Further Reading:
Tropical Beach House - The Dream and the Reality
Mike Conway, of California e-mailed to ask "I am considering
retiring in Phuket in about ten years from now. My first question is,
is there American style financing available for properties located in
Phuket, i.e. make a down payment and then take over mortgage payments
over time? Any information you could provide would be helpful. Thanks
While financing is available in Thailand, and while the format is in
general terms, similar to what you are familiar with in the US, it is
not nearly so simple here - at least not for a foreign purchaser. Of
note also is that it is very rare for developers to provide financing
directly. Mortgages are invariably provided from banks or other finance
companies.
Criteria for loan approval, such as proving an ability to repay a loan from a secure income source and having a property (usually - but not always - the one being purchased) that can be held as collateral, are of course the basics of a successful mortgage loan application - but neither of these conditions are very easy for a foreigner to establish.
You will almost certainly start the process by being an unknown without a proven local financial track record. Evidence of employment, assets and income from bank statements and tax returns abroad can be supplied, but it is generally difficult for a local bank to evaluate the authenticity and worth of such evidence.
The next complication is that in most instances (condominiums being the only significant exception) a foreigner may not directly own property freehold in their own names. As such when they go to ask for a mortgage they do not have direct ownership claim to a property asset that can be held by the bank as collateral. Long prepaid leases (the format used by most foreigners to acquire an interest in property in Phuket) can and sometimes do include a provision that allows the Lessee to request the Lessor to place the leased property as loan collateral for the Lessee, but in most cases, the banks will only accept leased property for collateral if the lease has not been registered. This leaves the Lessee in a rather vulnerable position if the mortgage is not to be repaid within a three year time span (the longest time for which an un-registered lease is secure).
So if the property you wish to purchase is not a condominium, and you need local finance, you will in general need to work the purchase through a nominee, either corporate - or perhaps an individual (which also carries risks however well you know them) to hold the land for you. It is then possible for them to pledge the property (on paper theirs) in support of your personal loan application - that you then repay from your income. This process is complex and unless the vendor / developer is well connected at the bank and willing to give you full assistance, it may prove more trouble than it is worth to try to do this alone.
Since the floating (sinking!!) of the Baht in July 1997 the cash position and the lending policies of Thai banks have been unusually restrictive and it has been close to impossible (be you Thai or foreign) to get any kind of bank finance. While this status will hopefully not be permanent, it does certainly make the current prospects of purchasing a property with local bank finance pretty slim.
So what are your options? Foreign ownership issues also make it very hard for an overseas bank to take title to Thai property as collateral for loans from foreign banks. This leaves you with only one relatively straightforward way to raise the finance for your Thai property purchase and that is by taking a second mortgage on your first home or a loan secured by a stock portfolio from your home country bank.
There are also a couple of advantages to this approach. Firstly interest rates in Thailand, which while now at relatively low levels at around 12.5% are typically much higher in the long run than the rates that apply on the major western currencies. Secondly a loan in you home currency (the one in which you earn your income and pay your bills) can never give you a nasty surprise if the Baht exchange rates suddenly work against your favor.