Expatriate Thailand Ownership – Do I need to pay outright with Cash???

In order to purchase a: house, business, bar, hotel, apartment, condominium or land, an expatriate usually has 2 options.

1.    Pay with own cash
2.    Borrow some money

In Thailand, there are commonly known restrictions for a foreigner / expatriate to own and if we assume all legal issues can be overcome for the minute, many customers still tend to purchase outright with cash & usually fits thinking patterns for either of the below rational:

•    An outright purchase means paying no interest on a loan
•    I want no hassle
•    Cannot find a bank to finance

Whilst the later may be true in part, this is usually because methods reviewed are only mainstream ways of lending i.e. ask a local bank to lend you money. The bank is able to lend you the money because your bank will usually take 1st and only legal charge over your property. This means, that should you default on your loan or disappear, the bank is able to liquidate the asset (house) to pay back the loan.  In Thailand, local banks are not always able to lend to expatriates and therefore, the only feasible option tends to be, pay outright with cash.

Placing a large amount of cash into a new Thailand ownership carries a high degree of risk. The move to a new country that holds some of the most exotic places on earth can often cloud judgment of risk. Risk can always be mitigated or minimised and therefore, the purpose of this article is to discuss alternatives available for coming up with required funding to purchase a new life / venture.

In order to keep the articles fairly low in text, I shall provide the below over the next 4 weeks and this week, shall begin with Asset Finance.

Options available
•    Asset Finance – Use a collection of existing investments / cash to lend against
•    Hedge Fund – Use a hedge fund to act in the same way as a traditional bank
•    Remortgage – Use an existing property to release equity
•    New Mortgage (local bank) – Use a Thai bank to lend you money for purchase

Week 1 - Asset Finance

Asset Finance is an established product which has been running within banks for many years. The idea is that rather than use the property / business you intend to purchase as security against the loan, the asset of an investment can be used instead.
Let's take for example a client who holds several bonds / investments to the value of GBP1, 000,000 or currency equivalent. Follow the below steps:

1.    Client sees business opportunity for THB25,000,000 (circa GBP500,000)
2.    Client provides Offshore Bank “X” security over GBP1, 000,000 Investment
3.    Offshore Bank “X” is then able to lend 50% of the Asset
4.    Customer has loan for GBP500,000 at a margin of 2% above LIBOR

The scenario is now, that the client has purchased a property in Thailand with proceeds of loan, holds a loan valued GBP500, 000 (typical interest rate 3%) and has an investment of GBP1, 000,000 (yielding circa 6% from GBP bond) The position is covering loan payment interest with proceeds from investment and at the same time having a property in Thailand.

The risks then associated with holding a property in Thailand has been diversified across the property, loan, currency and investment.

In addition to the above example, an Offshore Bank is able to lend in many different currencies. Commonly, the example will involve an Asset in one currency such as GBP1, 000,000 but a loan in JPY since the interest rate is lower than GBP at 2.5%. This then means the client is paying 2.5% Interest on loan, but making 6% per annum on his Bond investment. Whilst this carries a further risk of currency appreciation/deppreciation, timing is essentially the key and if timed correctly, massive savings can be made.

Next week (Friday) – Hedge fund