When we purchase the property back home, one of the first things we would think of is financing. Even for those who have sufficient funding and liquidity for acquisition, financing is often seen as a means of leveraging our investments. For buyers with less access to finance, financing is an essential vehicle they use to own that dream home. In this instance, Thailand is the same as any other country. Most of the financial institutions in Thailand provide loans for real estate purchases to local Thais and Thai companies based on similar criteria we are used to in our home country. However, the similarities do end there for most foreigners buying property in Thailand.
Mortgage lending by local banks to foreigners was virtually unheard of in Thailand. Nonetheless, in recent years we have seen a slight shift in policies to allow foreigners limited access to financing. This was instigated, in part, by the Thai government’s eagerness to promote tourism and to encourage economic growth in Thailand. This was introduced during the high growth period of the past five years leading to Thailand’s current climate which can now be best described as moribund.
Despite this, the momentum gained from the past few years has meant that some Thai banks do offer financing services to foreigners but impose somewhat strict terms and conditions on their availability. The most important condition is that the property has to be held in the foreigner’s name and the property has to be registered as a condominium under the Condominium Act since foreigners are restricted to purchasing only these types of properties in Thailand.
Terms of an offer for loans in Thailand are dependent on the policies of the Bank of Thailand for each financial term. This also depends mostly on each bank’s business strategies which also vary year by year. Banks in Thailand usually provide personal loans to individuals, and this includes credit card facilities, business loans, personal loans for education or medical treatment as well as personal loans for general use such as the purchase of a condominium, renovations, car purchases and so on. These facilities are, subject to each bank’s policy, available to foreigners who have lived and worked in Thailand for some years.
To obtain these personal loans for the purchase of a condominium, certain conditions must be met. First of all, it is important to note that these loans are generally granted on the fair market value of the property, and this is usually based on the bank’s valuation process.
The other important criterion is the qualification of the foreigner. These are set out below in the following:
• At least a 1-year work permit or a Thai resident permit.
• A letter of employment indicating their years of service in Thailand and their annual salary. Pay slips will usually be attached to this as well.
• The banks may also request for the employer’s company documents or a marriage certificate if applicable.
• The banks would also conduct credit checks on the foreigner as they would with any local applicant.
• The applicant’s age combined with the loan period must not exceed 60 years.
• Applicants must have a stable and secure job.
• Applicants must have a fixed income three times higher than each installment repayment.
• The aggregate amortization of loan must exceed seven years (for some banks).
The applicant may also be required to submit the following documents to the bank upon application.
• Copies of passport including visa page, ID card or government official ID card, house registration certificate, and marriage certificate of the applicant and spouse (if applicable).
• Confirmation of income or salary, and copies of bank statements for the previous six months.
• Copies of land or unit title deeds, sale and purchase contracts and construction specifications if applicable.
The interest rates for these types of loan are typically based on the MLR or on a fixed interest rate depending on the bank offer at the time. It is also helpful to note that because these loans are offered locally, the interest rates are usually a bit more competitive and it does pay to shop around first.
Around the middle of 2005, Thailand saw the emergence of a new financing service offered by Bangkok Bank’s Singapore branch. At this time we saw Bangkok Bank starting to offer offshore financing for foreigners wishing to purchase real estate in Thailand. Up to 70% of the property’s value was made available to foreigners who did not qualify for a local loan. This gave many foreigners access to finance for their dream homes even if they did not reside in Thailand. Up until this time, there were only a handful of private offshore firms offering lines of credit of this kind and often at rather stringent and unattractive terms.
Bangkok Bank in Singapore still offers such loans to foreigners and the demand for this is increasing. They can tender loans in several currencies including US and Singapore Dollars. Currently, the interest rate for USD loan consists of the prime plus 0.5% which in total stands at 8.75%. A processing fee will also be incurred upon application. Bangkok Bank does insist on meeting the applicants in person, and this means you would usually have to travel to Singapore to apply for this.
Bangkok Bank was the first bank in Singapore to offer such financing services. However, this year we saw the introduction of United Overseas Bank (UOB) in Singapore jumping on the bandwagon and offering similar lending services to foreigners wishing to purchase real estate in Thailand. It is a relatively new scheme for UOB, and it was mainly introduced as an alternative to Bangkok Bank’s hold on this lucrative market. It is a good thing that we are starting to see some competition in this area and the future this will hopefully create an environment that would improve the consumer’s position with various banks trying to outdo each other with more competitive rates. At the moment, the terms for a UOB international loan is still very similar to Bangkok Bank with their interest rate currently also at 8.75%. However, it appears their processing fee may be slightly higher but offers the advantage of applying for the loan locally in Thailand without having to set foot in Singapore. UOB’s entrance into this niche market is a welcoming sign to the area of financing to foreigners in Thailand.
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