Thai Longstay Program
It is a dream of many foreigners to live in warm and sunny Thailand. Some purchase a second home to stay for their annual holidays or to escape the cold winters. Even more foreigners purchase property to live in Thailand for their retirement years. All are looking for a secure method of ownership for this substantial property investment. A new program introduced by the Thai Longstay Management Company will provide a secure structure for property ownership to the foreign buyer in Thailand. As many foreigners already know, purchasing property in a foreign country can be a confusing and frustrating experience; specifically the purchasing system operates differently than in their own country. Clearly, the foreigner cannot own land in Thailand. Hence, there is a need to have a solid method of ownership for the foreigner to build and live in their dream house. Let’s explore the Thailand Longstay program and see what it has to offer.
History of TLM
Thai Longstay Management Company (TLM) was established on the 11th of December, 2001. The Thai Cabinet had previously approved a proposal for long stay tourism. The Longstay Tourism Development and Promotion Project was set up to promote and to expand longstay tourism in Thailand and to encourage potential visitors to visit and stay in Thailand for longer periods. TLM is a private company which is 30 percent owned by the Tourism Authority of Thailand. It was reported that One Asset Management purchased a 15 percent share in February 2003. One Asset Management is the leader in Thailand’s asset management market and one of the primary mutual fund companies in the country. The largest shareholder and CEO of TLM is Police Colonel Ruamankorn Tabtimthongchai.
Condominiums
Foreigners can own a freehold condominium under Thai law. According to the condominium act, a foreigner can typically acquire up to, but not exceeding 49 percent of a total space of a condominium project. However, not everyone wants to live in a condominium. In many areas such as Phuket and Pattaya, the foreigners generally acquire 80-90 percent of the condominium projects. But only 49 percent of the foreigners can own it as freehold, the others must lease or use a Thai company structure.
Land Ownership Issues
There has been considerable news locally and worldwide about Thailand property ownership. These reports have focused on the “nominee” shareholder issue of a Thai registered limited company which is utilized by foreigners to acquire property in Thailand. Before the government review of the issue, foreigners were holding 49 percent shares in the Thai company. This Thai company could hold any size of land and it was registered at the Land Department with no questions asked. In May of 2006, the Land Department began closer inspection of land transfers by a Thai company structure in which foreigners were shareholders and/or directors. If a Thai company structure with more than 39 percent foreigner shareholders attempted to register land, the government officer at the Land Department requested the financial proof of the Thai shareholders’ investment. In addition, if there was a transfer of over one rai of land, the officials again asked for proof of the Thai shareholders’ investment. This now seems to be the common practice for the foreigner who desires to hold land with a Thai company. He/she simply holds 39 percent share of the company and registers not more than one rai of land. This is not the best method, as government authorities may consider this practice as using Thai persons as “nominees” for land ownership, which they could regard as a serious infringement of the land law in Thailand.
Leasing As An Alternative
The preferred method of acquiring land for building a home is by leasehold. The foreigner safely acquires the right to use the land and registers the right with a 30 year lease at the Land Department. A lease contract is carefully drafted to guarantee the initial 30 year lease with two renewal periods of 30 years each. In Thailand, the maximum time period for a lease registration of residential property is 30 years, hence, the need for two renewal periods in a contract to provide for a 90 year lease. The foreigner can construct a house on the land. The construction permit is applied for in the name of the foreigner. The foreigner will own the structure in his/her own name. The advantage of leasehold is a lower registration fee (1.1 percent on the amount of the land lease). The disadvantage comes at the end of the initial 30 year lease. Will the land owner be available to sign for upon the 1st renewal period? This risk can be reduced by leasing from a reputable Thai company. However, it still leaves some doubt in the mind of the buyer.
TLM’s Vacation Investment Program
The Vacation Investment Program (VIP) was set up mainly to ensure and to benefit the purchase of properties in Thailand for foreign investors. The program provides a business venture with the foreigner (VIP member) and Thai Longstay Property (TLP) which is an entity of TLM for the property purchase.
How It Works
1. TLM has established Thai Longstay Property (TLP) to be exclusively responsible for the management and investments in property business. TLP invests in the potential property and will authorize for the required VIP member to lease the property. TLP will create a new sub-company to exclusively invest and to manage the new property acquired.
2. TLM property will select high quality condominiums and housing projects in Bangkok, Pattaya, Hua Hin, Phuket, Samui and Chiang Mai to join the VIP property listings. These listings will be available to the new VIP members or the foreigner may select another property on his/her own.
3. TLP will purchase the request property and lease this property to the VIP member for a period of 30 years with a contractual agreement to renew for an additional 30 years for two times (90 years)
4. The new sub-company will draft a loan agreement to purchase the property:
- A loan from a commercial bank
- A private loan from the VIP member who enters into a long term lease
5. The new sub-company is the legal owner of the property
a. VIP members will receive a Share Pledge Agreement with a fixed annual interest rate of 3.5 percent as security.
b. VIP members and TLP sign Memorandum of Understanding for the members’ exclusive and sole rights of the property.
c. VIP members will jointly execute and affix the official seal of the company and can transfer authorization to another family member.
