Articles

Mortgages the hurdle for foreigners

By Nina Suebsukcharoen

There is greater demand for Thai property from foreigners who are buying for a variety of reasons but also spurring the market is a sharp increase in the number of people deciding to retire here, according to James Pitchon, executive director of CB Richard Ellis.

To tap this potential, banks need to start evaluating foreigners, not as a credit risk but as an investment opportunity, adds Dawn Kitt, a barrister with the Bangkok law firm Kitt & Murray.

"Domestic banks are not inclined to give mortgages to foreigners unless they have a fabulous contract or a Thai guarantor," she said.

Several of the people retiring in Thailand have worked in Asia for many years and Thailand is probably the most attractive country to choose to retire in.

"Part of that is a reflection of the living cost in Europe, the States and Australia, and part of that is because for someone who has spent 20-25 years overseas, Asia is as much their home as their original birthplace," Mr Pitchon said.

The Immigration Department offers retirement visas for foreigners over 50 years old. However, the retiree has to maintain a bank balance of 800,000 baht and ensure a monthly income of 65,000 baht. The retirement visa prohibits employment but allows you to live in Thailand.

"This is the largest growth market _ people choosing to retire here. Some people choose Thailand as a regional base to keep their people working all around Asia. Some keep their families here because we have good schools, good health care and Thailand is seen as a friendly country," Mr Pitchon said.

A lot of the people choosing to retire in Thailand are higher-income individuals _ they have to be to meet the visa criteria _ with many being very successful regional executives. Also, many Europeans who previously retired in Spain or Portugal to escape the cold and dreary winters of northern Europe are finding that the cost of living in these two countries has increased significantly and are seeing Thailand as an alternative retirement destination because a lot of infrastructure such as health care, supermarkets and English-language TV, is more developed.

However, while demand has increased, there are still restrictions on ownership of property in Thailand with foreigners essentially not allowed to buy land. That leaves condominiums, in which foreigners are allowed to own up to 49% of the total saleable area of a building, he said.

Ms Kitt notes that any foreigner wanting to buy property in Thailand must fund it with money from abroad. The money they bring in has to be foreign currency sent from a bank account in their own name abroad to one here. There is one exception, and that is to send the money to a law firm's client account but Ms Kitt recommends transferring it to one's own bank account.

To buy property, the foreigner has to obtain a foreign exchange transaction (FET) form from the bank. This form will only be issued for any remittance exceeding US$20,000. For sums less than that an official letter is issued.

"This is more to do with money laundering because banks need to know why it's coming to Thailand," she said.

These forms have to be presented to the Land Department as part of the legal requirement to take the transfer of a condominium. Other documents required include a passport, power of attorney form if a lawyer has been appointed to help handle the transfer and, ideally, a copy of the sales contract.

The main hurdle is the requirement to remit money from abroad. "Very few clients have US$100,000 tucked away in a bank account in the US or UK," she said.

Mortgage lending by local banks to foreigners is virtually unheard of in Thailand. However, Ms Kitt said terms might be easing, noting that two of her firm's clients had succeeded in obtaining mortgages. It probably helped that both had been in Thailand for a long time, had work permits and were employed.

If a foreigner is married to a Thai it can be easier to get a mortgage as the Thai spouse could obtain the loan with the foreigner standing as guarantor.

Ms Kitt pointed out another option that will appeal to Britons. Cuttes Bank, which is owned by the Royal Bank of Scotland, offers an equity release mortgage scheme for Asian properties. This means it will lend money secured by property the client owns in England to fund a property acquisition in Asia.

Still, local regulations are a massive hurdle for foreign developers in Thailand who buy a small piece of land in Samui or Phuket to undertake a small or medium-sized development, because they find it very difficult to raise any kind of financing, Ms Kitt said.

Her law firm has a client who bought 64 rai of prime land on Ko Samui and offered half as collateral for a five-million-baht loan but the bank declined.

"The problem was that the company he set up to buy the land, because foreigners cannot themselves buy land, was very new," Ms Kitt explained.

"Immediately after he set it up, he went and bought this piece of land. He obviously now needs some money to do the construction, but the bank said no; they did not see value in that land. In England, Europe and America you would think, wow, undeveloped land that's right on the beach, but the bank didn't understand that that land has value."

Kitt & Murray also has come across foreign developers who have retired here and thought of launching property projects. They meet a Thai woman and buy the land in her name on being reassured by her that she will transfer the land to a company the foreigner sets up later.

"Then we set up the company and we call her and say, 'You know you will be handing over your land to the company but don't worry. You will be a director of the company, you will have total control. The Thai lady says, 'No, no, no,' and won't sign anything. This has happened many times."

Mr Pitchon agreed that if the Thai government wishes to enlarge the property market, then the simplest thing to do is to allow foreigners to borrow as that would significantly increase demand.

As it stands, foreigners are mostly restricted to buying condominiums and the choice for a prospective purchaser is either to buy an existing completed unit or one that is being sold off plan.

"The difference is that buying a completed condominium is much lower risk because you know what you are getting as the project is built and there is no risk of delay in completion of the project," he said.

The other issue to look at is the ongoing property management of the project. CB Richard Ellis believes that property management is the key to the owner's long-term enjoyment of the property and is also a major factor in its long-term value.

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