There can be few modern day tourist hot spots which reflect the increased interest in travel than Thailand. It is a land of wonderful natural beauty, foreigners are made very welcome by the locals and the potential for growth in the economy is great. So surely with a background such as the one we have just painted there can be no downside for international property investors. Well maybe everything is not as rosy as it could be in the property market, at the moment!
There is a mood of change in the Thailand property market, there is talk of restrictions being lifted and there are rumours that the government will soon be making a big play for overseas property investors and tourists. So what has changed? Why would the government even consider changing the rules to help overseas investors?
In order to fully understand why Thailand might soon become even more attractive to many property investors there are a number of factors to consider which include :-
The political climate
Even though there was a military coup back in 2006 the political climate in Thailand is as settled now as it has been for many years. Despite taking over the running of the country by force, the current leaders have shown an appetite for the international market although they have also retained elements of the previous protectionist regulations.
Under the current Thai laws it is not possible for foreigners to own any property in Thailand although they are allowed to own the freehold of condominiums if total foreign ownership does not exceed 49%. While this has obviously been a stumbling block it has not stopped many investors from becoming involved in property developments in Thailand.
At this moment in time the tax regime in Thailand is very much in favour of overseas investors with no capital gains tax and very low everyday taxes. This has seen an influx of money into the country, within the current regulations which are detailed above.
Thailand has been one of the more recent success stories of the region and while there are restrictions for overseas businesses trading in the country (they need to operate out of a Thai registered company) this has not stopped an influx of investors and well known names from setting up operations in the area. However, the economy has benefited very much from the increased interest in the property markets and there are concerns the economy will struggle if the property market falls back.
How will the government react?
There are strong rumours that the Thai government is looking to reduce the restrictions on the ownership of Thai land by overseas investors. At this moment in time even premises used for a foreign business in Thailand have to be an asset of a Thai registered company (this means the company cannot be bought, sold or liquated without the government knowing about it). It seems strange to talk of a military government apparently being so forward thinking and amenable to overseas investors as to even consider changing the current regulations to accommodate them. But that is what seems to be happening!
The word from unnamed sources with the government is that they are looking at ways to allow overseas investors to actually own outright any property investments in the country. While this will obviously attract more private investor interest it should also allow a number of larger investment groups to consider the area. While the changes have not been confirmed as yet, if they are extensive the government now has the chance to make Thailand a serious player in both the international property market as well as the business arena. But there is still one possible fly in the ointment, inflation!
The threat of inflation
While Thailand is not the first (and wont be the last) property hot spot to come under threat of inflation the government needs to take decisive action as soon as possible. While property prices continue to increase by over 5% a year the current rate of inflation is running at about 10% which means that investors are currently experiencing negative real returns on property in the country.
The government has made signs and comments which would indicate that inflation is a short to medium target for them, they need to break the upward trend in inflation as soon as possible. There is a real threat that unless the rate is checked as soon as possible it could literally undo all of the good work and economic growth of the last few years. The longer the situation continues the more chance of the economy suffering a serious setback which could last for some time.
Outlook for investors
While, inflation aside, the signs are that the government will be looking to attract more and more international investors to the region through a variety of regulatory changes, the worldwide slowdown is still a concern for many investors. Coupled with the threat of inflation it would seem as though many investors are prepared to wait on the side lines at this moment in time. However, once the international and local situations settle down there is every likelihood that Thailand could well feature highly on a number of investor wanted lists.
There is no doubting that Thailand has been one of the major success stories of the region and quickly established itself as an attractive hub for property and business investment. The government have historically been very welcoming on the taxation front (with no capital gains tax and very little ongoing taxes) but they need to look at ownership issues in the country.
The subject of ownership has been central to a number of investors crossing the country off their property investment lists. If this were to change then there is every chance that interest in the market and the country as a whole would increase. However, the most prominent issue at the moment is that of inflation and how the authorities will fare attempting to reduce consumer spending to kill inflation while ensuring that the economy does not grind to a halt.
Thailand is an interesting country to consider and if the rumoured changes go through then the property market could attract a lot more interest in the short, medium and longer term.