The government has singled out legal loopholes that allowed non-Thais to circumvent restrictions on foreign ownership. This has sent a chill through the sector, affecting mainly the most famous destinations like Phuket and Koh Samui. However, for experts, the crackdown should generate increased caution among buyers rather than dampen foreign demand.

 

Bangkok (AsiaNews) – Thailand’s crackdown on legal loopholes that allowed foreigners to circumvent land ownership restrictions has negatively impacted the market for luxury villas.

According to industry observers, delays have affected mainly the most famous and renowned local tourist destinations, including Phuket and Koh Samui.

The Thai government recently stepped up scrutiny of business and real estate ownership in the country, with the Department for Business Development (DBD) reporting 11,426 businesses operating in internationally known Koh Phangan and Koh Samui, two islands in the southern province of Surat Thani, where foreigners hold about 68 per cent of all registered companies.

The DBD has also identified more than 7,000 companies suspected of using illegal or borrowed facilities, mainly in the real estate, tourism and hospitality sectors.

The crackdown mostly concerns entities that have used a Thai national as a nominee shareholder to comply with the law that limits foreign shareholdings to a maximum of 49 per cent.

Under such deals, Thai shareholders are the nominal owner, but have no tax history or papers to support their claim.

At the start of the year, law enforcement agencies prosecuted more than 850 companies for financial damages accruing from the loss of revenue worth more than 15 billion baht (almost US$ 450 million).

Although official data on the number of luxury properties held under a nominee structure is lacking, real estate technology group Juwai IQI estimated that around three out of five transactions in the villa segment in Phuket involve a foreign buyer or tenant.

Meanwhile in Koh Samui and Koh Phangan, nine out of 10 villa buyers are foreigners and 2,400-3,000 villas in both Phuket and Koh Samui are held by foreigners.

Last year Chinese nationals were the largest group of foreign investors in Thailand-based residential property, although the data available was for condominiums.

Chinese buyers bought 4,940 units in the country worth a total of 18.5 billion baht (about US$ 550 million), a drop of 12.9 per cent and 30 per cent, respectively, from the previous year, according to local media.

Regarding condominiums and flats, foreign buyers are allowed to own up to 49 per cent of the total real estate development; in this case, the ownership of the land is not involved, so possession is legal.

For industry experts, the government crackdown had less impact on Chinese homeowners, as the latter prefer flats over landed properties.

In any case, the harsher clampdown on illegal ownership is not expected to end foreign demand for luxury resorts and residential properties, although buyers are becoming more cautious and paying closer attention to property deals, sector leader Juwa IQI reports.

In fact, enforcement is not expected to significantly affect foreign demand.

Government action has nevertheless raised concerns among some market watchers that foreign demand for villas in destinations like Phuket and Samui may weaken amid greater regulatory scrutiny.

So far, the impact has been limited, with measures not significantly altering market performance or freezing foreign demand in these segments.

“The crackdown seems to focus on people working illegally in Thailand rather than expats living in villas,” said Kashif Ansari, Juwai IQI cofounder and group chief executive, speaking to the Bangkok Post.

“The rules haven't changed,” he added. “They're just stepping up enforcement. Anyone who has followed the law will have no problem.”

Ansari urges caution: After all, foreign buyers generally welcome greater transparency and certainty of law, as it helps protect long-term investments.

“Ultimately, buyers like to operate in well-regulated, transparent markets where their investment is protected. We find Thailand's focus on compliance reassuring," he explained.

• thailand
• phuket
• koh phangan
• koh samui
• resorts
• foreign
• ownership
• luxury villas
• juwai iqi