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There is some confusion over the law for foreign purchases of condominiums in Thailand. Most developers and government officials agree that foreigners can buy up to 49% of the units in any one condominium building. However, the law used to limit foreign ownership at 40%, and this was increased to 49% on a five-year basis. This five-year period has now expired and so the limit should revert back to 40%. However, most people are still working on the 49% rule, meaning that many new condominium units perhaps are being sold to foreigners illegally.
For the purposes of this article, let's assume that the law actually allows 49% (as is the common belief). I recently visited a very nice luxury condominium in the Sukhumvit area. It is a low-rise, eight-storey building, which is the maximum height that the law allows given the width of the access road into the premises. Each unit in this deluxe new condominium has four bedrooms and measures 300 square metres. All I can say is that it is a stunning building, very classy. However, it also commands a very high price tag, with each unit being sold at more than 40 million baht.
The developers had a concept of a deluxe condominium, where all of the owners are wealthy individuals. However, the developers have now hit a problem. They have sold 49%, the full foreign quota, to foreign buyers, but they have sold only about 10% of the remaining 51% to Thai nationals, some of whom were associates of the developers. The problem the developers face now is that they cannot find enough wealthy Thai nationals to buy the remaining units, meaning that they are stuck with them. This represents a very large percentage of the profits of this development.
Thai law prohibits non-Thai nationals from owning land, so condominiums are the obvious alternative for foreign investors. However, if you are a Thai national, then you could buy a very large house for 40 million baht, so why would you spend that much on a 300 sq m condominium unit?
Because of this, there are a number of new condominium buildings in Bangkok targeting the high-end market, that have sold out the foreign quota and now are struggling to sell large and expensive units to Thais.
There aren't that many Thais in Bangkok who could or would choose to buy a 40-million-baht condominium unit. If you did some research, you would discover that new condominiums offering small studio, one- and two-bedroom units are selling like hotcakes and most of the buyers are Thai nationals.
Here's a thought: perhaps a developer who wanted to build a luxury Grade A condominium with only large and expensive units should consider building another condominium in an adjacent land plot, with small units, and register both areas as one condominium (like Tower 1 and Tower 2, but branded as two separate entities). That way, they could attract more Thais to purchase smaller units and the luxury units sell to wealthy foreign investors. Perhaps they could separate both buildings with a wall and have separate access points too, just a thought.
Or perhaps the government could reconsider the 49% foreign ownership limit. The law has in the past allowed up to 100% foreign ownership of units in any one condominium building, but this was back when the economy was crashing and extra stimulation in the economy was required.
So, why 49% now? Well, technically as the owner of a condominium unit, you also own part of the voting rights of the building and part of the land. So, in theory if there was more than 50% foreign ownership in a condominium, there would be more than 50% ownership of the land. So what does this mean, that the foreign owners could collaborate together, outvote the Thai owners and sell the land? Well no, the Condominium Act B.E. 2522 requires unanimous voting of all 100% of co-owners to demolish a condominium building. It also requires 75% co-owner approval to sell common area land. So the real question is, should the government reconsider this 49% rule? After all, it is really hurting some developers.
Neil Simmons is a director of Ideal Homes Real Estate Co Ltd, tel 0-2714-3832-3, www.property-bangkok.com.
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