Visitors examine sales campaigns at a recent house and condo event in Bangkok. Mr Vichai says condo demand from foreign buyers has continued to grow, unlike demand from Thais, which has weakened. Varuth Hirunyatheb

The cabinet last month resurrected the controversial issue of offering more welcoming residential property measures for foreign buyers.

The previous government attempted to do likewise, but eventually pulled back after receiving overwhelming negative feedback.

This time, Prime Minister Srettha Thavisin defended the idea of increasing the foreign ownership quota for condos to 75% and extending leasehold contracts to 99 years, as soon as this topic was leaked to the media.

Though these policies have yet to be approved, they once again led to disagreement among related parties, with claims of minimal benefits and several loopholes.

JUSTIFICATION

After receiving a proposal from seven real estate associations, two key factors nudged the premier to revive these policies: weak demand from local buyers and foreigners using Thai nominees to own local residential properties.

According to the Real Estate Information Center (REIC), the number of residential units, both new and second-hand, that transferred nationwide declined year-on-year for five consecutive quarters from the first quarter of 2023 to the first quarter of 2024.

The decline also increased for each quarter, tallying 0.8%, 4.4%, 6.9%, 12.7% and 13.8%, respectively.

For each of these five quarters, low-rise houses had a larger plunge than condos as almost 100% of the demand for low-rise houses came from Thais who, particularly in the middle to lower-end segments, faced several negative factors in recent years.

These factors included slow economic growth, rising living costs and higher expenses, which made it increasingly difficult for them to afford a housing unit.

Many buyers were unable to secure mortgage approvals because of five interest rate hikes throughout 2023, which affected their home purchasing power, said the REIC.

From the first quarter of 2023 to the first quarter of 2024, the number of low-rise houses transferred nationwide dropped by 6.8%, 7.7%, 9.3%, 13.5% and 18.9%, respectively, consistent with the overall trend.

Conversely, the number of condos transferred nationwide in the past five quarters either grew against the total or experienced lower declines in some quarters.

Condo transfers grew 18.7% and 4.9% in the first and second quarters of last year, before declining 1.2%, 11% and 0.6% from the third quarter of 2023 to the first quarter of 2024.

The key driver was demand from foreign buyers as the proportion of foreigners receiving condo transfers reached new highs from the third quarter of 2022.

The same trend was observed in terms of value, with foreigners accounting for more than 20% since the third quarter of 2022, reaching a new peak in the first quarter of this year at 28.6%.

"Condo demand from foreign buyers has continued to grow, unlike demand from Thais, which has been consistently weaker," said Vichai Viratkapan, acting director-general of REIC.

"Increasing demand from foreigners may be necessary if we want to stimulate the market."

SEA, SAND AND MONEY

Thanks to soaring demand from foreign buyers, new condo supply has been focused in major resort destinations where most buyers were not locals, according to property consultant Colliers Thailand.

The combined number and value of new condo units launched in Phuket and Pattaya in the first quarter of 2024 was larger than the totals in Greater Bangkok for the first time in more than a decade, with 15 projects and a total of 7,831 units worth 41.1 billion baht, according to Colliers.

"The overall condo sales rate in Phuket was 66%, with many projects selling out quicker than expected," said Phattarachai Taweewong, director of the research department at Colliers Thailand. "Demand was largely from foreigners, particularly Russians."

Foreign demand was also robust for villas. The villa sales rate at many projects was more than 80%, despite a large number of new villas launched, with 1,108 units in 2023 and 237 units in the first quarter of 2024, said Mr Phattarachai.

Buyers in the first quarter this year were from China, Hong Kong, Singapore, Germany and Denmark, but the majority were Russians who bought for their own use and as an investment.

Many villa buyers purchased the units under a leasehold contract with a 30-year term and an extension of 30 years.

Leasehold ownership was also applied at some condo projects where the foreign quota of 49% was fully occupied, he said.

However, some used Thai nominees to set up a Thai firm to own a landed house, as lawyers advised this method was more secure than a leasehold contract, which was too short for the buyers, said Mr Phattarachai.

"In Phuket, a leasehold period is 30 years plus 30 as a minimum. Some projects offer 90 or 120 years in a single agreement," said Nattha Kahapana, managing director of property consultant Knight Frank Thailand.

He said nominee firms holding a landed house or even a condo unit for foreigners who set up the companies have become less popular because of a crackdown on the practice.

As a result, the real owners rent out the units owned by their firms to avoid any impact from the crackdown, as the leasehold contract is protected by law if anything happens to the firms.

Issara Boonyoung, honorary president of the Housing Business Association, said owning properties through Thai firms created a loophole that made scrutiny more difficult.

