Law; Confidence and Real Estate in Thailand

Last year, I attended the Thailand Property Awards 2012 at the Dusit Thani hotel in Bangkok. I was impressed by the year on year increase in attendees; the broad spectrum of representation of all things real estate – from developers; hotel operators; to banks; architects and media to name but a few. An event with a great mix of foreign and Thai persons, who are positively pushing the boundaries of the real estate market, and making Thailand more competitive in this field, each year.

There were quite a few highlights, but for me, the dazzling star of the show was the guest speaker, Khun Korn Chatikavanij, the ex-Finance Minister under the previous Democrat led government of Thailand. I won’t attempt to regurgitate or attempt to convey what was a smart; humour filled and expertly audience focused speech, worthy of a potential world institution leader, and a man who was reported as capable of being in the running to head up the IMF.  Observers have commented though that the IMF appears to have a predictable recruitment scheme not as modern or wide ranging as it could be. The humour demonstrated in the speech I do feel a sense of shared pride in, as much as I believe Khun Korn may well have picked up such humour having been born and in his formative years educated in my former home, the United Kingdom. Recessions aside, the place does still have a lot going for it.

However, I would like to extrapolate one topic of Khun Korn’s speech, which I think is worth expanding upon in the context of Thailand’s legal environment – and that is, investor confidence. Laws and confidence are inextricably linked. With 10 years worth of experience as an owner of a law firm in Thailand, I can say that I have a few fine tuned observations, which might provoke some thought on how new legal developments  and change could shape a bright future of real estate.

Land Investigations; Purging Breaches of Law by Public and Private Persons

For the lawyers out there, I include companies in the word ‘persons’.

Law; Confidence and Real Estate in ThailandRecently, we had a series of land investigations across Thailand. Earlier in 2012, there were a spate of law suits, destruction and demolition of property, and allegations flying back and forth between various parties regarding alleged encroachment into National Parks, which are quite rightly, protected areas in Thailand. Most recently, we have had a series of damaging reports about alleged encroachment into National Parks by projects; hotels and individuals in Phuket. Phuket has been heralded as one of the jewels of foreign property investment in Thailand. The economic benefits of development in the Province are plain to see. However, you can also start to see signs of over development in certain places in Phuket, which have been made or planned with disregard to environmental balance, especially noticeable given the fact the beauty of Phuket is enshrined in its natural form.

What is amazing about the investigations is the manner in which they appear to have been conducted. This is not a fact, just an outside observation, about appearance of conduct. Regardless of right or wrong, appearance on well established properties with military; guns and media circuses do not bode well for outside viewing.  To a foreign investor, the investigations look truly appalling, detract from confidence in terms of investment, and perhaps worst of all, appear completely ambiguous and inconsistent in terms of the application of examination. Maybe the investigations, and the results will determine that the investigations are wholly justified, but of course, that doesn’t assist much with investor confidence in the real estate market. I can explain why in brief form here: Investors will take risks when they invest in a country and sector, but within parameters in which they believe there is a degree of certainty and logic. When investors inspect land sites in Thailand to develop hotels; condominiums of any form of real estate, they seek confidence from the target land and properties; by checking land titles. When they check the land titles, they are informed, as a general rule, that they can rely upon land titles issued by government officials and land departments although they are also informed by law firms that they do need to check the history of the land anyway for ‘anomalies’. If they were not able to rely upon the very documents issued by such departments, then of course, any investment would be tantamount to rolling a dice, and betting that perhaps an investment might just be ‘ok’.

So, what is the solution? Is it to ignore potential encroachments of Thailand’s valuable; world revered and amazingly beautiful National Parks and Forestry Reserves? Certainly not. The solution is to adjust how land is valued, how land is treated in relation to past infringements, and to think about implementing a fair and balanced system which can allow both domestic and foreign investors to trust the land title system and land title papers they are restricted to dealing with.

This can be done, with a concerted effort on the part of the administration, to implement:

(a) a completely electronic based Land Title Database system, across Thailand

(b) An ‘Amnesty’ Period, for any land owner believing that they may have encroached or breached the rules, to step forward and have their land assessed, without fear of revocation of land title. Financial Penalties, a revenue generating exercise, could be applied to any land owner found to have encroached

(c)  A ‘Whitewash’ Procedure, providing a whitewash or ‘forgiveness’ of infringements exceeding more than 15 years. It doesn’t have to be 15 years, I just plucked the number out of an imaginary hat.

(d) A very strict enforcement, of all those who are not granted Amnesty, and all those whose land cannot be Whitewashed, where the breach relates to infringement with knowledge of the infringement. The test of knowledge should be evidence based. No evidence, then the land title should be whitewashed.

Each of these processes should include fees for Government, for carrying out the work and exercises envisaged.

However, I am a realist, and am fully aware that the suggestions of a foreigner in Thailand on ‘how to do things’ will have absolutely zero impact on how things are actually done. There are far more powerful forces at work, than my humble existence could ever achieve.

Imagine if this process were to happen: lawyers would have less checking to do; investors would have less questions; the word ‘Chanote’ would truly imply that a land title was absolutely secure and reliable without fear of revocation; transactions would occur more quickly; Thailand would become more competitive in Asia and the World – especially with a land title system converted into an electronic data system; corruption could be reduced; investor confidence would increase exponentially. Wow – what an amazing array of positive possibilities for a country many foreigners love, including me.

Balanced Laws and Enforcement

 For all my suggestions of ‘amnesty’ and ‘whitewash’ above, I also believe in stricter; more regulated and better enforcement of the laws which protect the lands and environment of Thailand. Here are just a few items which could balance matters:

(a) stricter observation of building on steep slopes and gradients. You only need to drive around a resort area, and you will be able to see why this is needed.

(b) More stringent ‘density rules’ regarding building to empty land plot ratios

(c)  More stringent requirements for ‘Green Areas’ in residential and mixed use projects, including also more requirements for green areas in residential condominiums in the city

(d) Stricter observation of any ‘new settlements’ appearing in National Parks and Forestry Zones, to avoid ‘creeping’ by settlers to expand settlements within National Parks and National Forestry areas

(e) Clearer Land Laws – clarity on Thai companies which have foreign investors which develop land, and therefore must acquire land, albeit in joint venture, to be developed into residential projects; hotels and other beneficial forms of real estate for Thailand.

(f)  Clearer licensing laws and enforcement. Prohibiting guest houses from running as hotels, without licenses. Examining rental programs being applied on a resort style basis, and applying license requirements to such programs, for the sake of clarity for investors; and owners of units in such projects.

There is currently way too much ‘grey area’ in enforcement; consistency; implementation and applications of rules; laws and regulations in real estate. That is why some investors have been ‘burnt’, innocently, when investing in property, which must be situated, on land, in Thailand. This can be rectified, but will require a balance between a passionate determination to preserve Thailand’s beauty, and to encourage managed progressive development of real estate by Thai companies; Thai-Foreign joint venture companies, with Thai and foreign buyers all interested in the opportunities in the Kingdom.

It can always be said that there are bigger economic legal and social issues to deal with in Thailand: infrastructure development; narrowing what seems to be a bigger more obvious gap between the rich and the poor; trying to temper elitism and Thai’s patronage system with support for less fortunate people; improving the education system not only so that Thai people have confidence in their children’s education and competitiveness, but aiming higher so that Thailand becomes a country where other nations parents will want their children to be educated, as a country of choice, not necessity of location. Where does this little article of real estate fit into all of these goals – well, somewhere at least. There is no harm in trying to develop and improve many aspects of Thailand, at the same time.

Note: This article was authored by Desmond Hughes, and published online for the Property Report – South East Asia.