Many of the foreigners in Thailand who have decided to buy a residential property in Thailand are required to use funds which are held in a foreign currency account in their country of origin. Property transactions in Thailand utilize myriad ways in which a buyer pays the purchase price to the seller. For instance, a buyer may be required to make payments to the seller upon signing of the sale and purchase agreement to be followed by instalment payments in accordance with constructions progress, and then remit a final payment on completion. Or in some cases, full payment against registration of title transfer. No matter what the terms of payment may have been agreed upon between the parties, one important issue applies to most of the purchases of property in Thailand. Whenever a buyer is keeping the funds for his purchase of the property in a foreign currency in an offshore bank, and the parties agree to a sale and purchase price in Thai Baht (which is the usual case), the buyer is required to remit his foreign currency into Thailand in an amount equivalent to the stated Thai baht purchase price.
A crucial issue to consider is that currency exchange rates experience volatile fluctuations; therefore, the foreign currency equivalent to the stated Thai baht purchase price may vary considerably from the date the contract was signed until the time payments are made. This may result in a buyer paying far higher (in foreign currency) that he originally contemplated. For a buyer who may not have sufficient monetary reserves, this increase may result in an inability to pay leading to his default of the sale and purchase contract. Such a scenario should be considered by a risk aware buyer particularly in these days of economic uncertainty, as it could cause a total loss of all monies paid to a seller in the case where the purchase contract may provide for forfeiture of the deposit paid by the purchaser if final payment is not timely made.
Another relevant factor to consider when buying a property with foreign currency is the place and time of the currency exchange into Thai baht. Exchange rates may significantly differ depending on where you initiate the money exchange. Usually, there is a material difference between an off-shore exchange rate set by a bank outside of Thailand and the on-shore exchange rates quoted by Thai banks. Therefore, a buyer may find it problematic to try to determine in advance the exact amount of his foreign currency required to be transferred to the Thai bank account of his seller.
Furthermore, buyers should investigate if their property purchase is subject to certain regulations applicable to the remittance of foreign currency into Thailand and its conversion to Thai baht. In some cases a property buyer should instruct his foreign bank to transfer foreign currency into Thailand (where the purchased property is located) but not affect a conversion into Thai baht, the receiving Thai bank would then make the applicable conversion. Because in some case if he converts his foreign funds offshore into Thai baht and then remits the monies into Thailand it may result in the buyer being unable to take on legal title to the property, or it may present him great difficulties on a resale when applying for repatriation of funds received upon his subsequent resale of the property.
To summarize, before entering into a legal agreement for the purchase of property in Thailand, all potential buyers should conduct a careful investigation into all legalities and risks involved in purchasing a property with funds held offshore and which requires payment in foreign currency. To avoid pitfalls and traps for the unwary, a buyer would be well advised to consult with his attorneys or legal representatives prior to the time he signs any contracts for the purchase of property in Thailand.
This article is written by International Law Office Patong Beach Co., Ltd., a Phuket based law firm. For enquiries, please contact Michael Greth, Consultant of the Phuket based law firm, by email (michael@ilo-phuket.com) or phone (+66-(0) 76-222 191-5).
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