Phuket Property: Foreign currency exchange risks

PHUKET: Many foreigners who have decided to buy a residential property in Thailand are required to use funds held in foreign currency in their country of origin.

Property transactions in Thailand utilize myriad 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, followed by installment payments in accordance with the construction’s progress and then a final payment upon completion. In some cases, full or part payment is made against registration of title transfer.

No matter what terms of payment may have been agreed between the parties, an important issue that applies to most property purchases by foreigners in Thailand is that of currency exchange.

Whenever a buyer has the currency for his property purchase in a bank account outside of Thailand and the parties have agreed to a price denominated in Thai baht (which is the usual case), the buyer is required to remit his foreign currency into Thailand in an amount equivalent to the agreed Thai baht purchase price.

A crucial issue to consider is that currency exchange rates experience volatile fluctuations; therefore, the amount of foreign currency equivalent to the agreed Thai baht purchase price may vary considerably between the date the contract was signed remittance dates. This may result in a buyer being required to pay far more (in foreign currency) than he originally anticipated.

For a buyer who may not have sufficient monetary reserves, this increase may cause inability to pay on time, leading to 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 a default in payment may have severe consequences, such as the termination of the Sale and Purchase Agreement by the seller and/or forfeiture of all monies paid to the seller by the buyer, depending on the agreed terms.

Another relevant factor to consider when buying a property with foreign currency is the place and time of the currency conversion into Thai baht. Exchange rates may differ significantly, differ depending on where the actual exchange occurs. 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 determine in advance the exact amount of foreign currency required to be transferred into the Thai baht bank account of a seller in order to make payment of a certain Thai baht amount due.

Furthermore, buyers should investigate if their property purchase is subject to certain laws or regulations requiring remittance of foreign currency into Thailand and its subsequent conversion to Thai baht.

For instance, in case of a condominium unit purchase foreigners are usually required to instruct their bank outside of Thailand to transfer foreign currency into Thailand (where the purchased property is located) in an amount equivalent to the Thai baht sale and purchase price of the unit. The receiving Thai bank would then make the applicable conversion at the time of credit of the funds into a Thai baht account in Thailand.

In addition, the purpose of the remittance and name of buyer is required to be disclosed under the payment instructions provided to the remitting bank. Otherwise it may result in a buyer being unable to collect the documentation from the receiving bank in Thailand showing all details usually required by the competent Land Department office at the time of registration of title transfer.

The same documentation may be required by your bank when applying for the repatriation of funds received upon a subsequent resale of a 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 the legalities and risks involved.

To avoid pitfalls and traps for the unwary, a buyer would be well advised to consult with a reputable law firm and professional advisors prior to signing any contracts or making payments for the purchase of a property in Thailand.

This article is written by International Law Office Patong Beach Co., Ltd. and is for informational purposes only. For inquiries, click here.

— International Law Office