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Financing a Property Acquisition in Thailand

Most foreigners interested in buying property in Thailand – especially if they are relatively new to the country - will start off assuming that they can finance the purchase through some form of bank financing or mortgage loan. After all, that’s most often the way that properties are acquired in Western countries, whether or not the purchaser has sufficient cash on hand to pay the purchase price. Tying up so much capital would be seen as imprudent by most Western investors.

Of course, in Thailand property prices are still much less than they are in Europe or North America. But the normal method of acquiring property here is via cash. This is partly due to the Chinese cultural influence (never borrow, never lend) and partly due to the unfortunate experience many Thai banks and builders had with foreign borrowers during the 1997-98 Asian Financial Crisis, when many foreigners responded to the collapsed market by taking a taxi to the airport.

Until very recently, in fact, buying with cash was the only option available for foreign investors.

 

Several years ago, though, the government began to loosen up the controls they exerted over the financial markets in Thailand through lending policies laid down by the central bank, the Bank of Thailand. The relaxation was an attempt by the government to stimulate the real estate market by opening it to a wider audience. It may have also been a recognition on the part of the government and the banking industry of the very early stages of a program by some “offshore” banks that were expressing willingness to make loans to qualified foreigners interested in buying property in Thailand. Those offshore banks’ lending opportunities continue as an option for some buyers.

The relaxed regulations allowed foreigners to own condominiums in some areas of the country, albeit with restrictions on how much of a particular development could be foreign-owned. They also allowed “consumer loans” and credit card financing (under strictly controlled conditions) directly to some foreigners living here.

Of course, none of the relaxations overcame (nor even tried to overcome) the government’s policy of limiting land ownership to Thai citizens or to companies with majority Thai ownership.

And so, with a combination of a cash-oriented economy and very tight restrictions on direct foreign ownership of land, the widespread belief in the expat community is still that bank financing for property acquisitions by foreigners is simply not available.

And it is true that this is most often still the case – but it is not any longer the case 100% of the time. There are several Thai banks that will, under certain very limited circumstances, makes loans to foreigners, including in an even smaller number of cases, loans for property acquisition.

What must a foreigner do/have in order to qualify for a loan from a Thai bank?

  1. The combination of the foreigner’s age and the term of a loan contract cannot exceed 60. In rare instances this might be extended to 65.
  2. The foreigner must have had a work permit for either 1 or 2 years (depending on the bank).
  3. The foreigner must have had a documented salary, completed with pay stubs and bank records, for 1-2 years, again depending on the bank.
  4. The foreign loan applicant must submit a letter of employment documenting their continued employment and salary.
  5. The foreigner should submit a marriage certificate, if applicable.
  6. The foreigner must then still pass the banks’ usual credit check.

 

Interest rates for loans to foreigners, when available, are in the range of 8.75% currently, and as a policy are set at prime plus .5%. In addition there is a loan application fee.

The first Thai bank to extend financing opportunities to foreigners was Bangkok Bank’s Singapore branch. Applying for a loan from Bangkok Bank, therefore, also entails the cost of traveling to Singapore. To date, Bangkok Bank branches in Thailand do not provide loans to foreigners under any circumstances.

Responding to Bangkok Bank’s entry into the loan market, United Overseas Bank (also in Singapore) has begun to offer similar loans to foreigners, under similar conditions as those applying to Singapore’s Bangkok Bank branch.

Bank of Ayudhaya, Kasikorn Bank, and Standard Charter Bank still do not offer loans to foreigners under any circumstances. HSBC, Siam Commercial Bank (SCB), Thai Military Bank (TMB), UOB, and Tisco Bank will make loans to foreigners under varying conditions and/or limitations (i.e., payback schedules, down payment, interest rates, length of time resident in Thailand, etc.).

In every case where a Thai bank would even consider making a loan for a property acquisition, the following rules will apply (in addition to the banks’ individual lending criteria):

  1. The borrower must have the right to ownership of the property (which might be via a company or a Thai wife, for instance); and
  2. The mortgage contract must be in writing and registered at an authorized office (i.e., the Land Department/Land Office).

 

In the current political and economic environment, lending to foreigners remains limited. At the present time the “foot in the door” that we were seeing prior to last September is more important as a harbinger of things to come than it is a source of immediate financing for property acquisitions for most foreigners. Foremost among the limitations still in place is the age restriction, which effectively eliminates retirees from the applicant pool.

It should be noted that the creative and tenacious prospective buyer might find other sources of financing through an energetic search, including

  • Loans from banks in foreigners’ home countries;
  • Seller financing (“creative financing”);
  • Developer financing.

 

In these cases a common arrangement would be for the buyer to make a down payment of 30%, with the remaining balance of 70% financed by the lender (offshore bank, the seller, or the developer). A payment schedule spread over five years would by a typical payback arrangement, and of course the lender would apply their own credit approval standards. An example would be in the Phoenix Palms development, where the builder offers buyer financing on approval.

So, it seems at least reasonable to hope that a new government, and a return to confidence in the market, will see renewed interest in lending to foreigners by Thai banks, both for consumer loans and for property acquisitions.

 
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