OPINION Longer Term Land Leases -30 Plus 30 Equals 60
I recently read a white paper by Charles Blocker who heads up development at Invision Hospitality in Bangkok who puts foward the case for 6o year property lease terms. We have been given permission to run the article which also appeared in AMCHAM'S T-AB Magazine Volume 1/2010.
"The Joint Foreign Chambers of Commerce in Thailand (“JFCCT”) Property Committee (“Property Committee”) advocates an extension of the maximum rental term for land from a 30-year lease to at least 60 years. This advocacy position was chosen from many other suggested reforms, not only due to the ease of actioning and implementing, but as a real and measurable fiscal stimulus to benefit Thailand by increasing investment in the second home market and tourism.
Set forth below are excerpts of the executive summary of the thorough White Paper, which was prepared by JFCCT Property Committee members with strong legal leadership and counsel from Baker & McKenzie, on the JFCCT's leasehold extension recommendation to the Royal Thai Government.
The Case for Leasehold Extension
Thailand's property market has great potential and opportunity to develop and grow, both from investment made by local and foreign investors, as well as from consumers. This is due to the attributes which make Thailand an attractive destination for investment in property. Year-round tropical climate, beautiful scenery, a culture of friendly hospitality and a service mindset, and relatively low cost of living and labor are some of the qualities that greatly appeal to both investors and consumers in the property market.
One opportunity for growth stems from Europe, as the latest research indicates there are approximately 30,000 people from Scandinavia, the UK and Germany who have acquired second homes in Thailand, generating an estimated Baht 75 billion in revenue. Amazingly, this has the potential to increase to 90,000 second homes in three to five years, which would generate around Baht 150 billion in income for Thailand. This income would not only stimulate the growth of the Thai property market, but also the economy as a whole.
However, due to certain legal disadvantages, Thailand is currently running the risk of missing out on this immense opportunity, as well as numerous other potential investments. Because of these legal disadvantages, Thailand is unable to provide a proper platform to accommodate investment, which ultimately hinders growth and development.
One of the most significant legal disadvantages is the restrictions on long-term leases. Thailand's maximum lease term is 30 years for both Thais and foreigners, with renewal options of further 30 years. However, even though the existing regulation already allows for two lease agreements to be registered at the same time over the same property, the issue concerned is whether two 30 years lease agreements can be registered at the same time over the same property. Due to the general practice of the officers of the Land Department, this proposed lease scheme (30+30) may not be acceptable to the officer, as there is no clear guideline provided in the existing regulations. For most cases, the lessee has to wait until the first lease term has ended before registering the second lease agreement. Moreover, the option to renew the lease term in the lease agreement may not be legally binding on successors to title, thus creating risk and uncertainty pertaining to the renewal of the lease term.
Therefore, this is the most restrictive and uncertain leasehold law in the region. As a result, investors/developers are put off by the fact that they may have a very short period of time in which to recoup their investments. This is especially true for foreign investors who cannot own land. Meanwhile, foreign consumers who wish to lease property for a second home/retirement home may also feel that such lease period is too short.
Consequently, some investors and consumers are deterred from investing, as an investment platform accommodating their need for definitive long-term leases is lacking. Meanwhile, some investors choose to invest elsewhere in the region, particularly in our direct competitors, such as Malaysia and Vietnam, which are prepared to capitalize on foreign investment opportunities, aided by better investment platforms. It is therefore paramount that Thailand find a solution to these legal disadvantages quickly, or risk losing our existing and potential investors/consumers to our competitors.
The most feasible and appropriate solution to the problem is to revise Land Department regulations to specifically and clearly allow 60-year leases, whereby two lease agreements can be registered and enforced in accordance with the Civil and Commercial Code (the “CCC”), on a back-to-back basis, allowing for the 60 year consecutive term to be definite and unambiguous. This solution is both efficient and achievable, and should be sufficient to provide investors/consumers with the appropriate investment platform.
Revising Land Department regulations would be an opportunity to stimulate the property market by encouraging greater investment from domestic and international sources, both by existing investors and potential new ones.
In conclusion, the proposed solution is both suitable and feasible. It will solve the legal disadvantage, provide investors with a more satisfactory investment platform, and will ensure that our competitors do not capitalize on investment opportunities belonging to Thailand. It will also stimulate property investment and the economy as a whole. Failure to eliminate the legal disadvantage promptly will result in lost opportunities.
The Recommendation for Improvement of Land Department Regulations
In order to eliminate the ambiguity in current laws and promote Thailand's property market, the Land Department should consider enacting a new regulation or amending current regulations, to specifically support and allow the 60-year lease scheme. The regulation should state clearly that the Land Department will register and enforce back-to-back leases of 30 years each, in accordance with the CCC, allowing the 60-year consecutive lease term. If promotion of the property market is considered of high importance, either the Director-General of the Land Department, or the Minister of the Interior as the overseer of the Land Department, should amend/clarify the existing laws.
The amendment of existing laws or enactment of new laws is inevitable if the long-term growth of Thailand's property market is to be encouraged. While it will not be easy, using legislation to bolster investment in property is certainly an effective, more definitive approach.
The above solution is workable, since existing laws open a channel for the government to allow long-term lease schemes. This will accommodate both customers, i.e. local and foreign individuals who desire long-term lease/stays, and developers, who wish to secure their investments through long-term leases.
An increase in competition from neighboring countries, which are also looking to capitalize on foreign investments, means a definitive solution is more important than ever. The government's provision of incentives to both customers and developers will do much to help increase both supply and demand in the property market in Thailand.
In conclusion, to implement the solutions proposed herein, the Cabinet, as the supreme body of the government, must enact administrative rules under existing laws to promote the property market, which rules relevant subordinate authorities must follow and promptly put into action. In this respect, the Cabinet may resolve that the Ministry of the Interior enact a Ministerial Regulation guaranteeing the 60-year lease scheme, by ruling that the registration of two consecutive 30-year lease agreements is enforceable under the law. The Minister of the Interior should also order that the Land Department issue a Regulation stipulating guidelines that land officers must follow when registering leases under the scheme."