Will the government’s land ownership scheme for wealthy foreigners get off the ground?
Thai people are mostly opposed to a controversial government move that would allow high net worth foreigners to own land in the country.
A Cabinet resolution last month allows foreigners who invest 40 million baht in Thailand to buy up to one rai (0.16 hectares) of land.
The Cabinet approval for the Interior Ministry proposal on land ownership for foreigners is primarily aimed at attracting more foreign investment to the country. The proposal, however, attaches many conditions:
— A foreigner must invest at least 40 million baht for at least three years in the country.
— Four groups of foreigners are eligible for the privilege: wealthy people, pensioners, those who want to work from Thailand, and talented workers eligible for a long-term resident visa.
— They have to invest at least 40 million in a targeted business for at least three years. Investment in financial assets, such as bonds, are also allowed. If the investment is withdrawn before the three-year period, the right to own land will be revoked.
— Purchase of agricultural land is not allowed, and land can be bought only in urban areas of Bangkok, Pattaya, municipality areas, or designated residential areas.
The government is expecting the investment incentive to draw one million foreigners to stay long term in Thailand over five years, bringing in investments worth about 800 billion baht, tax collection of around 270 billion baht and the circulation of about 1 trillion baht in the economy.
Since adopting the resolution on October 25, the government is facing fierce opposition even from its supporters. Critics have raised concerns of land grab by foreigners, pointing out that a new wave of Chinese immigrants have created a new Chinatown in the pre-COVID 19 period. Some of the rhetoric accuses the Prayut Chan-o-cha government of selling the country and favouring big businesses at the expense of the ordinary people.
Opposition MPs launched a motion in Parliament to question the government on the plan. The opposition’s chief whip and Pheu Thai MP, Suthin Klangsang, argued that the government in 2002 had allowed foreigners to buy land because the government at that stage had needed to raise funds to meet its repayment commitments to the International Monetary Fund, which had rescued Thailand from 1997 financial crisis with a financial package. He said the current government could not cite boosting the economy as a valid enough reason for the step.
Also opposing the decision, Pita Limjaroenrat, leader of Move Forward Party, argued that a large number of Thai people do not own land hence the government needed to look into this problem first. He also warned that liberalization of property investment in the United Kingdom had caused house prices to surge by 19 per cent immediately.
While defending the government’s plan, Interior Minister General Anupong Paochinda promised to hear the voice of the opposition and make necessary adjustments to the scheme. He rejected criticism that the government move favoured foreigners and big businesses. He explained that the amount of investment could range from 40 million baht to 100 million baht per investor and the period of investment could even be 10 years.
Ex-finance ministers react
Former finance minister Thirachai Phuvanatnaranubala opposed the plan, warning that it could greatly benefit foreigners and local landlords more than Thai citizens.
He explained that Thailand has lower tax rates: annual land tax for an estate worth not more than 50 million baht is 0.05% compared to a tax rate of 5% to 12% in England and 3% in Japan.
Therefore, foreigners who buy land in Thailand could save a lot in tax payments, he said.
Thailand also has a lower capital gains tax rate of about 7.5%, so foreigners who own land and sell it later will pay a very low tax. In comparison, the capital gains tax in the UK is 28% and in Japan the rates are typically 30%, or 15% in case of holdings for more than five years.
Specific business tax rate for selling land in Thailand is 3.3% with exemption if one holds the land for more than five years. Value-added tax in England is 20% while in Japan it is 10%. As is evident, land owners are subjected to higher tax rates in those countries.
Thirachai suggested that the government upgrade its economic development first before liberalizing land ownership for foreigners.
Former finance minister Korn Chatikavanij, however, gave a tentative backing to the government move, as he believes it would bring in more investment and could help stimulate domestic consumption as well. Korn, who is also leader of the Chart Pattana Kla Party, said the government could make it a sandbox experiment for five years, and scrap the project if it were not in the country’s interest.
Land holdings in a few hands
Duangmanee Laovakul, assistant professor at Thammasat University’s economics faculty, said the move has become controversial because people are disappointed that the government has yet to undertake land reforms, while land ownership remains concentrated in a few wealthy people.
Duangmanee said her study found that among land owners, 10 per cent controlled 60 per cent of land, while 90 per cent own the balance 40 per cent.
She suggested that the government allow foreign investors to buy land only in upmarket areas to prevent them from competing with ordinary people. For example, land worth more than 15 million baht, or restrict ownership to not more than 40 per cent of the project. They may also be required to sell the land back to Thai citizens only.
The government may need to introduce a land and building tax for foreigners, she suggested.
Another contentious issue is that of land nominee, Duangmanee said. The government has not yet looked at how to deal with cases where foreigners use Thai citizens to hold land for them, she added.
Developed countries could liberalize as they could provide adequate housing to their own people, she said. She suggested that the government quickly resolve disputes involving the overlapping of conservation areas and people’s land. There should be a speedy resolution on community land title, she said.
The government should not focus solely on economic stimulus while overlooking socio-economic issues, such as equality in land ownership and concentration of landholdings among a few wealthy people.
She also suggested a review of the foreigner land holding scheme every three years instead of five years as planned by the government.
Private sector unfazed
Samma Kitsin, vice president of academics at the Housing Business Association, was unfazed by the government’s land regulation. He allayed fears of a surge in the land ownership of foreigners, as the stipulated conditions remain tough. He estimated the number of new investors under the scheme at a few thousands, not hundreds of thousands.
He pointed out that Malaysia has a similar scheme, allowing foreign investors to buy land, but not many foreigners have shown interest.
Meanwhile, the Thai Chamber of Commerce has established a committee to study the impact of the government’s proposal to allow foreign investors to buy houses and land.
Condo ownership cap
Currently foreigners can own up to 49 per cent of condominium units in a project. Some land developers have suggested a higher cap as the industry is facing a downturn due to a fall in the purchasing power of local people.
According to the Government Housing Bank’s Real Estate Information Center, Chinese nationals had the highest total ownership among foreigners — 3,526 units worth 22.9 billion baht — in 2021.
By Thai PBS World’s Business Desk