Last month, the cabinet revisited the contentious issue of implementing more favorable residential property measures for foreign purchasers.
Despite a previous government’s similar attempts, the initiative was eventually retracted due to overwhelmingly negative feedback.
This time, Prime Minister Srettha Thavisin supported the notion of raising the foreign ownership quota for condos to 75% and extending leasehold contracts to 99 years immediately following media leaks on the subject.
While these policies are yet to be officially approved, renewed discussions have stirred disagreements among involved stakeholders, with concerns raised about limited benefits and potential loopholes.
RATIONALE
Following a proposal from seven real estate associations, the premier was prompted to revive these policies by two main factors: diminished demand from local buyers and foreigners resorting to Thai nominees to acquire residential properties locally.
According to the Real Estate Information Center (REIC), the transfer of residential units, both new and second-hand, across the nation saw a consistent year-on-year decline over five consecutive quarters from the first quarter of 2023 to the first quarter of 2024, with a progression in each quarter.
The decline was more pronounced for low-rise houses compared to condos, attributed to nearly exclusive demand from Thais, particularly in the mid to lower-end segments, facing various adverse factors in recent times.
These factors encompass sluggish economic growth, escalating living expenses, and increased financial pressures affecting their ability to afford housing units.
Difficulty in obtaining mortgage approvals due to five interest rate hikes in 2023 impacted their purchasing power, as outlined by the REIC.
During the specified timeframe, nationwide low-rise house transfers plummeted by varying degrees quarter-on-quarter, aligning with the overarching trend. Conversely, condo transfers exhibited growth or witnessed milder declines in some quarters.
Condo transfers reflected an increasing trend due to foreign buyer demand, with foreigners constituting a larger proportion of condo transfers, reaching peak levels in the first quarter of this year at 28.6%.
“Condo demand from foreign buyers has continued to grow while demand from Thais has remained consistently weaker,” noted Vichai Viratkapan, acting director-general of REIC.
The surge in foreign buyer demand led to a prominent focus on new condo supplies in major resort destinations.
SEA, SAND, AND MONEY
Propelled by surging demand from foreign buyers, a significant concentration of new condo units was introduced in major resort locales where Russian buyers particularly dominated demand for villas.
Foreign demand was robust for villas, with a strong sales rate across projects despite the influx of new villa launches. Buyers, including those from China, Hong Kong, Singapore, Germany, and Denmark, predominantly Russians, invested in villas for personal use and investment purposes.
The leasehold ownership concept, applied in some condo projects, was embraced where the foreign ownership quota of 49% was fully occupied.
Noteworthy shifts away from using Thai nominees to secure landed properties were observed, following the crackdown on such practices.
As a result, real owners leased out units owned by their firms to evade repercussions, as the leasehold contract possesses legal protection if complications arise with the firms.
Issara Boonyoung, honorary president of the Housing Business Association, underscored concerns about indirect land ownership by foreigners through Thai firms, complicating oversight and regulation enforcement.
RECOMMENDATIONS AND SAFEGUARDS
The proposed increase in the foreign ownership quota for condos and extension of leasehold periods aim to restructure the industry, facilitating lawful, transparent, and economically beneficial foreign residency measures.
To circumvent potential issues related to improper property acquisition or ownership, extra regulations may be implemented, such as restricting land size for foreign-owned projects, imposing higher registration fees and property taxes for foreign buyers, and introducing additional safeguards to protect the rights of Thai citizens in condo units.
Moreover, proposed measures include amendments to lease agreements to enhance property rights protection for leaseholders, rendering them inheritable and usable as collateral for loans from financial institutions.
Surachet Kongcheep, managing director of consultant Property DNA, echoed support for heightened foreign ownership quotas for condos, proposing specific regulations to curb potential market distortions and stimulate foreign investment while aligning with local demand.
