Luring foreigners to real estate
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Luring foreigners to real estate

Legal amendments may be needed, promoting utilisation of the rights over leasehold assets law

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Under the Rights Over Leasehold Assets Act, lease rights can be transferred, subleased and inherited. The leased land can be mortgaged and used as business collateral.
Under the Rights Over Leasehold Assets Act, lease rights can be transferred, subleased and inherited. The leased land can be mortgaged and used as business collateral.

Finance Minister Pichai Chunhavajira is looking at several options to stimulate the country's economy, with a focus on attracting more foreign investors.

One approach is to improve the "rights over leasehold asset" laws or lease agreements for real estate, making them more conducive for investment.

Q: Why does the government want to stimulate the real estate sector?

The Thai economy has been growing at a low rate for an extended period, affecting people's finances as household debt increases. This has created a ripple effect, reducing domestic purchasing power, including for cars and housing.

The real estate sector is important for the economy, with knock-on effects for several interconnected industries.

As the purchasing power of Thais for real estate stagnates, the Paetongtarn Shinawatra government plans to put into practice the ideas from the previous administration, aiming to allow foreigners to purchase real estate here.

Thai laws do not permit foreigners to own land, making it a politically sensitive issue for the government, as it has been for decades during previous similar proposals.

Thaksin Shinawatra, the spiritual leader of the Pheu Thai Party, which is leading the government, once proposed that to address concerns about selling land to foreigners (which is often criticised as "selling the nation"), landowners who want to sell their land to foreigners should first transfer ownership to the state, under the Treasury Department's management.

Foreign buyers could then lease state land for up to 99 years. After the lease term expires, the land would still belong to the state.

This proposal would require amending the law governing state land.

Another idea to attract more foreign investors to the country involves revising the lease laws to make them more flexible, allowing longer lease periods to make the investment more worthwhile.

On April 9 this year, the cabinet told the Justice and Interior ministries to explore the feasibility of extending lease terms from the current maximum of 30 years to 99 years, in accordance with the Civil and Commercial Code.

On June 18, the cabinet tasked the Interior Ministry with revisiting the law regarding the lease period under the Rights Over Leasehold Assets law, extending it from 30 years to 99 years.

Q: What are rights over leasehold assets?

Rights over leasehold assets refer to assets that are based on the right to use real estate as defined in the Rights Over Leasehold Assets Act of 2019. This right is attached to the property itself and remains with the property regardless of changes in ownership. The rights over leasehold assets remain attached to real estate until they expire.

The reason the government drafted the law was certain limitations in leasing real estate under the Civil and Commercial Code. Leasing under this code is a contractual right that applies only to the contracting parties, which poses some restrictions for its economic use.

Furthermore, leasing real estate under laws specific to commercial and industrial purposes is limited in scope, excluding residential leases.

This resulted in the law being underutilised.

The government deemed it necessary to establish rights over leasehold assets, creating a right to use real estate that can be transferred or used as collateral for debt through mortgages.

This shift is expected to promote investment in real estate, helping to drive economic growth.

Q: What are the differences between the existing land lease laws?

There are three laws related to land leasing: leases according to the Civil and Commercial Code, the Lease of Immovable Property for Commercial or Industrial Purposes Act of 1999, and the Rights Over Leasehold Assets Act of 2019.

The three laws differ on key aspects, such as the lease term. Under the Civil and Commercial Code, leases can last up to 30 years, while leases can range from 30 to 50 years for the 1999 law. The Rights Over Leasehold Assets Act allows leases from 3 to 30 years.

In terms of utilising leased land, each law has varying provisions. For example, under the Civil and Commercial Code, the lease agreement grants rights that are personal to the tenant. If the tenant dies, the lease is terminated.

Under this law, the tenant cannot sublease the land without the landowner's consent.

Regarding using leased land as collateral, the Civil and Commercial Code does not allow the land to be mortgaged or pledged, but it can be used as business collateral if the landowner agrees. As for modifications, additions or construction on the leased land, the law prohibits the tenant from making any changes unless authorised by the landowner.

Under the 1999 law, the lease rights can be transferred and subleased, and the lease agreement can be inherited. The leased land can also be mortgaged and used as collateral according to the law.

However, modifications, alterations or construction on the leased land are prohibited unless authorised by the landowner. A key limitation of this law is that it only applies to commercial and industrial leases, excluding residential leases.

For the Rights Over Leasehold Assets Act, lease rights can be transferred, subleased and inherited. The leased land can also be mortgaged and used as business collateral.

Modifications, alterations and construction on the leased land are allowed, as well as obtaining various permits from government authorities to use the land, without requiring the landowner's consent.

The tenant can make alterations or additions to the leased property, and the land can be returned in its current condition at the end of the lease term, or as otherwise agreed upon.

To convert personal property into rights over leasehold assets property, the landowner must register the property, which may be vacant land, land with structures, or a condo, with the Land Department.

Officials then register it and affix a seal to the land title deed or the ownership document for the condo unit.

Q: How is real estate leasing handled in other countries?

In many countries, special laws were enacted for property leasing, such as the leasehold law in England and Wales, which grants the right to use leased property with no maximum duration set by law.

Tenants can fully exercise their rights unless otherwise specified. This includes the ability to transfer rights, sublease or mortgage the leasehold.

In France, a special law allows long-term leases ranging from 18 to 99 years, granting tenants full rights to the leased land, including the ability to transfer the lease or sublease it.

In Cambodia, laws allow long-term leases ranging from 15 to 50 years, where tenants can fully utilise the leased land.

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