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Thailand buyers should beware of currency exchange pitfalls

Many foreigners 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 home country.

Property transactions in Thailand use many different 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. This will be followed by instalment payments in accordance with constructions progress, and then remit a final payment on completion.

In some cases, full payment against registration of title transfer will take place.

No matter what the terms of payment have been agreed upon between the parties, one important issue is prevalent in most property purchases in Thailand.

When a buyer is keeping the funds for his property purchase in a foreign currency in an offshore bank, and the parties agree to a sale and purchase price in Thai Baht (usually the 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) than he or she 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 particular, 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, foreign property buyers are required to transfer foreign currency into Thailand rather than purchasing Thai Baht off-shore. Upon remittance of the foreign currency into Thailand, the funds will then be automatically converted into Thai Baht at the time of credit into the Thai Baht account of the recipient. In case that a buyer neglects to transfer foreign currency into Thailand but converts off-shore and subsequently transfers Thai Baht into Thailand, it may cause severe problems for a buyer. For instance, a buyer may not be able to take on legal title to the property, or will have 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.

About the Author:
This article is written by International Law Office Patong Beach Co., Ltd., a Phuket based law firm, and for informational purposes only. It is strongly recommended to take full advice from professional advisor before conducting any business in Thailand. In case of enquiries, please contact Michael Greth, Consultant, by email (michael@ilo-phuket.com) or phone (+66- (0) 76-222 191-5).