Scrutiny of land purchases by companies with foreign investo

[johnnyk]

I found this post by a prominent business transfer specialist company on a well-known Thai board and have copied it here as I think it my be useful.

Moderators: perhaps you want to edit out names although I think the name of the person quoted is germane to the article.

Cynthia M. Pornavalai is a partner in the Commercial Department of Tilleke & Gibbins International Ltd. She specializes in Banking and Finance, Mergers and Acquisitions, Construction and Property, and Corporate Restructuring, and has written many articles and made presentations on these subjects. She occasionally lectures in Business Law at Thammasat University and Schiller-Stamford International College in Bangkok.

We spoke to her in September about the recent repercussions of the May 15th Land Department directive requiring greater scrutiny of land purchases by companies with foreign investors.

Has there been a lot of inaccurate reporting regarding the new regulations?

I don’t know if the press has been inaccurate or not – it all depends on what you read. I’ve read some interviews with lawyers and some consultants saying ‘this structure would do and that structure would do.’ This made me raise my eyebrows – it depends on what you read and in what context. The press, with regard to foreign shareholding of companies and the foreign ownership of land, is very hot. These kinds of structures have been around for a long time but because of the present Shin and Temesak deals have come to the fore.

A few of months have passed since the regulation was announced, what do you think the impact has been?

Because there was so much confusion the initial reaction of the land office was not to register the titles of land of companies that had any foreign shareholding at all. They didn’t know how to apply those regulations. Later on, on July 15, there was a clarification as to how this regulation should be applied and what document threshold was required from the applicant. That clarification was actually not publicly noted. It says that if it is for less than one rai, it is all right for foreigners to own up to 49%, which is like it used to be. When the May 15 regulation came out, the general interpretation was that foreigners couldn’t be part of companies that own land. The July clarification says that for less than one rai and if the land is going to be used as a residence for the company’s director, then that’s fine and will not be subject to the so much scrutiny.

Why do you think the clarification was issued? Was there pressure from somewhere?

There could have been. I don’t know the inside story of it, but it could have been pressure plus the confusion. The land office didn’t know what to do at that time. For fear of that they might break the law, they either applied strict interpretation of the regulation, or simply sent everything back to the land department in Bangkok.

So the message is that it is OK for a small private investor to have a house in Thailand, but a property developer must have active Thai involvement?

Even with smaller investors they want to see active Thai involvement. It’s just the level of scrutiny that’s different.

Has your business been affected?

It was for a very short period. We learnt about the second clarification in August – the other land offices were not aware of this clarification until the second week in August – and we were actually the ones trying the educate the officers. Whether business has been affected or not? We haven’t actually seen any impact because it was a very short period. We had clients who were trying to transfer titles and their transactions had to be put on hold when the notification came. At that time, my advice was to ‘wait and see,’ until the dust settles. Some were quite anxious and restructured their companies at a high cost.

Do you realistically see the crackdown widening?

I’ve spoken with some policy makers and it is not a crackdown they are focusing on, but more of the abuse of the law by certain sectors. I think the policy trend now is to come up with amendments to the law. Maybe not as far as we would want, with foreigners being allowed to directly hold land, but probably amendments allowing foreigners to get involved in certain sectors that have been closed up until now – like the service sector, for example. With respect to the land, I think it will stay the same, because it’s very close to the Thai people and a very political issue.

The debate on foreign ownership of property has now widened to encompass the whole of foreign investment in Thailand. Do you think it is putting Thailand at a crossroads with regard to how open a country it wants to be?

Among the developing countries in Asia, it is only really Thailand that closes out foreigners from participation in service areas. That actually results in nominee transactions and they want to prevent that, and so are coming up with structures that will do so. Like opening certain areas whereby foreigners can participate in, but the controls are not through shareholding, but in another manner. They are looking into those issues.

Various real estate agents have begun lobbying for a change in the law and have proposed things such as a limited freehold scheme and an extension of leasehold. What do you think the best solution would be?

The direct holding of land for foreigners may be very difficult – I don’t think it’s on the radar of policy makers right now. It would cause of lot of economic imbalance in society, so it’s something they would probably not be willing to do. Extending leasehold term is probably something that is more palatable to them. Also, designating certain areas where foreigners can own land has been suggested, but I don’t think it’s going to go that far, as it wouldn’t be interesting foreigners either. It would create an enclave and I don’t think foreigners would be interested in that.

There are still legal ways for foreigners to invest in freehold property in Thailand. Are people generally aware of what the options are?

Investors who come from abroad and do not have residency in Thailand get most of their information from agents and a lot of them are making misrepresentation. Some are saying that you can lease properties for 120 years, which is impossible under Thai law. When they come to us a lot of investors are not aware what the basic laws are in Thailand.

As a foreigner working in Thailand, do you think the rules regarding investment are fair?

In Thailand, things are very flexible. They have the law, but the law is actually applied in different ways. So far the authorities have turned a blind eye to infractions of the law, but if they want to enforce it, it’s there. There is a legal structure. Practically speaking it’s been so free, but the issue is very politicised at the moment.

