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Wednesday, 25 April 2007

Property in Koh Samui after Songkran

Songkran came and went and, as usual, was over in one day so by Saturday morning it was safe to go out without fear of getting wet. On the other hand elsewhere in Thailand Songkran goes on for days. My wife comes from Kalasin and she was home for the holiday and they were still celebrating a week later!

There is still a general air of uncertainty re the political situation which is not helpful, but on the other hand what I am beginning to see is a more positive attitude among many business people for the future. Whilst we should not be complacent, there seems to be a feeling that the lengthy deliberation and discussions about the Foreign Business Act will go on and on, possibly until the elections in December, when a more pragmatic government will instill some sense into the situation. We must wait and see of course and this may be the optimistic view but we are still receiving enquiries from interested purchasers.

There are inevitably some people who are panicking which I believe is totally the wrong attitude although on the whole most people are sitting back to see what happens. Remember that the concept of foreigners acquiring an interest in land through a Thai registered company with local Thai shareholders (nominee or not) has been a standard practice recommended by lawyers throughout Thailand for years and accepted by government after government. I find it somewhat disingenuous of all the lawyers today making statements to the effect that “we told you so!” - well in my six years in Thailand I cannot point to one lawyer who, until last year when this all came to a head, said the Thai company was not the way to go. Be that as it may, where could it go from here and why should we not panic?

We can only look at the Law as it stands and even assuming they apply the existing Law I see major problems of enforcement. Let us assume that on Koh Samui alone there are 1,000 such land owning companies controlled by foreigners. First of all they have to investigate all those companies and having established that there is foreign control, they must then apply to the Court for an order under the Land Code requiring the company to divest themselves of that interest with a 180 day deadline after which the Court can order a forced sale of the land. Now I would imagine that any vaguely competent lawyer could manage to defer these hearings for weeks if not months. Multiply that by 1,000 and you can see how quickly the Court system would be brought to a halt.

Let us be clear though. There is still nothing wrong with a Thai company with foreign shareholders owning land. What is at question currently is control of that company whether by majority shareholding or voting rights. Obviously it is not possible for foreigners to own more than 49% of the shares but it was, in the past, possible to control the company by way of preference voting rights and it is this issue which is currently being debated more than any other. However, even with equal voting rights it should still be possible to retain significant if not quite total control of the actions of the company by carefully worded Articles of Association. For instance, all decisions have to have agreement of 70% of the shareholders and… well I am not going to give all the secrets away!

But of course you still have to have legitimate Thai shareholders. Let us say for example that you are buying a Baht 20 million house. Technically you are going to have to find Thai shareholders to contribute 51% or Baht 10,200,000. That is clearly unrealistic. But remember that it is perfectly legal for you to own the structure on the land in your own right. So, let us say that the value of the land is Baht 2,000,000 so now you only need to find Thai shareholders for Baht 1,020,000. Five of them at Baht 200,000 each. Where do they get the Baht 200,000 from – well they can borrow it – where from I will leave you to work out! So now you take a 30 year lease from the company of the land and you own the structure in your own name. Options are built in to renew the lease in 30 years, to extend the lease should longer leases be allowed and to purchase the land should the law change in the future. You have to be careful how these various factors are put together as there are some tax implication to be aware of, but which can be legitimately minimised.

So what happens after 30 years? You serve notice on the company (of which you are still a shareholder) to renew the lease of the land for a further 30 years. Such renewal I would surmise is unlikely to be refused. The renewal is duly registered at the Land Office and in fact as you actually control the situation this could repeat ad infinitum. Obviously this is a simplistic description of what I am describing and there are a number of consequential issues that need addressing and safe guards to be built in and I am not going to cover them all in this Newsletter. **

We have to deal with what is in front of us and, whilst we can speculate on how the Law will be changed (or not) and how it will then be applied, I believe it is still possible to safely buy property here in Thailand and that the future for Koh Samui is very bright. There are some bargains around at the moment for those with the foresight to take advantage of them.

**If you would like to subscribe to my monthly Newsletter, please send me and email to hbonning@kosamuiproperties.com

1 comment:

Thailand property said...

I also believe in bright future of Koh Samui property. Making an investment in Thailand - whether in Phuket property or Koh Samui property is one of the smartest investments you can make. With the unspoiled surroundings and warm climate, this veritable paradise can offer your dream property. Thailand property prices are competitive and we can offer you an excellent choice of quality developments. These Thailand properties offer buyers much return potential especially because Thailand is considered by many as the number one tourist destination in Asia.