Investment in property has been recognized as the unfailing means of acquiring wealth. The phrase ‘safe as a house’ is clichéd. Yet, it is the only truth in the context of return on investment scenario. Return on investment in property is a slow process. However, it is an investment that never fails. History also testifies to the fact that investment in property is a minimal risk investment. The return from the property, services the investment. The net worth grows over time and generates income for further investments in property.
Like any other investment, Property investment is a skill which has to be learned. The investor must be aware that there are risks attached to any kind of investment. He must also consciously acknowledge the fact that during the process of investment the risks attached seem to be magnified. He must also accept that, the right choice of property, combined with considered management are absolute essentials in any property investment. Property investment is a serious business that requires the right kind of commitment.
Before actually launching into the purchase of a property, the investor must be clear as to the purpose of investment. If investment may be for:
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Personal use
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To buy and Let
The purpose will determine the type and location of the property. In the former instance property may have to be located close to the place of work or near an educational institution. The type of property may not per se be of importance. Its location may be important. In the latter case all aspects of the property assumes importance. It is a property purchased as an investment and the investor expects a return on property investment.
Investment Property should be selected keeping in mind the following environmental factors:
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High employment area
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Attractive buildings and surroundings
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Public Transport facilities
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High capital growth
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Developing areas
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Low maintenance costs
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High demand by letting agents
The Return on Investment (ROI) expected will include factors such as
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Appreciation of the asset
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Regularity of rental income
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Long term stable tenants
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Care by property managers.
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Tax benefits
Investing in foreign countries requires an understanding of the laws and systems as it impacts on investment by foreigners. It also requires an understanding of the socio-economic fabric of the country as it will have a bearing on the value of the property. Therefore, before investing in property in a foreign land requires the investor to stay in the country for some time or a study of the socio-economic-demographic and political setup of the country in so far as it impacts on foreign investment in the country.
Investment in Thailand.
Investment Environment
Thailand ranks 3rd in Investment destinations. Thailand has been showing consistent growth in GDP and exports. The economy grew at an impressive rate of 3.5% to 4.5% during 2003-05. Foreign investors are looking towards Thailand to relocate manufacturing operations. The Thai government is proactive in this area and the nation has a stable political and social environment. The location of Thailand also makes market access criteria important, as it is the spring board for South East Asia.
Thailand has a population of 60 million people and the growing domestic market and the quality of human capital act as incentives to the foreign investor.
The Thailand Board of Investment (BOI) promotes agriculture, fashion, Automotive assembly, electronic industries and high value services such as call centers etc. The Revenue Department has introduced a number of incentives for foreigners investing in Thailand. Corporate tax has been reduced to 10% on services, royalties and interest received from branches or associated enterprises for loans made from other sources. Tax exemptions are given on dividends received from Regional Operating Headquarters (ROH). The Thai Governments efforts to promote e-Learning and e-governance has acted as a booster to the electronics industry.
The Thai Government has also been making all out efforts to increase the competitiveness of the investment sector. The Government has launched a number of schemes to improve quality of investment in Thailand. Knowledge development, skill building, cluster development, customized incentive packages are all directed towards improving the quality of investment in Thailand.
Definition of “Foreign” and restrictions on foreigners
Liberalization of foreign ownership of land is being contemplated by the Thai Government but is as yet a dream. Under the Thailand code foreign ownership is defined as ownership by a foreign individual or company. A Thai company in which ½ the capital is owned by foreign entities or ½ the shares are owned by foreigners, is a foreign company. A registered partnership in which a foreign individual or company is the managing partner is defined as a foreign entity.
Foreign owners who acquired land under some bilateral agreement (which has since expired) may continue to hold the land so acquired. However, no new investment is allowed except in the ownership of condominium units and industrial land.
Condominium units.
Foreign investors can own units in condominiums up to 40% of the total units available. However, even this permission is restricted to certain types of foreigners only. These include:
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foreign investors who are permanent residents in Thailand under the Immigration act
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foreign investors who were permitted to enter Thailand under the Investment Promotion Act.
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Thai entities who are deemed to be foreign investors as defined above.
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foreign entities who have been granted a certificate of promotion under the Investment Promotion act.
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Other foreign investors who are both natural and juristic persons and who have brought foreign currency into Thai land to purchase condominium units.
Industrial land
Investment in industrial projects by foreigners are governed by two types of programs.
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Companies can apply to the Thai Board of Investment for purchase of land for factory sites or for residential purposes. The permission for the same is given subject to examination of the contents of the application by the BOI. However, permission is granted as a rule.
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The ownership of industrial land(in Industrial areas only) by foreign investors can be permitted by the Industrial Estate Authority of Thailand.
Indirect Investment
Investment in mutual funds, Joint ventures and secured lending (mortgage backed securities) are three types of investments that are considered to be indirect investment in land and real estate in Thailand. The funds from such investments are ultimately invested in land.
The Thai government has passed a number of laws relating to mutual real estate funds owned by foreign institutional investors. The restriction of 49% has been lifted and now 100% investment for foreign mutual funds in property has become possible. The precondition is that the mutual fund
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must be registered with Thai SEC by May 24, 1999
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It must have a capital of Baht 500 minimum.
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All the investors must be institutional investors
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The number of investors must be at least 10
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Each person should not own more than 10% of total outstanding.
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The fund must have an investment manager which is a Thai Company licensed to carry on a fund management business.
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75% of the fund’s net asset value must be invested in real estate or property related debts.
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25% must be invested in debt instruments.
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The real estate investments must be held for at least a period of two years
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The scope and size of investments should not be increased for a period of five years.
Joint ventures
Thai joint ventures between Thai and foreign companies are permitted to own property in Thailand. One half of the share capital must be held by the foreign investor. The control of the company is immaterial; it is investment that is considered in this context. Ownership of Shares therefore is defined in a number of ways to achieve this end. 51% of the shares may be held by a Thai partner and designated as “preference shares” with specifically designated powers. Voting rights and dividend distribution are differently defined. It is advisable to obtain legal advice on this issue.
Real estate securities
Foreign lenders can lend against Thai real estate. In case of default the mortgagee can purchase a mortgaged building at an auction or sell the property at an auction. They are also permitted to take interest in securitization of Thai real estate mortgages. Theoretically they can have a Special purpose vehicle to buy debt from Thai originators. However, in practice the permissions are difficult to come by.
Thai real estate security values are dependent upon the rules for foreclosure of such securities. The foreclosure can be affected by the Government under the Thai Civil and Commercial Code. A new law is being drafted to clarify and streamline this process. |
