Thailand Property Report - October 06.
Repercussions of the
May 15th Land Department directive requiring greater scrutiny
of land purchases by companies with foreign investors.
Excerpt from an interview with Cynthia Pornavalai, Partner and
Head of Banking and Finance Group, Tilleke & Gibbins. 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.
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.
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