Property Mortgages in Thailand

Property Mortgages in Thailand. In Thailand, mortgages are governed under a combination of civil law principles and financial regulations. Mortgaging property is a widely used mechanism for Thais to purchase real estate, while foreigners may face substantial restrictions under Thai land laws. Understanding the mortgage process—both in terms of legal structure and practical application—is critical for any individual or business dealing with property financing in Thailand.

I. Legal Nature of Mortgages Under Thai Law

A. Definition and Classification

Under Sections 702–756 of the Civil and Commercial Code (CCC), a mortgage is a real right over immovable property given as security for the performance of an obligation. This right does not involve transfer of possession or ownership, but it allows the creditor to force the sale of the mortgaged property in the event of default.

B. Properties Eligible for Mortgage

Mortgages may be granted over:

• Land (with Chanote or Nor Sor 3 Gor titles)
• Buildings and structures
• Condominium units
• Registered leasehold interests (in some cases)

Unregistered land or lower-grade titles (e.g., Sor Kor 1) generally cannot be mortgaged.

II. Types of Mortgage Arrangements

A. Residential Mortgages (for Individuals)

This is the most common form and is used to finance the purchase of residential properties. Available mainly to Thai nationals or permanent residents, and in limited cases to foreign nationals purchasing condominiums.

B. Commercial Mortgages (for Businesses)

Used for commercial properties or as collateral for business loans. Banks may require additional security such as guarantors, liens on other assets, or assignment of rental income.

III. Eligibility and Borrower Categories

A. Thai Citizens

Thai nationals face relatively few restrictions. Banks assess:

• Income and employment status
• Debt-to-income ratio (typically max 40–50%)
• Age limits (usually 20–65)
• Credit and legal history

B. Foreign Nationals

Foreigners face significant restrictions:

• Cannot mortgage land, as foreigners cannot own it outright.
• May mortgage condominium units, provided they are legally owned and comply with the 49% foreign ownership quota under the Condominium Act.
• Must prove:
  • Long-term visa or work permit
  • Legal source of income (either in Thailand or abroad)
  • Compliance with foreign currency remittance rules (FET forms)

Foreigners cannot access state-supported mortgage schemes such as those offered by the Government Housing Bank.

IV. Lending Institutions and Conditions

A. Banks and Financial Institutions

Approved lenders include:

• Commercial banks (e.g., Bangkok Bank, Kasikorn Bank, SCB)
• International branches (e.g., UOB Singapore for overseas financing)
• Finance companies licensed by the Bank of Thailand (BOT)

B. Key Loan Terms

Typical mortgage conditions:

• Loan Tenure: 10–30 years (depending on borrower age)
• Interest Rates: Fixed for first 3–5 years, then floating (linked to MLR or MRR)
• LTV Ratio:
  • Up to 90–100% for first-time Thai buyers
  • 50–70% for foreigners or investment properties
• Repayment: Monthly, amortized

V. Registration Process

All mortgages must be registered at the provincial or district Land Office, alongside the property title.

Steps:

1. Drafting of the mortgage agreement, specifying:
   • Debt amount
   • Interest rate
   • Repayment period
   • Remedies in case of default
2. Land Office review of documents
3. Registration of the mortgage on the land title deed (Chanote)
4. Payment of registration fees

Fees:

• Registration Fee: 1% of mortgage amount (capped at THB 200,000)
• Stamp Duty: 0.05% (if applicable)

VI. Condominium Mortgages for Foreigners

Foreigners can mortgage condominium units if:

• The unit is under their name
• The unit is within the 49% foreign quota of the building
• The purchase funds were remitted from abroad in foreign currency, with FET documentation

Thai banks may provide loans to foreigners under restrictive conditions, or through their international branches with local collateral. Offshore mortgage approval is more common for high-net-worth individuals.

VII. Foreclosure and Enforcement

A. Legal Remedies

If a mortgagor defaults:

1. Written notice is issued
2. After 60 days, the lender may file a civil lawsuit for foreclosure
3. Court orders auction of the mortgaged property
4. Sale proceeds are applied to satisfy debt; excess (if any) returned to debtor

Under Thai law, the mortgagee cannot unilaterally seize the property—a court order is always required for sale.

B. Deficiency and Personal Liability

If the sale proceeds are insufficient, the creditor may sue for the shortfall unless otherwise waived in the mortgage contract.

VIII. Tax and Currency Considerations

A. Taxation

• Mortgage registration fees are paid by the borrower.
• Mortgage interest may be deductible (for Thais) if the loan is used for a principal residence.
• Interest paid to foreign lenders may be subject to withholding tax under Thai law or applicable tax treaties.

B. Foreign Exchange Compliance

For foreign borrowers or Thai nationals using foreign currency:

• All transfers over USD 50,000 must be declared via a Foreign Exchange Transaction (FET) form.
• The FET form is also required for foreign ownership registration of condominiums.

IX. Risks and Safeguards

For Borrowers:

• Variable interest rates after promotional periods may lead to payment shocks.
• Early repayment penalties may apply.
• Missed payments can lead to foreclosure and asset loss.

For Lenders:

• Foreclosure proceedings can take 12–24 months.
• If mortgagor is foreign and absconds, legal recovery is difficult.
• Buildings without proper construction permits cannot serve as valid mortgage collateral.

X. Alternatives to Traditional Mortgages

• Developer Financing: Many developers offer post-handover payment plans (not mortgages).
• Leasehold + Option to Buy: For foreigners unable to secure a mortgage.
• Usufruct or superficies rights combined with cash purchase of structure.

XI. Conclusion

Property mortgages in Thailand represent a well-structured but strictly regulated financing instrument. Thai nationals enjoy broad access to housing finance, while foreigners face limited options, mostly restricted to condominiums and subject to currency and title controls. Legal assistance is strongly advised for structuring, registration, and FET compliance. Understanding the nuances of Thai mortgage law ensures smoother transactions and protects both lenders and borrowers from legal and financial exposure.