• How to Invest in Commercial Property in Thailand: A Complete Guide

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    Thailand is less spoken about when it comes to commercial property investments. Other regional countries, like Singapore and Malaysia, have better foreign ownership regulations with more transparency.

    Truth be told, there are not many options available in Thailand, at least not to individual investors. The only exception is if you invest in Real Estate Investment Trusts (REITS).

    With that said, increasingly more foreign companies have started to target Thailand’s commercial property market, including property developers, manufacturers, and co-working space operators.

    In this article, we review the following:

    • Can foreigners buy commercial property in Thailand?
    • Thailand’s Commercial Property Market
    • Hotels
    • Office Space
    • Retail Property
    • Industrial Real Estate and Warehouses
    • Car Parks
    • Best Cities to Invest in Commercial Property in Thailand
    • Commercial Property Taxes

    Can foreigners buy commercial property in Thailand?

    Foreign individuals can generally not own commercial property in Thailand. Instead, it’s far more common to buy condo units as the buying process is swift and this gives you full freehold ownership.

    However, ownership regulations differ when you buy real estate as an individual or through a company, thus, it’s not a yes or no question. Let’s have a look at the two different ownership structures.

    Individual Investors

    If you’re an individual investor, you have few options when investing in commercial property. However, many foreigners faulty believes that commercial property isn’t available at all.

    Being less popular compared to condo investments, you can still buy strata-title office space (sometimes referred to as Office Condominiums), as these are part of the Condominium Act.

    The same as it goes with condos, there’s a foreign quota of 49%.

    However, most strata-title offices were built during the 90’s and these only make up 20% to 25% of the total supply. This was before the crash in 1997 and when speculative investors bought strata-title office space for rental purposes.

    Since 2000, only one new strata-title office building has been built in Thailand, called “The Trendy”, finished in 2008.

    One true benefit of investing in strata-title offices compared to condominiums is that square meter prices can be half as high in Bangkok’s prime central districts.

    Corporate Investors

    Investors often set up Thai Limited Companies (LLCs) to get hold of commercial property.

    As mentioned, foreign companies (like developers) also set up Joint Ventures with local Thai companies to access the market.

    Opening a Thai company is easier said than done though and you normally need to apply for a Foreign Business License (FBL) if there are less than 51% of Thai shareholders.

    This involves some risk, of course, and a reason why many foreign companies prefer to lease instead of buying. But there are two exceptions.

    US citizens and companies have a privilege as they can be majority shareholders of Thai companies, thanks to the ‘Treaty of Amity and Economic Relations between Thailand and the US’, which was signed in 1966.

    In addition, the Board of Investment (BOI) in Thailand can exempt foreigners from applying for a Foreign Business License, for special projects in specified areas.

    This is not granted that that frequently, but it can be worthwhile contacting a lawyer to confirm if this is possible.

    Thailand’s Commercial Property Market

    Thailand’s residential property market has faced some headwinds due to tightened lending policies and an oversupply of condo units. The commercial property market performs differently, but we see both challenges and opportunities in the different industries.

    Hotels

    Bangkok is the most visited city in the world and Thailand is one of the most popular countries among foreign travelers. It shouldn’t come as a surprise that hotel-nights are in high demand here.

    Looking at demographics, the following five countries account for the highest number of travelers (listed in chronological order):

    • USA
    • China
    • Japan
    • Hong Kong
    • South Korea

    Around 70% of travelers look for 4 to 5-star hotels in the relatively higher price segment. At the same time, occupancy rates are high in cities like Bangkok, hovering between 80% to 90%.

    Hotel operators have seen record-high occupancy rates in the past years, a reason why we’ll see price increases as well.

    Even if there are many new hotels in the pipeline for the coming years, the market is healthy and will continue to grow.

    It’s predicted that we’ll see more travelers from countries like India, China, and UAE in the future, but there will be a continued steady demand from other countries as well.

    Regulations when operating hotels

    The hotel market is one of the most regulated and operators need to obtain necessary licenses and permits when managing hotel businesses. Hotels are also divided into five different classes, where regulations differ depending on the class.

    Below I’ve listed a few examples of licenses and agreements you need to check before you start or continue the operations of a hotel:

    • Licenses for the hotel business, restaurant business, seminar rooms, entertainment business
    • Liquor licenses, tobacco licenses, and similar
    • Hotel management agreements and other similar arrangements
    • Agreements with marketing websites, organizations, and software (Agoda, Amadeus, Fidelio user license agreement, etc.)

    For more information, I recommend you to read my separate article where I explain how foreigners can invest in hotels in Thailand.

    Office Space

    The office space market flourishes in Bangkok and we’ll see a great supply of primarily Grade A office space from 2021 to 2022. 60% of the coming supply will be Grade A offices and located in its central business districts.

    According to CBRE, the amount of office space grows by 200,000 square meters per year and rents will continue to rise, until 2022, when the supply increases.

    Worth mentioning is that co-working spaces will inevitably transform Bangkok’s office space industry in the coming decade. It’s even claimed that 30% of all office space around Asia will be flexible workspace.

    Big corporations and small companies see the benefits of using co-working space as an alternative to traditional offices. It’s proven to be cost-efficient at the same time as it’s easy to relocate the workforce.

    We see less demand for office space in cities like Chiang Mai, Pattaya, and Phuket. It’s not strange as we see less commercial activity here and these cities are more tourism-dependant and with manufacturing operations.

    Retail Property

    The retail industry has started to recover thanks to the improvement of the general economy. But challenges lie ahead. Consumption is still weak, at the same time we see changes in the retail property market.

    The supply of retail shops increase and the growth in eCommerce force retail owners to change strategies. Omni-channel sales strategies and O2O commerce become increasingly important.

