Feb
10
21

A leading legal adviser says the property situation is not as bad as is perceived

After coming to a screeching halt for most of last year, Thailand’s resort property markets have bounced back over the past six months with increased activity at the higher end and secondary-market sales also brisk, says Marcus Collins, a partner with DFDL Mekong Legal and Tax Advisers.

To go by transactions that have passed through his law office, a lot of people are making good money on their investments in Phuket even though global economic conditions are far from rosy.

“You would expect that properties would be offered at discounts, but sellers are still making at least 50% on their original investments and in some cases a lot more than that,” he said in an interview last week.

“In the transactions I have seen cross my desk and in my office, there is not a single investment where people have lost money. In every case in which we have represented either the buyer or the seller, the seller has made very good money. This leads me to believe that in Phuket, Samui and Thailand in general, good properties are still a very good investment.”

Mr Collins added that “higher end” does not just mean super luxury properties in excess of $US1 million (33,180,000 baht), but includes many condominiums and mid-market houses. One seller sold a condominium he had bought for 12 million baht for 20 million baht.

He added that he has also seen people who bought properties for more than one million dollars and all of them have also made money when they wanted to sell.

Mr Collins said this means that the situation is not as bad as is perceived. Yet it has to be understood that people are more cautious about spending money now. This leads to potential buyers looking for really well managed and well designed properties, and of course properties that are completed or are being built so that they can see what they are buying.

“Selling off-plan is no longer an option in most cases, I believe.

“A lot of people are looking for properties that are linked to a hotel or a well-known company.”

Mr Collins has seen a fair bit of activity in the condominium market in Phuket, mainly because there actually are not that many condominiums on the island. The other reason is that foreigners can own 49% of the units in a building freehold and this type of a residence is less of a headache for them in terms of absentee ownership.

“But having said that, we have had clients who are very successful selling villas on a leasehold basis and I think people are getting more educated about leasehold structures.”

The past repeats itself, with most foreign buyers in the Thai market again coming from Hong Kong and Singapore, as was the case in the past. These two islands have recovered a lot faster than many other places, and there is a lot of money. These buyers are both foreign expats and natives.

“There are also a lot of Chinese buyers in the market and a lot of Russian buyers. We see expats from the region, living in places like Indonesia and Vietnam, who want to have a second home in Thailand. Some of these expats are from the Middle East,” Mr Collins added.

As he sees it, Thailand remains one of the top destinations and one of the most attractive places to have a second home.

“We also see a lot of expats who are moving to Thailand and basing themselves here. They may not necessarily work in Thailand but they want to base themselves and their families here,” said Mr Collins.

“Expats who used to own properties in places such as Brisbane are selling these properties and moving to Thailand because it’s cheaper for them and Thailand has such good infrastructure. It’s easier for them to travel anywhere in the world.”

While transactions are taking place at the higher end of resort markets, Mr Collins has not seen that many new developments coming onstream.

Although there are a lot being built and being completed, it is unlikely that there will be a lot of investment in new projects.

However, some successful developers who have sold out or who have at least got their money back are now looking around. They believe they can pick up land a bit cheaper because the market is not as crazy as it used to be.

“So they are picky and they are trying to find the best possible locations. There are developers who have done well who are looking to start new developments.”

When it comes to lingering Thai political problems, Mr Collins believes a lot of people have become immune to all the bad news.

“There has been so much bad news, there has been the Bali bombing, there has been the bird flu, there has been the trouble in the South, there have been bombs in Jakarta, there has been financial crisis worldwide … I think people are just shrugging their shoulders, and saying ‘disasters happen and life goes on’.

“As for Thai politics, people are probably so tired of everything already and kind of saying, ‘Maybe there is going to be another political crisis, but it will blow over too’.

“Politics is politics – I don’t think that will change much. There will be continued bickering between the yellow shirts and the red shirts – that is not going to go away very quickly. That is probably a process that will last for years.”

He added that Thailand remains the biggest regional market in terms of resort developments. This is mainly because it has a very mature hotel market.

Jan
10
27

The process of land tenure in Thailand follows a rich history of legal tradition and culture where all land and resources once belonged to the King. The continuum of land law and ownership go as far back as the 13th century when King Mangrai would bestow ownership to his subjects if they cleared and cultivated land for the benefit of the people for a period of three years. They could pay a small fee and register the land as their own.

