Bangkok Post : Financing property ownership in Thailand
Last week we covered the ownership of property by foreigners in Thailand and some of the pitfalls and possibilities. This gives rise to the question of how foreigners can actually finance the purchase of a property here.
Currently foreign ownership of property in Thailand is restricted to strata title leasehold apartments and condominiums for the vast majority. Some methods are available to own land but these are rare and sometimes not quite legal.
There are six major methods to finance the ownership of a property in Thailand and today we will look at three of them.
1. Cash is king: Until very recently this was the most common method of purchasing property in Thailand. As an expat owner it was expected that you would have sufficient resources to produce the cash required. Comparative prices have now increased and made property more expensive. This is partly because there are more sources of finance and these have also become more commonly available to Thai nationals. Demand by foreigners has also increased, pushing prices higher.
2. Local mortgage finance: In recent years Thai banks have vastly expanded the variety of mortgage products available to Thai nationals. A limited umber of Thai banks also consider applications by foreigners, and many restrictions apply if you are not Thai.
Foreign banks that have local operating licences may also offer mortgage financing. Because a foreign bank may not have legal title to land, it must have a local bank licence status to enter this market sector. To my knowledge there is only one foreign bank with a local licence offering mortgages to expats here.
At present the rules applied by the banks offering mortgages to expats say that you must have a current valid work permit for Thailand and it must have been held for at least a year, or sometimes two. So, if you are retired or if you do not live in Thailand but wish to invest, you are highly unlikely to be granted such facilities.
Mortgages are generally offered for 10 to 15 years, with a maximum loan repayment completion age of 60, and at a loan-to-value (LTV) ratio of approximately 60% of the property value. Interest-only loans are not offered, so you must have a repayment mortgage loan to be reduced to zero over a relatively short period.
While there are no official figures on the success rate of mortgage applications by foreigners, anecdotal evidence suggests it is very low at just 5-10%. This shows just how difficult it is to obtain this type of finance.
3. Owner or developer finance: This is a relatively new method and is largely used for foreigners because of the difficulties they encounter when trying to finance a property purchase. The arrangement is simple, based on an agreement to purchase a property from a seller, partly using instalments to pay the price. Developers will tend to offer averages of, say, 25% of the purchase price to be paid over a period of, say, five years or more.
Depending on the individual agreement, financing may be granted at a nominal or very low interest rate. So, if you see a condominium for sale but you do not have all the finance in place, there may be a way to arrange this with the developer. In the case of a new development, there may be some time between the purchase date and the project completion date. During this period you may be able to accumulate more resources for your purchase.
A private purchase may also use this method. Where the seller is an individual this may make the difference between a fast sale and a long wait for the seller to realise the transaction. It may also help you secure your property where you weren't quite able to raise the necessary funding.
Be careful and make sure to have any agreement drawn up by a lawyer to ensure both parties are protected, and have your own lawyer review this agreement to make sure it will be acceptable to you.
All three of the above approaches may seem a bit daunting. Next week we will discuss the three other options that are more popular with expats, and with which they seem to have more success.
Currently foreign ownership of property in Thailand is restricted to strata title leasehold apartments and condominiums for the vast majority. Some methods are available to own land but these are rare and sometimes not quite legal.
There are six major methods to finance the ownership of a property in Thailand and today we will look at three of them.
1. Cash is king: Until very recently this was the most common method of purchasing property in Thailand. As an expat owner it was expected that you would have sufficient resources to produce the cash required. Comparative prices have now increased and made property more expensive. This is partly because there are more sources of finance and these have also become more commonly available to Thai nationals. Demand by foreigners has also increased, pushing prices higher.
2. Local mortgage finance: In recent years Thai banks have vastly expanded the variety of mortgage products available to Thai nationals. A limited umber of Thai banks also consider applications by foreigners, and many restrictions apply if you are not Thai.
Foreign banks that have local operating licences may also offer mortgage financing. Because a foreign bank may not have legal title to land, it must have a local bank licence status to enter this market sector. To my knowledge there is only one foreign bank with a local licence offering mortgages to expats here.
At present the rules applied by the banks offering mortgages to expats say that you must have a current valid work permit for Thailand and it must have been held for at least a year, or sometimes two. So, if you are retired or if you do not live in Thailand but wish to invest, you are highly unlikely to be granted such facilities.
Mortgages are generally offered for 10 to 15 years, with a maximum loan repayment completion age of 60, and at a loan-to-value (LTV) ratio of approximately 60% of the property value. Interest-only loans are not offered, so you must have a repayment mortgage loan to be reduced to zero over a relatively short period.
While there are no official figures on the success rate of mortgage applications by foreigners, anecdotal evidence suggests it is very low at just 5-10%. This shows just how difficult it is to obtain this type of finance.
3. Owner or developer finance: This is a relatively new method and is largely used for foreigners because of the difficulties they encounter when trying to finance a property purchase. The arrangement is simple, based on an agreement to purchase a property from a seller, partly using instalments to pay the price. Developers will tend to offer averages of, say, 25% of the purchase price to be paid over a period of, say, five years or more.
Depending on the individual agreement, financing may be granted at a nominal or very low interest rate. So, if you see a condominium for sale but you do not have all the finance in place, there may be a way to arrange this with the developer. In the case of a new development, there may be some time between the purchase date and the project completion date. During this period you may be able to accumulate more resources for your purchase.
A private purchase may also use this method. Where the seller is an individual this may make the difference between a fast sale and a long wait for the seller to realise the transaction. It may also help you secure your property where you weren't quite able to raise the necessary funding.
Be careful and make sure to have any agreement drawn up by a lawyer to ensure both parties are protected, and have your own lawyer review this agreement to make sure it will be acceptable to you.
All three of the above approaches may seem a bit daunting. Next week we will discuss the three other options that are more popular with expats, and with which they seem to have more success.
