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New Additional Law on Real Estate Passed: An Uphill Task
A new law on real estate has been passed, stirring controversy. Many organizations oppose it, claiming it "sells out the nation," while government sectors and 18 real estate associations argue that it will stimulate the economy.
Dr. Sopon Pornchokchai, President of the Thai Real Estate Information Center and Agency for Real Estate Affairs Co., Ltd., and President of the International Real Estate Trade Association, expressed his concerns by submitting a letter to the Prime Minister, Mr. Settha Thavisin, as well as other key ministers, including Mr. Varawut Silpa-archa, Mr. Anutin Charnvirakul, and Mr. Phumtham Vejjayachai. The content of the letter can be summarized as follows:
1. Leasing Land to Foreigners for 99 Years
Dr. Sopon argues that this duration is excessive. In other countries like China, Myanmar, Cambodia, and Vietnam, land is leased for 50 years, with some economic zones allowing 70-year leases. Countries like Indonesia and Laos offer 30-year leases, and Singapore has revised its rules to cap leases at 60 years.
2. Allowing Foreigners to Own 75% of Condominiums
The new law would allow foreign ownership of up to 75% of condominiums, up from the current 49%. Dr. Sopon believes this could increase the risk of mobile capital groups engaging in illegal activities such as money laundering, gray business, and crime, posing a threat to national security. This policy contrasts with limits in other countries: Vietnam caps foreign ownership at 30%, Indonesia at 49%, and Malaysia at 50%.
Recommendations:
Dr. Sopon suggests that instead of relaxing restrictions, the government should implement tax measures to benefit the nation and maintain security:
1. Impose a 10% purchase tax: Countries like Europe, Hong Kong, and Singapore impose purchase taxes of 20%, 30%, and 60% respectively.
2. Land and building tax: Set at 1% of the market price (compared to 1-3% in the U.S.).
3. Profit tax on resale: Impose a 20% tax on profits from resale, similar to U.S. practices.
4. Inheritance tax: Collect 20% inheritance tax (international norms range from 20-50%).
5. Set a minimum price for foreign buyers: Similar to Indonesia (10 million baht) and Malaysia (16 million baht), Thailand should set a minimum of 10 million baht to ensure affordable housing for lower- and middle-income citizens.
6. Limit resale by foreigners: Prohibit foreigners from reselling property for the first three years to prevent speculation.
7. Restrict foreign mortgages: Limit foreigners to securing no more than 50% of the property’s mortgage value from Thai financial institutions.
Case Study: Phuket Real Estate
In the first quarter of 2024, there were 282 resort and villa projects in Phuket with 30,360 units, worth 325.093 billion baht. If 100 billion baht is sold annually, the government could collect substantial tax revenue:
1. Land and building tax: 1% of the market price, amounting to 1 billion baht.
2. Resale tax: A 20% tax on resale profits could yield 2 billion baht.
3. Inheritance tax: Assuming 5% of the market value, this could generate 500 million baht.
4. Purchase tax: A 10% tax could generate 10-13.5 billion baht annually from Phuket alone and 135 billion baht nationwide.
Moreover, an amnesty for gray market trading could generate an additional 200-300 billion baht to develop the country. These tax revenues would ensure foreigners pay for the security of their housing, reducing illegal leasing schemes.
Reactions from Politicians and Experts
MP Supanat Meenchainan of the Move Forward Party expressed concerns about the rapid law changes, noting that extending lease periods from 30 to 99 years and allowing foreigners to own 75% of condominiums is excessive. He warned this could lead to entire buildings being sold to foreign buyers, driving up property prices and making housing unaffordable for Thais.
Dr. Somchai Phakphasawiwat, an independent political economist, advised that limits should be set for foreigners, particularly in tourist areas and the EEC, to prevent widespread land purchases. He emphasized that strict controls are necessary to ensure foreign ownership does not undermine national security.
Government's Perspective
Despite opposition, the Prime Minister and 18 real estate associations argue that the new law would benefit the economy. The Prime Minister, Mr. Settha Thavisin, explained that the long-term lease plan is not the same as selling land. He clarified that the proposed increase in foreign ownership of condominiums would not give foreigners voting rights, but would allow them to reside in the properties.
Deputy Minister of the Interior, Mr. Chada Thaiset, also highlighted the law’s potential to stimulate the macroeconomy, stressing the need for careful consideration to balance economic benefits with national security.
Industry Reactions
Mr. Prasert Taedulyasatit, President of the Thai Condominium Association and a representative of 18 real estate associations, stated that:
1. The law benefits lessors as they retain land ownership while securing long-term income.
2. It ensures regulation of foreign residences, with Thai nationals maintaining control over land through ownership and voting rights.
3. Foreign buyers would pay higher taxes and fees, which could fund housing initiatives for lower-income Thais.
4. Taxation on undeveloped land would prevent speculative investments.
5. Legal measures would enhance transparency, reducing illegal ownership schemes and improving tax collection.
