LEVERAGE YOUR PROPERTY INVESTMENT BUYING POWER

By Marc Holt

Do you dream of owning a little piece of paradise, or plan to invest in a property hot spot abroad? Perhaps one of the biggest obstacles for foreigners buying property in Thailand has been the lack of financing.

Although some Thai banks said they would give foreigners financing, I have never actually heard of anyone getting the money unless they fulfilled a stringent set of requirements. Foremost of these was that they had to live and work here, have a well paying job or own a business, show tax receipts for at least the last three years, be married to a Thai, have at least a Residence Permit, and much more.

All this has changed recently with the emergence of at least two companies willing to lend money to foreigners. Now we can choose from a range of financial packages that will allow us to invest in the property of our dreams while living overseas.

Not only is there the problem of obtaining credit secured on Thai property. For many foreigners there are also difficulties in creating and maintaining special purpose-companies on an ongoing basis to the satisfaction of Thai Revenue Department, Ministry of Commerce, etc. At this stage, there are no plans to change the law to give foreigners the opportunity to own land.

The only alternatives until now have been to:

• Register the property in a Thai spouse's name. But what happens if you separate, divorce, or your spouse dies? Or what if your spouse goes bankrupt?
• Register in the name of a Thai nominee using a pre-signed transfer form. This carries the same dangers as number 1, but can be even riskier.
• Or, register in the name of a special purpose company, but then you have all the requirements, costs and compliance of maintaining a company. In addition, it is advisable to ensure that all Thai partners actually receive a share in any profits, or are actually employed by the company, to avoid problems with the Interior Ministry ruling. You can not use Thai nominee partners any more!

Generally, this third route has been the most often used. But it's vital to take good legal advice and ensure that the company is properly set up, otherwise this can create more problems than it solves.

Mortgage on Property owned outside Thailand

The first company I met with will consider applications for property purchase loans provided the applicant has property in designated countries they can use as collateral for the loan. They offer free advice initially and can agree a mortgage in advance of purchase. They will help you with your mortgage administration right up to the point of completion. Broker fees may be payable for some types of loans.

If you want to buy property in different countries they can unlock the value of your existing property to pay for your property abroad. They currently release capital from properties in UK, USA, Spain, Hong Kong, France, Canada, Australia and New Zealand. Dubai is to be added soon.

If you already own property in any of these countries, you can raise capital by releasing some of the value (the equity) of your property that may have built up over the years, without having to sell your property. The equity is the difference between the current outstanding mortgage and the actual value of the property.

If the property is already mortgaged to another lender, they can arrange refinancing of the existing loan as well as providing the new finance.

All loans are made from leading International banks and since this broker is independent the banks are chosen based on security, rates, and ease of administration. Loans are always available with no quota limits since there is always a bank ready to lend to suitable clients. Loans are primarily interest only, available as multi-currency and you pay the banks the interest payments every 3 months. The outstanding loan is repaid using a bank approved savings scheme. Because it is located for tax reasons in a zero tax area and the benefits include no tax at source on any of the funds growth, it is on average 20% more efficient than a local taxed product.

The savings schemes use household names including Fidelity, HSBC, Morgan Stanley, and many others, after fees the net target return for an average client is 8% per annum.

Since the banks hold your foreign property as collateral they are protected and therefore happy to advance cash for many different ventures including the purchase of land, resorts or indeed a luxury yacht. For the entrepreneurs they will even lend monies for you to buy an existing business. In all cases, you have to have an income that can support the loan repayments. If you are retired the banks may still provide a loan based on your overall financial situation.

Lease to Purchase

A well-known international financial services group backs the second company. They work hand-in-hand with international and Thai banks. As a result, they can offer a wide range of financial services. They are a Thai registered company with expatriate managers who have been Thai residents for more than 12 years. They specialize in property valuation and research, property and general debt transactions and personal finance. Their most popular service is leasing to purchase a property. This is an ideal solution to owning property in Thailand without having to worry about setting up a Thai registered company with Thai nominees.

Now, wouldn't you like to leverage your purchase price into a better, more valuable property and still only repay what you can afford each month? You could finish up with a property worth much more in the future and make a very good profit when it's time to sell. Lease Purchase is one of the best ways to achieve this goal.

You enter into either a hire purchase or a leasing arrangement that includes the option to buy. In this instance, you as a foreign individual can select a house to occupy as a long-term tenant. All you have to pay is an initial lease premium equivalent to at least 30% of the assessed value, or the transaction value (whichever is lower), of the property to the company. Then you pay a rental based on the cost of servicing an interest-only loan.

In other words, a Lease Purchase plan allows you to easily buy a property worth 3 times the money you have in hand right now!

So, if you decide to buy a property costing 10 Million Baht today, put down a 30% deposit on it, and then lease it for a pre-agreed period of years you could then decide to repay the amount owing and have the following options:

1. Move out from the property (maybe to a different property, maybe to return to your home country.) You can then sell the property and retain the proceeds.
2. Or, you can transfer the property to anyone you choose (maybe by then you will have children with Thai nationality.)
3. Or, you can continue to rent the property at a purely nominal rent from the company until you are in a position to do 1 or 2 above

How secure is this?

The property remains subject to a mortgage from the lending institution until it is fully discharged (by repayment of the lease purchase facility). If the lease purchaser defaults on the lease purchase, eviction procedures can be initiated (much simpler than foreclosure proceedings). The leasing company will help you plan to fully insure all debt obligations that they process so that there should be no uninsured credit risk to the lessee. A guarantee of lease payments (3 years) is included for all lessees. The lease plan will normally include life coverage so that upon the death of the lessee the property can be transferred to, or held in trust for, beneficiaries.

How competitive is this?

For a single monthly payment, a foreign individual can enter into beneficial ownership. This would be done under the leasing terms, which should in most cases be competitive alongside the more traditional methods of property purchase and funding in Thailand, taking into account the risks of ownership of traditional purchase methods. Best of all, you don't have to worry about breaking the law to have your own home!

Other Financial Options

The company offers even more ways to invest in a property besides the "Lease Purchase" program. They can help secure a traditional Thai mortgage, or help you use overseas property to get money to purchase Thai property, or you can use the Lease Purchase program. No matter which option you choose, you now have more choices and you can increase your buying power without having to take the risks we previously ran to buy property in Thailand.

to send us an Inquiry Form and we will send you an application form and answer any questions you have.

Last edited and updated: 12 April 2007

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