"We cannot check who are the real property owners or whether the real owners are operating in a grey area," said Mr Issara. "They are uncovered only when there's an issue, which might be too late to sort out the issue."

Thailand also loses out on collecting tax from property transfers by Thai nominees, as they are not required to declare the value of the transfer, and in many cases the transaction is conducted overseas.

PROPOSALS AND SAFEGUARDS

According to the seven real estate associations, the increase of the foreign ownership quota for condos and the leasehold period would help to restructure the industry.

The measures aim to regulate foreign residency in a lawful, honest and transparent manner, ensuring maximum benefits for the economy, society and everyone in Thailand, said the group.

"The increase in the foreign ownership quota for condos will support foreigners wishing to invest or reside in Thailand by enabling them to purchase residential properties legally," said Mr Issara.

The hike would also address issues related to improper property acquisition or ownership, he said.

To prevent indirect land ownership or any impact on the residential rights of Thai citizens in condos, additional regulations should be introduced, such as requiring foreigners to relinquish voting rights for ownership exceeding 49%, said Mr Issara.

There could be a restriction on land size of less than five rai for projects where foreigners hold ownership rights from 49% to 75%, aiming to prevent indirect land ownership, he said.

Mr Issara said higher registration fees and property taxes could be levied on foreigners than Thai nationals, with the surplus collection directed to a fund that supports low to middle-income Thai households to reduce long-term inequality.

Other regulations may include allowing only Thai nationals to be managers or presidents of the juristic office in a condo project, and restricting the number of foreign committee members in the juristic office to less than half.

"The extra quota should be allowed only in locations where foreigners constitute the majority of condo buyers, or where condo units are unaffordable for the Thai majority, such as Bangkok, Phuket and Pattaya," he said.

Some locations, such as those near industrial estates where foreign investors are encouraged to set up factories, may also attract their compatriots to reside and work.

Mr Issara said this practice is not new. It was applied in 1999, allowing foreigners to own up to 100% of condo units for a period of five years. The policy was intended to address the financial crisis of the late 1990s.

At the time, additional regulations were implemented to safeguard the residential rights of Thai citizens in condos.

Throughout this five-year period, there was no impact on the ability of Thai citizens to purchase or reside in condos, he said.

"If Thailand aims to attract foreign investment, extending the leasehold period to 99 years will provide greater residential stability for foreign nationals," said Mr Issara.

Furthermore, he said lease agreements should be amended to take greater care of property rights, ensuring stability for leaseholders, unlike current lease agreements that terminate upon the death of either party.

Mr Issara said lease agreements considered as property rights can also serve as collateral for obtaining loans from financial institutions, and they should be able to be inherited.

The extension of leaseholds to 99 years would also benefit Thai investors, as it would make investments more feasible, he said.

Regarding indirect land ownership by foreigners and land use for farming, legal frameworks can be established to regulate land use according to urban planning regulations, zoning requirements, or specific land area allocations for foreign leases, said Mr Issara.

"To minimise concerns about foreigners leasing land for investment purposes, the rules may set a maximum size of less than five rai and restrict it to residential use," he said.

CONCERNS AND SUGGESTIONS

Surachet Kongcheep, managing director of consultant Property DNA, said the increased foreign ownership quota for condos would help absorb unsold units, totalling more than 83,600 units worth 364 billion baht in Greater Bangkok alone.

"This would bring in significant foreign investment to the country," he said. "However, transactions should only be allowed for individuals."

Legal entities should not be permitted to purchase condos as they might buy them in bulk for rental or resale purposes, said Mr Surachet. Rules should also specify the property must be held for at least three years before it can be sold or transferred to another individual, he said.

Some developers may opt to sell their condos at higher prices exclusively to foreigners, said Mr Surachet. Selling up to 75% of units to foreigners could yield profits for the project, with the remaining units potentially offered to Thai buyers at discounted prices, he said.

"This approach could drive the condo market based on foreign demand, encouraging developers to launch new projects primarily targeting international buyers. However, it would distort the market as it doesn't align with local demand," Mr Surachet said.

However, the benefit from a higher foreign ownership quota for condos may be minimal as not many projects have reached the full foreign quota. In addition, imposing higher fees or taxes on these units may drive up selling prices, likely making them less attractive to foreign buyers.

Condo prices may be irrationally distorted, as happened in many countries when Chinese buyers entered the market, driving prices up, he said.

"Canada passed laws prohibiting the sale of property to foreigners for up to two years because of rapid price increases driven by an influx of foreign purchases, with prices skyrocketing beyond what locals could afford," said Mr Surachet.

He said some foreign developers may invest 100% independently, selling up to 75% to their own nationals with the remainder held under a corporate entity for future sale or lease.