In fact this custom of defacto ownership by occupancy continued until the reign of King Rama V in 1901. Known as the Royal Buddha this powerful monarch was credited with social reforms, innovation of government and territorial cessation of the British Empire.

The monarch’s reform to land tenure was also a defining moment in his reign as he introduced the idea of modern ownership as being legally distinctive to occupancy. Utilization of the land under the new system no longer gave protection of tenure occupancy once enjoyed. Real rights and security of tenure were only granted under the notion of ownership.

While this customary practice remains to this day, confusion and conflict ensued until the introduction of legislation in 1936 and The Land Code Act in 1954. With the latter remaining the most important land ownership legislation in Thailand, the act expressly states the steps that must be followed for the issue of title deeds, land protection and land allocation. In spirit it recognised the three different stages of acquiring land initiated by King Rama V: occupancy, utilization and legal possession.

Consistent with these principles the act proscribed the powers of the Director General under section 8 to “supervise and carry out acts for purpose of protection and prevention, as it may think fit, of all land which is the domaine public of State or the States property.”

Title by Registration
Innovation in the administration of land ownership came in the form of land registration. The concept of title by registration of land in Thailand was influenced by two powerful forces. Customary underpinnings of land tenure, and the rapid expansion of the Torrens system around the world, first established in South Australia in 1958, found its way to Thailand at the beginning of the 20th century.

In the common law jurisdictions of the U.K., Australia and America, “the register” was created at a time where the veracity of title could only be ascertained through documents or the “chain of title” collectively known as the Title Deeds. For a property buyer, a central system of property registration with the local authority meant he would enjoy an inalienable right to title that was once the domain of uncertainly and fraudulence.

Enshrined in Thai law, the concept of title by registration is expressed in the guiding principle of the Civil and Commercial Code by virtue of section 1373. The provision states “[w]here the property is an immovable entered in the land register, the person whose name is on the register is presumed to have possessory right over it”.

Over time the Thai version of the register gained prominence, enabling a buyer or any person to gain valuable information on the history of the land. This includes classification, previous and current ownership, zoning, servitudes rights, encumbrances by mortgage or if the land is subject to development by local government. More importantly it provides a convenient, reliable and accurate system of title by registration administered by officials at the Central Land Office or, if need be, the district lands office.

Land Classification and Rights of Ownership
In simple terms there are two types of rights to private land in Thailand, the right of possession and use of the land and, secondly, ownership by title deed. By and large traditional land claims (normally bestowed on Thai only) vary, including Por Bor Tor 5, Sor Kor 1, Tor Bor 5, Sor Por Gor 4. The common feature of these claims is they give the occupier possessory rights and rights of use only.

Yet this type of land blankets much of the Thai landscape, including the popular tourist destinations of Samui, Koh Tao and Koh Phagnan. On the whole it is used for farming and cannot be conveyed, rented or leased to another party. Neither can ownership be registered with the Land Office, other than notification filed with the district office. In addition, Thai farmers have traditionally built their homes on this land without official permission or even a building permit from the relevant authority. Overall the process of conveying this land is governed by no more than local custom, with a gentleman’s agreement handing over the notification form of possession and use with a hand shake to follow. More importantly there is no real right attached to sell or transfer it particularly to foreign buyers.

The Issue
With opportunism rife for quick money in the Thai property sector, some developers trumpet the ease of upgrading this type of land to full title rights. More poignant examples of this practice have occurred on land with Por Bor Tor 5 (PBT 5) title on Samui and Koh Phangnan. Classified as farm or forest land, it offers no more than proof that the holder has paid tax, been issued a tax number to exploit the benefits of the land and a right to occupation. Although it has been upgraded to Sor Kor 1 in the past, the next tier in Thai land classification, SK1 title has not been issued since 1972.

Under Thai land law land the process of upgrading land has to follow each tier up the chain to the strongest title – the Chanote. It cannot be finessed to the top of the chain by jumping any of the successive tiers. It has to follow process, if any. In substance the only titles offering a real right to a lease, sale, usufruct, superficies or a right of habitation are Chanote or (Nor Sor 4 Jor), Nor Sor Sam (N.S.3) and Nor Sor Sam Gor (N.S.4.G).

Conclusion
Commercial reality dictates that land with these titles has a greater market value than land without title, for the simple reason they enable the buyer good title by registration. A developer can make a killing on deals involving this type of land, yet the investors inevitably loose their money for the very reason that transaction of this nature are illegal. With legal recourse proving onerous and costly, many buyers give up and leave bitterly disappointed with the outcome. The real moral of the story is to have the land investigated by a reputable law firm before you sign off on the deal.

