Thailand Leasehold Revisited

Transcription

1 Colliers Radar Thailand Property Research 31 July 2017 Thailand Leasehold Revisited Proposal to offer 99-year leases in the Eastern Economic Corridor has prompted vigorous debate but is worth pursuing Accelerating success. Hubba Co-working Space

2 Contents Benefits to foreign investors... 3 Maximum leasehold term in ASEAN countries... 3 Large-scale leasehold land deals in Bangkok... 4 Benefits to Thais...5 Reactions...5 A game changer? Colliers Radar Thailand Leasehold Revisited Colliers International Thailand

3 Simon Landy Executive Chairman Thailand Surachet Kongcheep Associate Director Thailand The prospect of extending the current maximum land lease term in Thailand has surfaced again. This time, the idea is to allow 99-year leases in the three Eastern Economic Corridor (EEC) provinces to help spur investment. Will it work? The government is working on new rules that would allow investors to register a land lease for 50 years with a renewal option for another 49 years, making a total term of 99 years, if the land is located in Rayong, Chon Buri or Chachoengsao, which make up the EEC. Benefits to foreign investors As Thai law does not allow foreigners to own land except in certain special cases, but does allow them to own leases, the government sees extending the lease term as a way to attract more foreign investment. The maximum lease term under the Civil and Commercial Code (C&CC) is only 30 years, which is much shorter than in competing markets in the region, as the table below on ASEAN lease terms shows. Leases can be up to 99 years in Singapore and Malaysia and 70 years in Vietnam. Maximum leasehold term in ASEAN countries Thailand Cambodia Laos Malaysia Myanmar Philippines Singapore Vietnam Indonesia Brunei 30 years (50 years for commercial and industrial) 30 years 50 (99 years in SEZ) (75 years in SEZ) Case by case basis years 50 years years 25 years (50 years for industrial) 25 years years (99 years for residential) years 30 years 20 years years Case by case basis 3 Colliers Radar Thailand Leasehold Revisited Colliers International Thailand

4 In theory, the C&CC allows one renewal period of another 30 years, but in practice this is problematic. Since the renewal cannot be registered upfront, the parties will have to wait for the first 30-year lease to expire before they can register the second term. But that makes the renewal insecure. For instance, if the freehold underlying the lease is sold to another party, the new owner may refuse to register the renewal. The tenant s recourse would be to sue the original landowner, which is unlikely to help him get his renewal quickly. In the wake of the Asian financial crisis in the late 1990s, the government passed another act-the 1999 Leasehold Act (to give it a shorter name)-which actually allows leases of up to 50 years and a renewal of another 50 years to be registered for commercial and industrial properties only. However, in practice this hasn t really worked. Getting a lease registered under this act is not easy. Apart from a number of restrictions, the process is quite cumbersome. The proposed redevelopment of the Sivadol Building on Silom Road is one of the few successful examples using the application of this act, but most landowners and developers remain wary of it. As the following table indicates, most large-scale projects are therefore limited to 30-year leases, while most of those offering renewal options are on land owned by public sector or related landlords. Large-scale leasehold land deals in Bangkok No. Site Land Area (Rai / Hectares) Tenant Land Lord Investment Value (Million THB) Lease Period (Years) 1. One Bangkok 104 / TCC Assets (Thailand) Co., Ltd and Frasers Property Holdings (Thailand) Co., Ltd Crown Property Bureau 120, Sam Yan Mitr Town 13 / 2.08 Golden Land Property Development PLC Chulalongkorn University 8, Mixed-use project from CPN and Dusit / 3.76 Dusit Thani Plc. and Central Pattana PLC Crown Property Bureau 36, Mixed-use project on Silom Road / 1.02 Minor International PLC and Nye Estate Sivadon Co., Ltd 16, Mixed-use project on Ploen Chit Road / 0.97 Raimon Land PLC Bhatra Co., Ltd 10, Queen Sirikit Convention Center 53 / 8.48 N.C.C. Management Co.,Ltd The Treasury Department 6, Sindhorn Residence Condominium project 202 units Private Siam Sindhorn Co.,Ltd 4, Burasiri San Phi Suea Housing project 238 units Private Sansiri PLC 1, Colliers Radar Thailand Leasehold Revisited Colliers International Thailand