Benefits to Investors from VIP
1. Investors will become a member of TLM for 30 years.
2. Investors will have access to TLM Fast Track Immigration Services and One Stop Service which will entitle the holders to a one-year visa and assistance at Thai International Airports including Suwannaphumi, Samui and Phuket.
3. Investors will be able to request for special attention and care from Tourist Police.
4. Investors will have access to the TML multilingual call centre which is available in English, Japanese, and Korean.
5. Discounts and privileges from TLM partners including hotels, golf courses, spa, restaurants, shopping centers, hospitals and insurance companies. Partners offer between 5-50 percent discounts depending on conditions.
6. TLM offers assistance with work permit applications.
7. Investors will have the right to receive the revenue and profits from the sub-lease or resale of the invest properties.
8. After the first 30 years, investors will receive 3.5 percent interest per year on the value of the property.
9. TLP offers mortgages for its VIP members
10. TLP offers members certain loans secured on their property.
Exchange Program
Foreigners who have established Thai limited structures under the old 49/51 percentage structure can now convert to a safe and legal structure as a VIP member. The benefits of this program:
1. If the property was undervalued at the Land Office, VIP is able to raise the value to the current market price.
2. Opportunity to become a TLM member for 30 years
3. 3.5 percent interest per year paid after the first 30 years term on the value of the property.
4. Unlimited 1 year multiple entry visas for the members and their partners
Business Development Package
Investors who wish to own property and start a business in Thailand can do both of these activities under the VIP program. Many foreigners desire to leave their home country and live in Thailand. However, they are not ready to stop working. The investor can have a business in Thailand and invest in the property market for buying their own home.
Commonly Asked Questions
1. Why should I use the VIP when I can legally lease property in Thailand?
You can legally enter into a lease agreement for a 30-year period. However, it is uncertain if the land owner will renew the lease for another term. There is no guarantee that it will happen. What if the lessor dies? Is the heir required to honor the contract obligation of the deceased? Under the VIP structure, you can renew the lease with full confidence.
2. Isn’t this just another “nominee” structure like the 49/51 company?
No. This structure is an actual and legitimate investment for all parties. Under the old “nominee” structure, Thai persons were used to meet the 51 percent shareholding and promoter requirement. Those “nominees” received nothing in return for their participation and were inactive in the business.
3. I already have a Thai company now. What should I do?
If you currently have a Thai company set up using nominees, you can switch to the VIP structure. The Thai Government is rewriting the Foreign Business Act regarding foreign business activities in Thailand. However, the Land Code is even more restrictive with severe penalties for Thai persons and foreigners who violate this law.
4. Do current events have any effects on the VIP?
No. The current political issues can only strengthen buyers’ confidence through VIP since it was created via government departments. Its design was to create confidence in property investment in Thailand in a legal matter.
5. I am 45 years old. I am not married to a Thai nor do I have employment or a business. How can I buy a house and stay in Thailand?
Under the new immigration rules, you can only stay is Thailand if you have a valid visa issued by a Thai Embassy or Consulate since you are less than 50, not married to a Thai, and not employed by a Thai company. However, if you are a VIP member, you are automatically entitled to join TLM which will issue you and your partner a 1-year visa.
6. If I am a VIP member and I want to sell property, can I do this?
Yes. You would lease the property from VIP, but you would have your own name on the back of the Title deed. You can lease the property for the 30-year period, forever. If you wish to sell your property, the new buyer is assigned a new 30-year period, forever and his/her name is place on the back of the Title deed.
7. What happens if I pass away?
In the unlikely event the buyer passes away, the title deed can be transferred to your relative. A new lease agreement for 30 years will be prepared and registered. In essence, this property can stay in your family forever.
8. What are the disadvantages of VIP?
There is an entrance and yearly rental fee for members. The fees are based on the value of the property. This might not be a cost effective method for all buyers. However, it’s a 100 percent sound and legal method to secure your dream house in Thailand.
Summary
The Vacation Investment Program is a ray of sunshine in Thailand for foreign buyer. It offers security for a property investment by utilizing not just a 30 year lease, not a 90 year lease, but a lease that lasts forever! People must expect that the entrance fee and yearly fees are necessary to protect their investment with a legal structure. The use of nominees will soon be an old memory for property investors in Thailand. We look forward to stability and practical methods for foreign property ownership in Thailand.
Siam Legal is Thailand’s largest legal service network with offices in Bangkok, Hua Hin, Phuket, Samui, Pattaya and Chiang Mai. You can contact Dennis Ramm at Bangkok office 02-661-1262 or Hua Hin Market Village 032-526-286. You can visit our website at www.siam-legal.com or email us with any questions about this article.
Dennis Ramm
President,
Siam Legal