Oct
09
05

Samui property market at a turning point

Things look like they are about to bounce back

 
 

Not very long ago, Koh Samui’s property market was roaring ahead with promises of great riches for those who invested in the island. Although conditions have changed markedly over the past three years, the market has now reached a turning point and an adjustment is pending, says Yongyuth Chaipromprasert, CEO of the Aquarius Estate Company.

SUCCESS STORY: The Casavela condominium by Aquarius, now being operated as an hotel, received a good response from its initial purchasers and units are now changing hands at a premium over the original prices.

With his finger on the pulse of the island’s property market after the hugely successful development of the Casavela condominium, which his company now operates as the Shasa Hotel, Mr Yongyuth said the market peaked between 2004 to 2006 when many new projects were launched.

However, from that point on, a host of problems dragged this foreign-dominated market down, notably stricter application of laws against foreigners using local nominees to buy property and transfers of money to do so. A number of scandals related to fraudulently acquired land titles ensued, while national political instability affected the investment climate as well.

“These problems dragged on for two to three years, they didn’t just suddenly crop up,” says Mr Yongyuth.

Research by Aquarius shows that there are only 17 major ongoing projects – 10 condominiums and seven villa developments – on the island. The figure excludes some small developments, some of dubious legal standing.

“Our count shows that the condos in the 10 projects only total 380 units, while the villas in the seven projects are 111 in all,” he said.

Mr Yongyuth said sales were weak as many of the projects are just getting started and foreign buyers in any case are very cautious these days.

The situation is totally different at Casavela where all of the 22 units that Aquarius planned to sell have changed hands, with the company holding 10 others as revenue-generating properties. The resale prices are as high as 130,000 baht per square metre, compared to the initial price of 80,000 to 90,000 baht.

Mr Yongyuth plans another project similar to Casavela but says it probably will be on Phuket. However, the soonest it could be launched would be the middle of next year because the company is busy building and marketing its AeQua luxury condominium on Sukhumvit Soi 49 in Bangkok. “AeQua ties up 1.3 billion baht and we have to watch our cash flow.”

Despite the choppy economic conditions, AeQua has fared well with 80% of the 150 units sold so far. Almost all the buyers are Thai with foreigners only having taken three to four units.

While his company is sailing smoothly, Mr Yongyuth admitted some others might not make it through the next year or so. “The reality of business is that some will fail. Even in normal circumstances some don’t succeed so why wouldn’t there be any that don’t in these circumstances?”

Even so, the tough environment does not mean developers are not working, but they are focusing more on how best to proceed. Mr Yongyuth explained that in order to ensure success these days, a developer should reduce the amount of risk he usually takes by 20% while also putting in 20% to 30% more capital. One also might have to sell at a lower price and this goes down the chain with suppliers too having to accept lower profit margins. However, all businesses are helped by the current low lending rates.

In comparing Bangkok and the resort markets, he observed that the former is up to 80% Thai with foreigners either buying units in the secondary market or in projects they develop and sell among themselves. Buyers in Samui and Phuket are mainly foreigners with Thais not having bought more than 5% of luxury condos and villas on the bigger island.

QUIETLY OPTIMISTIC: Yongyuth Chaipromprasert, Aquarius’ CEO.

This means it is necessary to make an effort to bring foreign buyers back in order to ensure that the two islands boom once again.

Mr Yongyuth’s experience in handling both groups of buyers also shows that foreigners are a lot fussier than Thais when buying property. However this could reflect the risk of making a big purchase in alien territory and not knowing the developers, amid fears of being cheated. While this is generally the case, most foreigners do move on once the deal is done and do not make continuous demands.

Because Mr Yongyuth travels by air at least twice a month, he knows how the closure of the airports affected the mood of travellers. People started moving through the airport quickly, without any display of joviality. It was only during the four-day break last month that he again saw happy tourists taking photographs at various spots in the airport and stopping to buy sweets and magazines as they did before.

This all boils down to the difficult political situation, and as Mr Yongyuth sees it, those in charge now need to focus on how to create lasting stability and tranquility instead of short-term gamesmanship.

“There is no instance where the winner gets 100% and the loser loses 100%. Those who are winning have to consider the losers too and the losers shouldn’t be driven to lashing back,” he says. “Share and divide and give each other and don’t kill one another completely. It’s not like Chinese society where vendettas drag on for seven generations.”

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