5 In recent years, Thai property developers have joined foreign investors in calling for a relaxation of Thailand s onerous leasehold laws. The Thai Chamber of Commerce has proposed a 99-year lease, preferably by amending the C&CC rather than the Leasehold Act, for all properties, although it is recognised that some sectors - such as agricultural and security-related land-may need to be excluded. One of the unforeseen consequences of Thailand s restrictive leasehold regime is that a culture of nominee ownership has emerged. Restricting foreign investors to 30 years has created a situation in which investors try to find a way around the restriction, resulting in the use of nominees, a general lack of transparency and, of course, institutionalised corruption. Benefits to Thais Longer leases would not only restore Thailand s competitiveness against its regional rivals, it would also - and primarily - benefit Thai consumers, landowners and developers. Banks are very reluctant to lend against properties on leases of only 30 years. A lease of over 90 years is generally considered to be almost as safe to lend against as a freehold property. So if the new rules include residential property, buyers of leasehold property should be able to access mortgage loans at a similar loan-to-value ratio as buyers of freehold property. This point is particularly relevant to low-income households. The government is keen to encourage private developers to construct low-income housing on land that would be leased from the government at low rates. This attractive idea is unlikely to work if low-income earners are unable to access decent mortgage loans. Not only would ordinary Thai citizens benefit from longer leases, the biggest winners will be Thai landowners, including the government. Those who are reluctant to sell their land will be able to offer longer leases, and therefore make much more money than before. As a major landowner in the EEC, the government would be a key beneficiary. Developers building on long-lease land will not only be able to pay more for the privilege. They will also be able to build higher quality buildings in the knowledge that there is sufficient time to earn returns on the invested capital. Owners of buildings limited to a 30-year lease are often forced to sacrifice quality as the market will be paying a discount for the product. Reactions Initial reaction has been mixed. Some fear that highly liquid foreign investors will seize the opportunity to buy large swathes of the country, effectively disenfranchising the Thais, depriving them of their birthright and, worst of all, locking countless farmers into poverty serving foreign interests. There is also a more hard-nosed commercial fear that Thai investors will lose out if they need to compete on a level playing field with deep-pocketed foreign investors for prime assets. The typical response from the pro lobby is that, first, we are talking about leasehold only, so the freehold land will still be owned by Thais, with the lessee (who, by the way, could be Thai or foreign) only owning a subsidiary interest for the length of the lease. 5 Colliers Radar Thailand Leasehold Revisited Colliers International Thailand

6 Second, many large Thai corporations already own large swathes of Thailand, so the poor are already often experiencing the effect of such loss of ownership and a change to the law is unlikely to make their situation better or worse. Third, even if the land is held by foreigners, they will eventually go home and they can t take the land with them. A game changer? The impact of 99-year leases in the EEC will depend on the details of the rules when promulgated. At this stage, it is unclear whether all land (or just government land) in the three provinces will be eligible, whether it will cover residential property as well as commercial, and whether there will be specific qualifications required for either developers or projects. These funds, being more institutional, would be greatly beneficial to Thailand s property market. Without this source of money, the Thai market will remain relatively immature and undeveloped - and potentially more volatile. As a major landowner in the EEC, the government would be a key beneficiary. Developers building on long-lease land will not only be able to pay more for the privilege. They will also be able to build higher quality buildings in the knowledge that there is sufficient time to earn returns on the invested capital. If the new rules really do simplify processes - possibly by allowing for registration of the second 49-year term on day one - and include residential property, the impact on the EEC property markets could be significant. However, as a means of attracting foreign investment in the industrial sector, the benefits are less clear to see. Foreign investors in Thailand are already allowed to own their land on a freehold basis if it is in an Industrial Estate Authority of Thailand s (IEAT) zone or if it is for an activity promoted by the Board of Investment (BoI), which usually means a factory but can include certain types of hotels and other properties. This benefit far outweighs a longlease allowance and is already available. But outside of the BoI/IEAT orbit, the new rule could certainly result in increased investment activity by foreign investors who currently gravitate to the more liberal land regimes of Singapore, Malaysia and even Vietnam. 6 Colliers Radar Thailand Leasehold Revisited Colliers International Thailand

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