the law and regulations should be according to the transforming market environment. Such regulations could be applied to particular segments of the market that need changes to be made to live up to demand. If the government is looking at other measures to assist the real-estate market and long-stay tourism, it should address the issue of prolonging lease terms for foreign buyers. Long lease terms in Thai property market is almost inevitable. The sooner the government acts accordingly, the better.

By Gregory Smyth

Gregory S. is an independent author providing assessment and comments on leading International Property Consultants in Thailand, especially CB Richard Ellis.

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