[Craig]

Good post

[JD]

johnnyk

Very good post above, from what I understand from my lawyer, as I am about to finally transfer land this week. It will all depend on whether or not my developer can submit the correct paperwork. As a developer he will have to provide his licence, his company paperwork, showing that his directors are succinct and legal investors in his company and that the company is registered correctly to perform such business transactions.

My lawyer has assured me that this will be checked BEFORE any final transfers are made.

If they are not correct he has promised he can rescind any contract and enable a full refund for deposits or payments (part or full) from the developer or start legal action for illegal trading from the said developer.

Although the onus seems to be on the correct way to put the land in your, companies; wife’s name seems chiseled out in stone, not many are aware that the developer is also, in such a situation, and, if you should ask, also have to provide such evidence as to their legal standing also.

This current legislation, far from hinder the property market, helps the investor’s to protect their investment. If the law states you’re paperwork has to be correct, ensure that the land department makes sure that the developers paperwork is also correct as well, if they are a fly by night, you will, or can at least find out at the final transfer stage, and not loose your investment.

Most developers, even if not happy, would rather return your money than be penciled in with the ‘not reliable, pending legal recourse’ flag that such an incursion of Thai Law would leave them to deal with. The Land Office certainly will not transfer any land of their’s until they can provide the correct paperwork.

REMEMBER the laws they make you abide by when you part with your money, also apply to the developer when he transfers the title deed. Make sure the land office checks the developers information BEFORE you transfer or sign on any dotted line.

[johnnyk]

Good advice.
Thanks and good luck with everything.

[shakin' boxcar joe]

[quote]“´ÕàÃ

[Burger]

That's strange because the Ministry of Commerce (the goverment body that is responsible for companies) said last month:

As there are 500,000 companies registered with DBD, they will check the nominee matter only if someone complain to DBD with enough evident, most of the case complaint came from fighting between the foreigner and their shareholder or employee
The FBA section is going to investigate one province which is not Phuket next week,result from a complaint that there are almost hundred of companies have the same address of business registration,therefore the team of officer will investigate those companies

It reads that there is just one suspect 'set-up' somewhere that they are going to investigate in the near future!?

Confused, you will be.

Burger

[Jockey]

As of today (24 Nov.), the special justice dept working along with the provincial official of Prachuap Khiri Khan are now officially investigating and going after any company that has at least 1 forienger as a shareholder in it that set up for the purpose of owning land. They will try to close it and take the land back.
The article also said, they're starting in Huahin first before going after all other major tourist areas.

I have copied this from another popular web board.[/quote]

This news, if true, could have a devastating impact on the foreign 'house owner'community in Hua Hin. Are we to assume police will turn up at the doors of houses which are owned by companies which include foreign shareholders and are suspected of only existing for the purpose to enable a foreigner to 'own land'? What does "going after" mean? Are they going to Investigate if the company is trading or not? If so, can anyone give advice on what action one could do if faced with this situation, and what advice could be given to someone who might want to get out of the "company owned" scenario and into a more secure and safe "lease" agreement.

[Burger]

Jockey, it sounds like a load of **** to me mate. The article is from an online newspaper. We all remember how the Bangkok Post got it massively wrong about companies never being able to register land again, back in May.

The Ministry of Commerce, who control companies, has said differently to this article just last month (he'd probably know better than most).

Their article says "They will try to close it (company) and take the land back"
However the Thai Land Code says "As alien who obtained permission to acquire land under Section 96 bis and does not comply with the rule or conditions prescribed in the Ministerial Regulation Section 96 bis paragraph two shall have to dispose of the land owned by him within the period of not less than one hundred and eighty days and not more than one year as specified by the Director General"

We've heard all this before, nothing has ever happened until the government has announced it, not an online newspaper.

Burger

[JW]

Agree Burger, it sounds like a load of tosh.

[shakin' boxcar joe]

[quote] ¼º.Êӹѡ¤´ÕÃ

[JimmyGreaves]

More scaremongering in my opinion!

[johnnyk]

.....I dont think this problem will just go away.[/quote]

What exactly is the problem?
To me its a problem when something happens.
Until then its speculation and frothing.
The "problem" seems to lie mostly in scaremongering, rumour mongering, speculation and translations of translations passed along word of mouth with spin applied.
Personally, I haven't heard of the government taking anyone's house away yet, neither in HH nor in other areas.

[shakin' boxcar joe]

I hope you are right johnnyk,but I think articles relating to this should be posted so that those whose company setups were arranged less than perfectly are well aware that there are ongoing rumblings and murmurings from the authorities about it.

[johnnyk]

I hope you are right johnnyk,but I think articles relating to this should be posted so that those whose company setups were arranged less than perfectly are well aware that there are ongoing rumblings and murmurings from the authorities about it.

I agree but its a full time job separating out the bovine feces, especially on some other fora.
Then again, how the hell would one know if the company was set up poorly unless paying more money for scrutiny by another firm.