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Global Mortgage Finance

(Thailand Property and Land Finance Specialists)

Published 1st February 2016​​​
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​It is almost 6 years since I wrote my first article regarding Thai property finance and I have covered various different structures during that time. Initially back in 2010, as a “newbie” to Thailand, I found it was embedded in a large part of the Thai/ Expat society that Foreigners (or Farrang as some may call) could not borrow against property in Thailand. To begin I found this largely to be true until after spending many months researching the topic and after many referrals through to banks and financial institutions later, finance was readily available and in many different formats. I like to think that now, Finance for Foreigners is considered readily available although there is still a lot more marketing and promotions to be done especially with Villa finance still proving to be a challenge.

The main international recognised structure for property Finance is a traditional Mortgage where title deeds remain in the borrowers name and a debt/mortgage is registered at the land office, once the loan is repaid, the mortgage is deregistered at the land office and the borrower would than hold the original title deed, once more. This is the most secure type of borrowing an owner of property would like to take on since, under terms of default, a reasonable time in court would be undertaken before any forced sale takes place.

The second most common structure in Thailand is Kai Faaq/Kai Faak/ Kai Fak (as there are many different pronunciations of this traditional Thai structure, for the purpose of this article I shall stick with Kai Kaak). How this structure mainly differs, is that the title deed is transferred to the lender at the land office with a right to buy back the title once the loan is repaid. The name/owner of the title deed changes and would thus invoke property transfer taxes.

This now brings me to the question, why do Foreigners and Thai’s borrow under Kai Faak structure as from the out set, it may seem like there is more risk and would invoke property transfer taxes so potentially more cost..…The more concerning fact, your property and life savings could be at great risk where you could lose everything very easily.

To begin, we must first cover what types of Kai Faak lenders there are.

As the title deed of the property is transferred to the borrower, there could be very different agendas from the lenders perspective. If the lender is only interested in taking your property, than it could certainly be considered more risk, than if the lender is interested in the net interest return with a worst case scenario of having to take the property, if the latter than it is all about making good commercial sense to the lender. It is therefore very essential to chose your lender carefully carrying out a decent amount of due diligence, perhaps asking around for recommendations.

A few types of collateral to be offered as a Kai Faak could be the following:

​1. The Land Owner
2. The Resort Owner
3. The Luxury Villa Owner
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The Large Land Plot owner is often the most common Kai Faaq and usually involves an owner, realising cash out from the land in order to invest elsewhere on short-term basis (1-3 years), with a greater profit margin than the cost of borrowing. The beauty of the Kai Faaq is in the approval process since often requires little paperwork even for significant amounts of money as is loosely based on the lenders ability to sell the land at a profit IF the borrower defaults, as the lender would become the rightful owner very easily, since they already own the Land on the title deed. i.e. a prime beachfront freehold plot of land being Kai Faak to a lender for less than half it’s real value is a no brainer from the cash rich lender perspective since would be a very saleable asset or could even be
developed.

A Resort Owner may perhaps be looking for a cash injection in order to develop or refurbish part of the hotel or perhaps be looking to expand the resort by making a purchase of land elsewhere that they may intent to build on. If there is a significant hotel yield and a refurbishment or land purchase makes good commercial sense to increase company revenue, offering a Hotel as collateral to a lender is no risk IF the owner feels they are able to service the debt and repay the loan and the lender is reputable.

A Luxury Villa Owner may have most commonly bought a Villa under a Thai or Thai company name and perhaps did not require funds when making the purchase. If a significant amount of cash had been put into the property, assets are tied up which perhaps could be better utilized elsewhere. By offering the Villa as collateral to a lender, cash could be released allowing the owner to spend on other investments rather than be invested in the Villa. Particularly if the Villa is rented out and is earning a decent income, which could help service the loan interest.

Typical terms which could be applied for a Kai Faak are however, usually not cheap. The maximum interest rate permissible by law in Thailand is 15% and interest on this type of deal would usually start from 12%. By the time Property Transfer Fee’s are payable at the land office, a Lender Fee of 1.50% and other small ancillary charges, it all adds up and certainly, to take on this type of debt, a high level of income or cash needs to be available in order to repay the debt and certainly, a high level of profit elsewhere is recommended where possible.

The maximum loan size which could usually be achieved is up to 60% of a lenders appraisal value with some lenders requiring an independent appraisal company to carry out their due diligence. Unfortunately valuations are far from consistent and sometimes, it is difficult for an appraisal company to carry out an appraisal since share transfers of Thai companies can take place rather than a property transfer thus, not disclosing a true sale value which could distort the appraisal value given. A better guesstimate for how much could be borrowed is to think, how much would I sell for, divide that value by 2 and than knock off a few more million and this is a better estimate for a loan size.

To summarise, why the Kai Faak for me, seems to be a popular way to borrow, depends on whether the borrower is Thai or Foreigner. A Foreigner may chose to Kai Faak simply because quick cash is needed or has been exhausted going through 1,001 questions at a bank to get nowhere pretty fast. A straight forward Mortgage is easy enough back home, but going through various hurdles to buy a property in the first place, a Kai Faak is too simple even though, quite costly and at far greater risk. A Thai on the other hand could be very familiar with this traditional (since the Thai revolution) way of borrowing and rather than go through a bank which requires sizeable paperwork showing evidence of income etc. and projections, the Kai Faak is pretty straight forward and with no Credit Bureau records in case of non-payment.

​​For further information on how to Kai Faak or Mortgage Property & Condos in Thailand, please feel free to email enquiry@globalmortgagefinance.com OR call 66 (0) 81278 5382 and either shall be happy to assist.