Financing Your Dream Home
Financing is an important issue for many foreign property buyers in Thailand. We are so used to having access to financing in our home country that we do not realize how difficult it may be to access a loan when purchasing in a foreign country. There is a lot of information out there in relation to financing for foreign buyers but essentially it comes down to three choices. Purchasing with cash outright, re-mortgaging a loan in your home country or obtaining a local loan from a bank with subsidiary networks in a regional country, namely, Singapore. There are other options for obtaining local financing from domestic banks in Thailand but they are not usually available to non-residents and therefore are often more difficult to obtain. These options will be examined in turn below.
Cash is King
Using cash to purchase your dream property in Thailand is certainly the easiest financing option. Some people with excess liquidity are able to do this quite easily. Others choose to borrow from family or friends to fund the investment. Although this is the easiest option, it may tie up your funds unnecessarily. This is especially the case when purchasing properties as these assets can have slow liquidity. Obtaining institutional financing, if done carefully, can serve as a useful investment tool even if you have more than sufficient cash to cover the purchase.
Re-Mortgaging in Thailand
Many buyers are taking advantage of the capital increase of their principal homes in their own country. Typically, you can get a re-mortgage on your home to release the surplus equity. This will then generate the financing required for that holiday home in Thailand. You still have to show that you have the means to meet the repayments after re-mortgaging your property. If you intend to generate income from the property in Thailand, then it may be necessary to show a rental agreement to the bank. The main advantages and disadvantages of this method vary according to individual circumstances. However, some important factors to consider may be the following.
- The service and all the necessary documents are available in your own language making the process more familiar and trouble-free.
- Your credit history with your current lender may make the loan easier to obtain as you are borrowing on the strength of your home.
- More competitive and flexible terms and conditions from a more developed financial system.
- If the equity from your home is sufficient, you can purchase the property in Thailand in cash which may result in a better price and more bargaining power.
- Variable rates may have adverse effect on your ability to meet payments.
- May spend years paying off extra repayments well into your retirement.
- Failure to meet payments for any reason may result in you loosing not only your property in Thailand but your home in your own country.
- A re-mortgage on your personal home may hinder your ability to obtain further funds for emergencies in the future.
Obtaining Finance in Singapore
Over the past few years, we have seen the Singapore branch of Bangkok Bank working hard to provide a respectable lending scheme to foreigners wishing to buy a property in Thailand. It has been met with good success although certain political elements in the country over the past year or so have lessened its eminence slightly. Nevertheless, the scheme is still available to qualified purchasers. In fact, over the past year, other banks have begun introducing their own schemes such as Singapore's United Overseas Bank (UOB) which has branch offices all over Thailand.
- The Advantages
This has been good news for Thai property buyers worldwide. Local financing has meant greater access to the property market and more flexibility in investment choices. The main advantage of this type of lending scheme is that you can obtain financing upon the strength of your property in Thailand. The mortgages are available in either Singapore or US Dollars meaning that borrowers have the option of choosing a more stable currency to work with. However, care must still be taken if your income is not in either of the two currencies as fluctuations can have an adverse effect on your repayment abilities.
- The Disadvantages
The main disadvantage of obtaining a local loan is that it usually has a low Loan-to-Value (LTV) ratio. Some countries allow financing for up to 90% of the property. In Thailand, the LTV ratio is 70% at most although generally it is around 50%. Amortization rates are also usually fairly low with the average period of loan standing at between five to ten years. There is also a requirement that the mortgage has to be fully repaid before you turn 65 years of age.
There are other banks, both domestic and international, offering lending facilities to foreign nationals in Thailand. These include HSBC, Siam Commercial Bank (SCB), Thai Military Bank (TMB) and TISCO Bank. These banks offer more competitive rates but they do have strict residency requirements. At a minimum, borrowers must hold an Alien Registration Book indicating their permanent residence status in Thailand.
Financing a dream property in Thailand is not as mystifying as many believe. Although it is not as straightforward as some countries, financing is accessible for property purchases in Thailand depending on individual circumstances. As outlined in the foregoing, there are indeed some serious matters to consider before you plunge yourself into the deep end. Keep in mind your ultimate objective in buying a property in Thailand and have a plan ready should you become unable to keep up the repayments or unable to sell off the property in the future.