Legislative reform in various stages of consideration and implementation could help boost the property market, with positive effects for the wider economy. In particular, the liberalisation of land laws is expected to result in more investment and the optimal use of assets. However, change can also create challenges. Short-term disruptions may occur as laws work to correct historical hurdles, and new regulations can result in push back from certain stakeholders.
Long Leases
One issue being debated by the government is the extension of land leases for foreign investors to a maximum of 99 years in the provinces of Rayong, Chonburi and Chachoengsao. These areas make up the Eastern Economic Corridor, a part of the country targeted for wide-ranging development projects (see Trade & Investment chapter). The current maximum duration of a land lease in Thailand is 30 years, extendable for an additional 30 years – relatively short by ASEAN standards. Leases of 50 years are also available for commercial and industrial property under the Leasehold Act of 1999, but the process is very complex and rarely used, according to international real estate consultancy Colliers. The proposal – which would offer foreign investors an initial lease period of 50 years, renewable for another 49 years – would be a positive development for those seeking real estate in the country.
The current short lease period of 30 years has been a roadblock to development, as investors say the restriction does not provide for the security they require. As a result, a culture of nominee ownership – in which a Thai national acts as the rightful owner of the property – has emerged to allow for longer holding periods. This has resulted in a lack of transparency in land transactions. Property value is also negatively affected by the current lease duration. According to Colliers, leases of less than 50 years are heavily discounted in relation to freehold property, while those over 90 years trade very close to freehold value.
Significantly, Colliers notes that the proposed extension to lease durations would be implemented as an amendment to the Leasehold Act. This would structure the initial 50-year period much like the current 50-year lease, which is difficult to obtain. Analysts instead recommend that the changes be enacted via the Civil and Commercial Code, leading to more material impact that would prove attractive to international investors and improve the market.
However, the proposal is facing resistance from some. There is a fear that Thai investors will not be able to compete with better capitalised foreigners and that poorer individuals will be driven off their land.
Taxing Questions
Another game changer is tax reform. A bill has been prepared that will replace the House and Land Tax with a Land and Buildings Tax, which will be calculated as a percentage of assessed property value, rather than as a percentage of annual rent. The new levy will also be more progressive than the current tax, which is charged at a flat rate.
Additionally, not all property will be treated equally under the new tax. Agricultural land will attract a rate of 0.05% with an exemption for properties below BT50m ($1.4m), while residential property will also be taxed at 0.05% for first homes worth over BT20m ($579,000). Second homes will be charged rates from 0.03% with no exemption. Property for commercial and other use is to be taxed up to a rate of 1.5%.
Most importantly, perhaps, is that unused or vacant property will be taxed starting at 2%, with an increase of 0.5% every three years for a maximum rate equalling 5% of the property value. While opponents believe this will raise the cost of construction, especially for condominiums, supporters say the tax will incentivise owners to either sell or utilise vacant space.
Property value will be assessed every four years by employing a Treasury-determined standard building price, and taxes will be adjusted accordingly. The new tax will become effective beginning January 1, 2019.
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