Commentary: Bangkok's flawed plan to allow foreign land ownership
Bangkok’s recent proposal to allow foreigners to buy land in Thailand is poorly thought out and will not be the panacea for the Thai economy that the government envisages, say two experts.
BANGKOK: Thailand has long been a popular destination for foreign investment and expatriate retirement but has severely restricted foreigners from owning Thai land.
With Bangkok now keen to attract wealthy investors - especially the Chinese - to aid Thailand’s post-pandemic recovery, the government is contemplating a major change in the laws governing foreign ownership of real estate.
On Jul 15, the government of Prime Minister Prayut Chan-o-cha unveiled a proposed policy to allow foreigners to own land for residential use. The stated goal of the policy is to boost the Thai economy by luring wealthy foreigners to spend and invest in the country.
Foreign nationals who invest 40 million baht (US$1.1 million) in property, securities or funds in Thailand over a period of three years would, starting in September, be permitted to own up to 1 rai (about 1,600 sq m) of land.
On one level, this proposal addresses a clear problem for Thailand: The current supply of residences far exceeds demand. Data from 2020 indicates that there were more than 90,000 unsold condominium units in just the Bangkok metropolitan region.
EYE ON CHINESE INVESTMENT
The Thai real estate market has struggled with an oversupply of flats for many years and this supply is set to increase in the coming months.
According to The Bangkok Post, of the roughly 1.5 million condominium units in Thailand, foreigners now own only about 90,000 units. Targeting wealthy investors with high purchasing power might help address this looming real estate crisis.
The proposed change in rules on land ownership aims to augment investment in Thailand by 800 billion baht. The change will likely appeal mainly to prospective Chinese buyers. Already, half of the foreign-owned condominium units in locales such as the resort town of Pattaya are in Chinese hands.
There is a close link between tourism and investment; many major Chinese cities are short flights away from Bangkok and key Thai cities, which makes the Thai properties potential second homes for wealthy Chinese families.
Chinese firms are major participants in the Prayut government’s flagship Eastern Economic Corridor initiative, with its vast ambitions for infrastructural development and for the technological upgrading of the Thai economy. China could potentially enjoy linkages with Thailand’s Eastern Seaboard via projects under the Belt and Road Initiative.
Bangkok clearly hopes that the change in property laws will be accompanied by accelerated Chinese investment in sectors that can foster technological advancement in the Thai economy.
However, potential Chinese buyers and investors are likely to be more interested in landed property than in condominiums, especially in the main tourist destinations. Ironically, the new policy is likely to see the pool of prospective condominium buyers shrink, as wealthy foreigners - especially in the target Chinese market - will have a more desirable investment option: Land.
POLITICAL AND SOCIAL RAMIFICATIONS
The proposed plan may well increase land tax revenue and benefit the Thais fiscally but its political and social ramifications merit careful consideration. Foreigners may begin to invest freely in property, but whether they will reside in the country is another matter. In addition, increased foreign purchases of luxury dwellings will intensify perceptions of inequality and rising land prices will worsen the actual inequality.
These concerns have led the opposition Phuea Thai Party to oppose the scheme. The party reasons that nearly 80 per cent of Thais do not own any land and that allowing foreigners to buy land will benefit the more affluent segments of Thai society with land to sell. It will exacerbate the inequality in land ownership.
Beyond Phuea Thai’s concerns, it is not clear that easing restrictions on land ownership will be the magic formula to kickstart the Thai economy that the Prayuth government hopes for.
Thailand would do better to create a sound investment environment with improved and more transparent regulatory and legal structures to make investors feel that it is worth doing business in the country. That approach is a more promising way to lure investors, technology, and ultimately innovation to the country.
Given its flawed design and its potentially adverse impact on inequality, the Thai administration’s proposal to reinvigorate the economy by easing restrictions on land ownership merits careful scrutiny.
Prem Singh Gill is an adjunct lecturer at the College of Interdisciplinary Studies, Thammasat University, Thailand and senior researcher at the Research Centre for Advanced Science and Technology, The University of Tokyo, Japan.
Ratana Boy is an independent researcher and an undergraduate senior at the Faculty of Global Studies, Thammasat University.
This commentary first appeared on ISEAS – Yusof Ishak Institute’s blog, Fulcrum.