Longer lease period will improve Thailand's competitiveness within Asean
With the slowdown in the residential sector, a question many developers have raised is whether a new stimulus package is necessary to give the market the boost it needs. It could result in boosting market sentiment and bolster the sales of projects that w
Other fundamental issues that need to be reviewed to make Thailand’s property market more competitive and strengthen the confidence of global investors include the reform of property taxation and ownership structure as well as property tenure. Whereas property taxation has been reviewed and changes will soon be implemented, property ownership and tenure have not yet been touched.
It is common for Asian countries not to allow the foreign ownership of land.
Foreign investors are offered long-term leases as an alternative.
The lease duration period for Singapore, Cambodia and Malaysia is up to 99 years. China offers 70 years, Vietnam 50-70 years, and South Korea, the Philippines and Taiwan 50 years.
Thailand generally offers a 30-year lease, but the legislation was amended in 1999 so that long-term leases for commercial and industrial purposes could be up to 50 years.
The idea of a leasehold term extension has been floated time and time again, but has not been seriously considered by any government. Today, especially in prime locations such as downtown Bangkok or major international resorts such as Phuket, the value of residential property is |far higher than that of commercial property.
A 30-year lease term is too short to justify the cost of investment. The structure of two options to renew a lease is not practical or fully accepted by many investors.
I believe that extending the lease term would have a far-reaching impact on the property industry.
The most competitive term would be 99 years, where the value of the lease is closer to freehold.
The most immediate impact would be on the residential and resort-home sector, where buyers of leasehold properties would be able to register one secured long-term lease, instead of a series of renewable 30-year leases, which is the current market practice.
Phuket is losing its competitiveness to regional rivals that offer longer-term leases. Many top-end residential projects in Bangkok today that sit on leasehold land would also be able to attract both local and foreign demand.
A leasehold term extension would also have an extensive impact on commercial and mixed-use mega-projects. There are large government-owned land plots and Crown Property Bureau land that have significant development potential. However, a 30-year lease often makes projects financially unfeasible and unattractive to big developers.
The extension would serve well not only in terms of drawing in foreign investment from large-scale developers who could not otherwise purchase freehold land, but would also stimulate the launch of economically beneficial projects that would have positive spin-off effects on the economy. A prime example is the Bt68-billion Bang Sue Grand Station project.
The 218-rai (34.9-hectare) plot owned by the State Railway of Thailand (SRT) is envisaged as a major transport and transit hub, featuring a park-and-ride facility and a business complex, and is set to be the gateway to both of Bangkok’s airports. Potential private-sector investors have called for a longer lease term to make the project attractive.
Similarly, the 497-rai site in Makkasan owned by the SRT could also consider offering a longer lease to help strengthen investor confidence.
Such policies would give the property market a much-needed boost, as well as play a key role in better structuring of the sector to reap long-term benefits.
