50-year foreign lease mulled

50-year foreign lease mulled

An aerial view of hotels and a residential area on Pattaya beach. In order to lure foreign direct investment, the government is considering permitting foreigners to lease land for up to 50 years.
An aerial view of hotels and a residential area on Pattaya beach. In order to lure foreign direct investment, the government is considering permitting foreigners to lease land for up to 50 years.

The Finance Ministry is studying the issue of allowing foreigners to lease land in Thailand for up to 50 years as part of efforts to draw foreign direct investment, which it believes could provide further impetus for another property market boom.

If the government amends the law governing land leases to foreigners, their leasehold real estate contracts could last for a maximum of 50 years and the rights could be transferable, said Finance Minister Apisak Tantivorawong. The land will return to their Thai owners at the end of the lease contract.

It is highly likely the law can be amended, he said.

A property market boom is expected, similar to before the 1997 Asian financial crisis, as foreign demand will be the driving force if the law is amended, said Mr Apisak.

At present, foreigners are only allowed to own condominium units collectively of up to 49% of the total area of the project, while the Lease of Immovable Property for Commercial and Industrial Purposes Act BE 2542 (1999) grants maximum lease terms of 50 years if the lease is for industrial or commercial purposes, while it is 30 years for residential purposes.

He said the real estate sector plays the most important role in the country's economy as it is highly linked with other sectors such as building and raw materials, decoration, electric appliances and banks.

Mr Apisak said the property market is a reliable indicator of which way the economy is leaning, swooning before a bust and booming ahead of a recovery, so the market is one of the government's focal points.

Separately, he insisted the rate stated in a draft bill on the land and buildings tax, recently approved by the cabinet, is the ceiling rate and the actual rates will be lowered.

Once the new property tax goes in effect as expected next year, the tax will be levied on first homes and land used for agricultural purposes with appraisal prices starting at 50 million baht. The rate will be applied to the land value exceeding 50 million baht.

The tax will also apply to second homes on a progressive basis, from 0.03% to 0.30%.

The tax to be levied on vacant land will increase by 0.5 percentage points every three years until it is capped at 5%.

The bill sets ceiling rates of 0.2% of appraisal value for land used for agricultural purposes, 0.5% for residences, 2% for commercial and industrial use and 5% for vacant or undeveloped land.

For commercial and industrial use, the tax will be imposed at 0.3% for land value below 20 million baht, and 1.5% of land value starting from 3 billion baht.

The land and buildings tax will replace the house and land tax and the local development tax, which have drawn criticism for being regressive and outdated.

The draft bill, however, offers a 90% discount on the land and buildings tax for schools, while under-construction housing projects will get the same percentage reduction for three years, said Mr Apisak.

He estimated the new property tax will generate around 60 billion baht a year for the local administration organisations, far above the 20 billion contributed by the house and land tax and the local development tax.

Prasert Taedullayasatit, president of the Thai Condominium Association, said an extension of the leasehold period to 50 years from 30 would draw more investment from foreigners.

The move would lead to more variety of property development and leasehold plots will have more value, he said. The longer time period helps landlords who don't want to sell plots, said Mr Prasert.

"It would be good for the industry and the country. But the government should determine the scope or purpose of land use for leasing to prevent any effect on the country's security," he said. "For example, a foreigner leasing a rice field of 100,000 rai should not be allowed."

A longer leasehold period would boost interest in land plots in prime locations, where land prices soared to nearly 2 million baht per square wah recently, said Mr Prasert.

Surachet Kongcheep, associate director of property consultant Colliers International Thailand, said the amendment would make the government's large-scale land plots recently opened for bidding more attractive.

"The government has many plots of large land offered for lease, but no single investors were interested as the lease period of 30 years is too short for a huge investment," he said.

Most of these plots are owned by the State Railway of Thailand, including a Makkasan site sized around 500 rai, a 277-rai plot by the Chao Phraya River in the Khlong Toey area and a site of over 200-rai in Bang Sue.

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