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What do potential Thai property market investors think about?

What do potential Thai property market investors think about?

Having been on the property expo and seminar circuit for many years, it never ceases to amaze me that I don’t bump into other legal professionals who promote that they have ‘spoken at many leading property expos and events’. It seems these days that there is license to completely invent experience and knowledge by clicking the ‘edit’ button on a Linked in Profile, and just typing away.

Whilst on this circuit, I meet real property investors. This is because it is highly unlikely that someone not interested in property investment in Thailand would climb out of their bed on a Saturday or Sunday morning, head over to the Property Expo venue, speculatively, and then sit in the ’10 Tips for Investing in Real Estate in Thailand’ seminar to pass the time away.

I hope some of the listeners have picked up some knowledge from me. However, what I can say, sincerely, is that I have picked up a lot of knowledge from the audience and those that took the time to meet me for a private question and answer session after the presentation.

It isn’t what those that live and breathe the property market in Thailand think that matters; it is what the potential investor thinks that really matters. Even now, certain limited but by no means the majority of developers and property professionals just don’t seem to get this.

I set out some of the questions that I am frequently asked, and have tried to keep as close to the style of the questions as much as possible. I have also set out how I would answer these questions although I am very much aware that my opinions and views may be quite different to those in the business of trying to develop and sell property. My view has been formed from years of assisting with investment and transactions, but also solving litigation problems.

Is Bangkok Sinking?

Year after year, I have to come up with suitable non-glib answers to this question. As I write, I see that the headlines of the major national newspapers are discussing various areas of Bangkok and the Central flat Provinces which have suffered flooding due to their topography. This type of weather or disruptive event issue is not unique to Thailand. Most property markets I follow have issues: Tokyo and San Francisco – fault line earthquakes. California – earthquakes and wildfires. Sydney’s outskirts – bushfires. London; Paris; Egypt; Belgium; New York – history of terrorism. In the UK, many areas suffer flooding and these can take foreign investors by surprise. Flooding checks and reports from lawyers to clients is mandatory in the UK.

This is the world we live in. Investment must and will continue.

Long term, there is a plan to manage flood areas in Bangkok. However, the plan won’t become effective overnight. In the meantime, investment can be made around these issues. Thailand will continue to invest in its future, the speed of that investment will fluctuate up and down, but looking at its track record, it has developed incredibly over the last few decades despite a huge amount of political turmoil and some natural disasters here and there.

Bangkok probably is sinking a little bit, whilst the tectonic plates of fault lines rub together and extremist Islamic State soldiers plan their next terror attack. However, we can’t zip our money in a plastic bag and pray the value will go up.

Thailand is a robust property investment destination, and with careful planning and a long term view, you can avoid the issue of flooding which is affecting those unfortunates who can’t simply ‘move’ away from the problem.

Why isn’t there a ‘price per square meter’ culture in Phuket/Pattaya/Hua Hin/Koh Samui/Chiang Mai?

Most major developed Asian markets advertise their properties through property portals online. The comparables for the properties aside from amenities and location are of course the hard price per square meter, or in places like Hong Kong, the price per square foot. If you talk about property and don’t know the averages, you won’t be considered very knowledgeable in any of these markets.

However, in Phuket for example, there has been a long tradition of avoiding sales on the basis of ‘price per square meter’. This is because the land values in Phuket varied so wildly from beachfront to inland plots, but are now all expensive by Thai land price standards, that to state a property’s value on the basis of price per square meter would draw dangerous comparisons with Bangkok where all property is primarily measured on this basis first and foremost with other considerations being secondary but still relevant.

Fortunately, this lack of market data consistency is being addressed by organizations such as FazWaz to disrupt the stayed approach of parts of the market. Information and knowledge is power, and empowered consumers are much more likely to actually make a decision – buy or not, as opposed to remaining hawkish when they have been properly informed.

The situation on market data has improved considerably and now there is more than enough information to assist with an informed decision.

Why should I buy only a 30 year leasehold interest? Are ‘renewals’ in Thailand, reliable?

The maximum registered term of a residential lease or ‘hire of immoveable property’ in Thailand is 30 years. There is no provision for what happens after a lease expires. Some limited commercial leases in Thailand are permitted for 50 years but to date this has never crossed over into residential.

Leases are typically sold to foreigners for apartment buildings that aren’t registered as condominiums, for condominiums where all the ‘foreign’ quota available to be sold to foreigners on a freehold basis have been sold out, or for land plots on which villas are built, noting foreigners can if they choose and execute the correct legal documents – own buildings in their name.

Many developers are forced to sell leasehold – certain districts and streets in Bangkok are only available for developers to develop and sell leasehold because the land is ultimately owned by the Crown Property Bureau and will not be sold freehold.

Therefore, lots of ‘leases’ are sold in Thailand, and are only 30 years long. This is in contracts to neighboring jurisdictions – Vietnam – 50 up to 70 year leases; Hong Kong – a mixture of leases depending on when they first came into existence – 50, 99 and 150 years with certain leases due to expire when the ‘Basic Law’ expires in 2047; Cambodia – leaseholds have changed a few times – 99 year leases are ‘respected’ but new leases are capped at 50 years.

This means Thailand has a particularly short maximum residential leasehold term. Where public companies have promised renewals, the risk for a buyer is then limited to the solvency and existence of that company for the 30 years and beyond. The investment becomes a mix of betting on the real estate market, and betting on the landlord. When private companies promise renewals, they can do so by setting up a corporate structure where the leases are subject to provisions that would penalize any non-renewal heavily, thus incentivizing the renewal for the benefit of the lessee. This takes a few hoop jumping exercises. Not all buyers like to read through the contracts involved to achieve this.

Thailand’s property market has its own set of challenges, but the challenges do not make Thailand a less attractive place to invest than its Asian neighbors. The entry price point for Thailand is very competitive; rental yields aren’t very high in most developments in Bangkok with some reasonable returns on the prime properties. The resort areas sometimes offer very attractive returns notwithstanding the seasonality of rentals.

Before you sign a contract for 30 years, it goes without saying you should check the fine print very carefully.

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Desmond has operated and owned 2 law firms in Asia in 14 years spanning Thailand; Vietnam; Indonesia with clients in all of Asia and other markets investing inwards into the region with his existing firm Hughes Krupica possessing a large market shares in its fields of expertise. Desmond’s professional expertise comprises real estate from the most complex mixed use development structuring through to assisting with private property transactions. Desmond also assists investors in relation to hotel disposals and acquisitions and restructuring. Desmond keeps his market knowledge fresh by presenting at seminars; participating in real estate industry events; writing prolifically for different printed and online publications and by meeting and networking amongst his client base.

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