Tuesday, July 6, 2010

How Can a Foreigner Finance a Property in Thailand? By Michael Barricelli

Foreigners generally cannot obtain a mortgage from local Thai banks to finance the purchase of their Thailand property investment. Most of the financial institutions in Thailand provide loans for real estate purchases to Thais and Thai Companies.

In recent years Bangkok Bank (Singapore) has had a loan program for foreigners with qualification being very similar to that in the west. You complete an application, submit proof of income, tax returns and other documentation. With this program, buyers can finance up to 70% of the purchase price of the home. The problem with this program is that it has not been consistently offered, and as of this writing the program has been suspended.
In some resort areas such as Pattaya, local banks have begun to design loan programs for foreigners who live and work in Thailand. Kasikorn Bank, for example, allows foreigners who possess a work permit for 2 or more years to obtain mortgage financing for up to 50% of the value of the subject property. This program was just launched early 2010.
With the current global financial situation you are best to explore your options directly with Kasikorn Bank, Bangkok Bank (Singapore) and other lending institutions to determine the existing status of any loan programs which may be available for foreigners.
If you cannot get a Thailand mortgage to buy your dream property in Thailand, don't worry. Several options are available to you.

Developer Financing 

Developer financing has become more prevalent in Thailand over the past two years. Deals ranging from 2-year to 10-year financing are available to buyers of new Thailand houses and condos. These financing deals are available directly from the developers. As a result, the structure of each deal varies.

An example of such a program is The Meadows, a housing project in Pattaya. The developer offers 50% 3-year financing at 8% per annum. Although the loan term for this and other programs is not as long as conventional mortgages in the US and Europe, such programs are useful.

Be leery of offers for "free financing" or "0% interest". Obviously the purchase price under these scenarios has been inflated to cover the cost of capital to the developer. It's best to negotiate the best possible purchase price then negotiate the financing deal separate from the price. Make sure you have a clear indication of the market and market prices before agreeing to a financing arrangement.

Seller Financing 

Individual property owners have recently become more open to extending financing to buyers of Thailand houses and condos as a means to stimulate interest in their resale property. Under such an arrangement, the buyer and seller sign both a purchase and sale agreement and a promissory note.

If you are working with a real estate agent, let them know you require financing. They will likely have some inventory of properties where sellers are extending payment terms. If you are negotiating directly with the seller, simply ask them if they are willing to accept payment terms for a defined period and rate of interest.

As with developer financing, negotiate the purchase price separate from the terms and conditions of the loan. Important to note is the fact that the seller will continue to hold the title deed (Chanote) to the property until the loan repayment is made in full. Make sure your lawyer reviews your deal and ensures that all documents are updated and properly safeguarded to protect your investment.

Other Options 

There are generally two other options available to foreigners to finance their Thailand house or condo purchase. Historically, many foreign buyers had taken a mortgage against their property in their home countries. This is more difficult than ever given the economic crisis, yet still an option for some. Again, check with your local bank to determine what programs are available to you.

In some instances, the Thai spouse of a foreign national may qualify for a mortgage. In such event, the sale and purchase agreement (and promissory note) would be executed by the Thai spouse. If the foreign national is funding a substantial portion of the cost, the foreign national should register a long-term lease in his/her own name (with the Thai spouse as the "lessor" and the foreign national as the "lessee"). Consult with your attorney to minimize the tax implications of such an investment structure.

You may also use a lease structure to make your desired property affordable. Available structures include lease with the option to buy and long-term leases. Any lease for a term of more than three years can be registered on the title deed at the land office, thereby creating a property right in addition to a contractual right to occupy the house or condominium. Most local Thai lawyers can handle this transaction on your behalf for a small fee.
So don't worry if you cannot obtain a Thailand mortgage for the purchase of your property. There are options available to you. Work with a real estate professional to help find the best property and financing structure for you.

Michael Barricelli has been traveling to and living and working in Thailand for over ten years. He founded and opened a real estate business, Land of Smiles Property, in the resort city of Pattaya in 2005. His company has helped hundreds of expats buy or lease condominiums, homes, villas and land in Pattaya and Bangkok.
Prior to moving to Thailand, Michael lived and worked in the Boston area as a successful business executive with over twenty years of financial management and management consulting experience. Roles included Financial Controller at Harvard University, CFO/Director of Finance for several Boston-area hospitals, and Consulting Manager for a "Big 3" consulting firm.

For useful information about relocating to Thailand, foreign ownership of property in Thailand, and specific property offerings in Pattaya, visit the Land of Smiles Property website:
http://lospp.com/