Thailand wants to attract foreign real estate investments

Thailand is considering changing its legislation to encourage foreign investment in real estate.

Finance Minister Pichai Chunhavajira is exploring several options to boost the country’s economy, particularly to attract more foreign investors.

One is to improve laws on “leasehold rights” or lease agreements for real estate, to make it more investment-friendly.

Why does the government want to stimulate the real estate sector?

The Thai economy has experienced low growth for a long period, which has affected people’s finances due to increasing household debt.

This has had a knock-on effect, reducing national purchasing power, including for cars and housing.

The real estate sector is important to the economy, with ripple effects for several interconnected industries.

As Thai purchasing power for real estate stagnates, the Paetongtarn Shinawatra government plans to put into practice the previous administration’s ideas to allow foreigners to buy real estate in the country.

Thai laws do not allow foreigners to own land, making it a politically sensitive issue for the government, as it has been for decades under previous similar proposals.

Thaksin Shinawatra, the unofficial leader of the Pheu Thai Party, once proposed, in response to concerns over the sale of land to foreigners (often criticized as a sell-out of the nation):

“Let landowners who wish to sell their land to outsiders first transfer ownership to the State, under the direction of the Department of the Treasury.”

Foreign buyers could then lease state land for a maximum period of 99 years.

When the lease expired, the land would still belong to the state.

This proposal would require a change in the law governing state lands.

Another idea to attract more foreign investors to the country is to revise leasing laws to make them more flexible, allowing longer rental periods to make the investment more profitable.

On April 9, the cabinet asked the Ministries of Justice and the Interior to study the possibility of extending the duration of leases from a maximum of 30 years to 99 years, in accordance with the civil and commercial code.

On June 18, the cabinet instructed the Ministry of Interior to review the law relating to the rental period under the Leased Property Rights Act, increasing it from 30 to 99 years.

What are rights to leased property?

Rights over leasehold assets refer to assets that are based on the right to use real estate as defined in the Rights Over Leasehold Assets Act 2019.

This right is attached to the property itself and remains with the property regardless of changes in ownership.

The rights to the leased assets remain attached to the real estate until their expiration.

The reason why the government drafted this law is that there are certain limitations on the rental of real estate under the Civil and Commercial Code.

In this code, lease is a contractual right that applies only to the contracting parties, which poses certain restrictions on its economic use.

Furthermore, the leasing of real estate under specific laws for commercial and industrial purposes is limited in its scope, excluding residential leases.

As a result, the law is underutilized.

The government found it necessary to establish rights to leased assets, thereby creating a right to use real estate that can be transferred or used as debt security through mortgages.

This change is expected to encourage investment in real estate, thereby helping to boost economic growth.

What are the differences between existing land lease laws?

There are three laws relating to land leasing:

1. Leases in accordance with the Civil and Commercial Code;
2. The Rental of Real Estate for Commercial or Industrial Purposes Act, 1999;
3. The Leasehold Duties Act 2019.

The three laws differ in key aspects, such as the duration of the lease.

Under the Civil and Commercial Code, leases can last up to 30 years, while leases can range from 30 to 50 years for the 1999 law.

The Leased Property Rights Act allows leases of 3 to 30 years.

Regarding the use of leased land, the provisions vary from one law to another.

For example, according to the civil and commercial code, the lease contract confers personal rights on the tenant.

In the event of the death of the tenant, the lease is terminated.

Under this law, the tenant cannot sublet the land without the consent of the owner.

Regarding the use of rented land as collateral, the civil and commercial code does not allow the land to be mortgaged or pledged, but it can be used as commercial collateral if the owner of the land agrees.

With respect to alterations, additions or construction on leased land, the law prohibits the tenant from making changes without the owner’s permission.

Under the 1999 Act, leasehold rights can be transferred and sublet, and the lease agreement can be inherited.

The leased land can also be mortgaged and used as collateral in accordance with the law.

However, modifications, alterations or construction on leased land are prohibited unless authorized by the owner.

One of the main limitations of this law is that it only applies to commercial and industrial leases, excluding residential leases.

Regarding the Leased Property Rights Act, rental rights can be transferred, sublet and inherited.

Leased land can also be mortgaged and used as commercial collateral.

Modifications, transformations and constructions on the leased land are permitted, as well as obtaining various permits from government authorities to use the land, without the need to obtain the owner’s consent.

The tenant may make changes or additions to the leased property, and the land may be returned in its current condition at the end of the rental period, or on other agreed terms.

To convert personal property into rights to leasehold property, the landowner must register the property, which may be vacant land, land with structures, or a condo, with the land department.

Officials then register it and put a seal on the land title deed or condominium unit ownership document.

How does property rental work in other countries?

The British Embassy in Bangkok

In many countries, special laws have been enacted for the rental of property, such as the Leasehold Act in England and Wales, which grants the right to use a leased property without a maximum period set by law .

Tenants can fully exercise their rights, unless otherwise indicated.

This includes the possibility of transferring rights, subletting or mortgaging the leased property.

In France, a special law allows long-term leases of 18 to 99 years, granting tenants full rights to the leased land, including the ability to transfer the lease or sublet it.

In Cambodia, legislation allows long-term leases of 15 to 50 years, which allow tenants to make full use of the leased land.

Source : Bangkok Post