Releasing Equity to Purchase Property

Equity release can be a good way to finance a property abroad. In these times of economic uncertainty, it can prove difficult to obtain bank financing anywhere and Thailand is no exception. Equity release allows you to get a loan in Thailand based on equity (property) you hold typically in your home country. This may sound like ‘robbing Peter to pay Paul’, and to some degree it is, but second mortgages and equity release can be an excellent way to increase your investment portfolio and make some good profit in the process.

One very big bonus with equity release is that the interest rates are typically very low. One recent loan for a client was approved at 3.5% over 10 years – try getting a bank mortgage at that rate in Thailand where rates are typically over 7%. Another bonus is that the loan can be paid out in a variety of currencies from US dollars, Sterling, Yen, Baht – you name it and you can probably get it.

The application process is quite straightforward and fast – you’ll usually get an answer on the amount of the loan, rates and terms within two weeks.

Not a day passes when we’re not asked, ‘Can foreigners get financing through a bank in Thailand?’ It sounds like an easy enough question to answer, yet there are typically so many conditions and restrictions involved that the answer usually comes out as ‘…well, sort of…’

The easy answer is ‘yes’, foreigners can obtain financing through some banking institutes in Thailand, though unless you have an established credit line, some sizeable local assets or a Thai wife with a solid credit rating, you’re chances are greatly reduced. All major banks have slightly different rules, but the following criteria are quite typical:

Foreigners are eligible for a mortgage of 70% of the bank’s value of the property (only 60% for condos) if:

• they are working in Thailand (with a work permit and have been working a couple of years)

• they have a solid income, provable by bank statements, tax receipts, etc.

• it helps if they have any title deeds here or overseas as collateral

• it also helps if they have a provable income overseas

• they must be under 60 years old

Foreigners must also provide the following documents:

• Passport or local ID if Thai

• Household registration if Thai

• Work permit if working here and foreign

• Marriage certificate / divorce certificate

• Letter of consent from spouse

• Copy of Chanote

• Completed application form

• Valuation report and sales contract

• Letter of introduction from existing bank if self employed

• Shareholder list if self employed

• Audited accounts for business for last 3 years

• Employers letter if employed stating length of service, salary, bonus etc.

• Bank statements for last 6 months of the business if self employed

• Bank statements of the individual for the last 6 months

Amazingly, Thai nationals can apply for a mortgage based of up to 95% of the value of new properties (80% for re-sales), so if you’re married to a Thai, it’s much easier and you can borrow more – just beware the obvious pitfalls.

As many foreigners seeking financing in Thailand cannot provide some or most of the documentation, one alternative many seek is private financing through a developer on new housing or condo projects.

Most developers offer finance options that continue during the course of the building development with final payment due upon completion. With houses, this period is obviously a lot shorter than that of a large condominium project. Most new houses are built within 9 months, meaning you have only 9 months to complete payment, whereas many large condominium buildings take up to three or four years to complete, giving buyers ample time come up with the funds.

One reason that the View Talay projects have been so attractive to investment buyers, beyond the low prices and good location, is the payment plan. With a very minimal down payment, buyers pay about 20,000 THB monthly (for a studio unit) for the first 18 months or so and pay the bulk payment upon completion. For investors looking to ‘flip’ the property prior to transfer, this is incredibly attractive.

Many of the area’s new condominium projects have very attractive payment schedules that are attractive for both investment buyers and those who need a bit of time to complete payment.

One tidbit of info that may help in this area – once a new project has completed and the majority of units sold, many developers will talk longer-term finance options (around 5 years) on some of the remaining units. Talk with an experienced local realtor about this and they can probably assist through their relationship with local developers.