    This is not something we see only in Thailand, but practically in all countries in Asia, like Korea. To quote CBRE Thailand: “This rapid transformation of the retail landscape means malls must innovate or die.”

    We also see that tenants put more pressure on landlords of retail property, mainly due to the increased competition.

    Tenants put pressure on landlords

    Previously, landlords have put much risk on tenants by offering leases stretching up to 3 to 5 years. This has put pressure on tenants to deliver good sales results and landlords often try to squeeze as much money as possible from rents.

    Now, we see a trend where landlords have to take on more risk as rents are based on a percentage of sales revenues, referred to as Gross Profit (GP) rent. Thus, both the tenant and landlord will suffer when business goes bad, but benefit from times when business goes well.

    We also see that landlords have to provide more data about the premises, including the number of visitors to malls, how much they spend, and more.

    With the increased competition in the retail industry, landlords will need to cope with higher demands from tenants.

    Industrial Real Estate and Warehouses

    The industrial real estate market has been one of the best performing, mainly thanks to increased inflow of Chinese investors. According to CBRE, Chinese investments into the industrial property market increased by as much as 31.7% in 2018 alone.

    At the same time, sales of serviced industrial land plots – privately owned industrial estates – by major developers in Thailand increased by 50%.

    Yet Japan still outperforms China and invested almost USD 87 billion in 2018. China, on the other hand, invested almost USD 5 billion.

    Purchases are often done through Joint Ventures (JVs) between local and overseas developers. Guangxi Construction Engineering Group and CP Land is one example where a local Thai-company set up a JV with a foreign entity to acquire property locally.

    With that said, leasing premises is also very common, due to the regulatory issues and the paperwork involved when purchasing industrial real estate.

    If you’re an individual private investor, you should have a look at REITs for commercial property in Thailand, as it’s significantly easier to invest this way.

    Car Parks

    Cities like Bangkok suffer much from traffic congestions and available parking spaces, a reason why Japanese operators have started to target its car parking industry.

    By automatizing car parks, they can reduce labor costs and parking fees, which has resulted in 90% of operating revenues. Here, they simply install automatic fare adjustment systems, surveillance cameras, and electronic signage to show space availability.

    Another key point mentioned is that the market is highly sensitive to high parking fees. These should be raised in line with growing income.

    Interestingly, we see an increase in automated car parks along with the increase in condo developments. This doesn’t only happen in Thailand, but in other Asian countries.

    According to the General Manager of Space Value (Thailand) Co., only 10% of prime condos in Bangkok installed automated parking systems, but that number has been increased to 80%.

    Best Cities to Invest in Commercial Property in Thailand

    Bangkok stands apart as the only business hub in Thailand, the demand for commercial property is undoubtedly the highest here.

    Yet there are also many tourist destinations where investors look for hotels and restaurants, for example.

    Bangkok

    As mentioned, Bangkok is the most visited city in the world and the financial hub of Thailand. Thus, you don’t only have the opportunity to invest in hotels, but other assets such as office space, industrial property, and retail property.

    We’ll also see a big increase in co-working spaces in the coming decade, mainly managed by big foreign operators.

    You don’t necessarily need to have an office in its central business district, which is not only the most sought after area, but the most expensive.

    Bangkok has a new central business district which is located close to Rama IX and Ratchada. Along with the construction of new MRT lines, more companies decide to set up offices here. Prices are generally cheaper here, at the same time as it’s easier for workers to commute.

    Phuket

    Phuket mainly relies on tourism and there’s significantly less commercial activity compared to Bangkok. You’ll mostly see hotels and beachside restaurants up for sale, to cater travelers.

    The South and Western parts of Phuket host the most travelers for sure and where prices are higher. With that said, the Northern parts become increasingly popular and where see more residential developments.

    Some of the benefits of buying property in the Northern parts is the proximity to the new international airport and the lower prices.

    Koh Samui

    Koh Samui is famous for being less bustling than Phuket, but still a preferred choice among many travelers. Properties up for sale include commercial land (which gets increasingly popular), hotels, and restaurants.

    Despite not being as a developed tourism destination as Phuket, Koh Samui is the preferred choice for many families and there’s a bigger diversity in terms of nationalities.

    It’s said that Koh Samui doesn’t suffer from over-supply of property like Phuket does.

    Nowadays, you’ll find many international hotel brands here such as Samujana Residences, Four Seasons, and Conrad Hilton.

    Commercial Property Taxes

    Thailand is well-known for having some of the most competitive property taxes in the region. Let’s have a look at the taxes you need to pay when buying, holding, and selling commercial property.

    Stamp Duty

    A stamp duty of 0.5% multiplied by the assessed value is charged to individual buyers. If you buy property as a company, the stamp duty is waived and you pay a business tax instead.

    Business Tax

    Individuals and companies alike pay a business tax which is 3.3% and multiplied by the appraised value or registered sales value, whichever is higher.

    As mentioned, if you’re a company you pay the business tax but not the stamp duty.

    Withholding Tax

    Individuals pay a withholding tax which increases progressively from 5% to 37% and multiplied by the assessed value.

    Companies are only subject to a withholding tax of 1% of the registered sales value or the assessed value, whichever is higher.

    The taxable amount is calculated by multiplying the assessed value by a deduction factor, measured in percent. The factor ranges between 0.08 – 0.5%, the longer you hold the property, the higher the deduction rate.

    Municipal Tax

    The municipal tax is 10% and multiplied by the business tax amount.

    Transfer Fee

    The transfer fee is generally 2%.

    Capital Gains Tax

    Companies are subject to a capital gains tax equal to ordinary business income tax, which is 30%.

    Individuals are not subject to any capital gains tax in theory, yet profits will be taxed per the personal income tax rate.

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