On 8th August 2007, the National Legislative Assembly (NLA) met to vote on the proposed amendments to the Foreign Business Act in relation to the foreign control of companies; nominee shareholders; and preferential voting rights. The result could turn out to be a landmark date for foreign investment in Thailand, and it could also have lasting implications for many industries, but specifically real-estate.

The proposed changes to the act were to make the law stricter and more restrictive for foreigners to own, or control, companies within the Kingdom. However, the approved draft was considered too lenient and a further amendment outlawing preferential voting rights and, as such, restricting any foreigner from having control of any company, was added and voted upon. Some of those in favour of the more stringent version felt that tighter limitations on foreign ownership, share-holding and voting rights, and management control would protect the country’s sovereignty. Foreign investors would face difficulty circumnavigating the act after the proposed changes. The fears were that if the more lenient version were passed then foreigners would have control of local businesses.

In contrast, those supporting the softer amendments stated that Thailand has to allow foreign investors to independently control company management as the country needs foreign knowledge and experience to help develop business. An expansion of management controls would create difficulty for Thais in developing business efficiency.

The vote resulted in a 76 to 64 victory for the hard-line government draft. And this immediately sent shockwaves through Thailand’s business sector. But, as people discussed the implications, an extraordinary turn of events occurred; a further vote was taken to withdraw the bill all-together and have a new draft amendment prepared. And this time the result was unanimous, the amendment to the act was immediately withdrawn.

So the situation now is that a new draft amendment has to be decided upon, submitted for approval and then voted on again. And no time-frame has been suggested for this to take place. With the general election scheduled to be completed by the end of this year it seems unlikely that this new draft amendment will be put before the current military-run government.

The effect of passing the government draft could have been catastrophic for the real-estate industry, especially at a time when there is now significant competition from neighbouring countries. A report from CB Richard Ellis recently pointed out that retirement and second-home purchasers have become major components in the tourism and real-estate markets in Spain, Florida and Australia. And this is a steadily growing market in South East Asia. But issues over foreign ownership, mortgages for foreigners and visa restrictions provide significant obstacles.

Thailand has been at the forefront of retirement and second-home development offering an attractive quality of life, and cost of living, but it still has restrictive property ownership rules. Singapore, Malaysia, Indonesia and Vietnam now provide considerable competition in attracting such purchasers.

The reason Thailand has done so well in the past is simply the fact that more people have wanted to live, or own property, here. However, as restrictions in other countries are relaxed, and buying, or investing, in Thailand becomes more difficult, it stands to reason that people will start to look elsewhere.

The positive thing is that, in this instance, no decision is far better than the wrong decision. Changes to the law aren’t always bad, and clarification, however restrictive, would in some ways be a good thing, as it removes any ambiguities. But how will this current none-decision affect buyer confidence in the property market?

Well, the fact is that it all depends on you as the investor. Things still haven’t changed and despite the possibility of future amendments, one factor in place now is time. If you really want a house in Thailand then you’ll buy one, either now or when the changes have been made. And if you choose to defer your decision until the dust has settled you could be in for a long wait, and you could miss out on your opportunity. If you’re buying purely for investment then you may be tempted to look for a new location. However, again this could be costly as the general feeling is that things will get better and the financial returns on a real-estate investment, especially here on Samui, may seriously outperform that of those in neighbouring countries.

The market has recently been showing signs of improvement with more buyer confidence and people being prepared to make the decision to buy now; based on the belief that the country will become more stable following the election. Therefore, for many people in the real-estate industry, the decision to withdraw the proposals will be a relief.

This current government is an interim, non-elected government with a number of difficult issues to consider and deal with. And, yes, foreign investment is a major concern, and probably high on its agenda. But, wouldn’t it be better for everyone, in this example, to wait for the democratically-elected government to be the ones to make changes to the laws that affect the future of Thailand?

If a decision had been made that caused widespread and lasting damage to foreign investment, then a new government would definitely be put under pressure to amend it, and this would take time. During that time the amended law could cause irreparable damage whilst the new government took time to act.

By deferring any amendments until an elected government is in place, things can continue as they are until any proposed changes have been considered by that new government. This has to be better for the future of foreign investment, and real-estate, in Thailand.

Real-estate agencies have endured a difficult time and the passing of that law could have been a fatal blow for many. Deferring the decision will give agents time to recover a little and build on the recent increase in buyer confidence. That could ensure their survival to continue business when the decisions are finally made and the market inevitably gains its momentum once again.

Let’s not forget that real-estate is a major employer and considerable income generator for Samui; only tourism affects more people on the island. And the two industries complement each other and run in parallel. As tourism on Samui has shifted towards more high-end travellers, the real-estate industry has responded by providing more suitable accommodation in terms of single houses, luxury apartments, town houses and residential homes bought as part of 5-star resorts.

Both tourism and real-estate have resulted in improvements to infrastructure, better shopping facilities, and improved services, making life here more enjoyable for everyone. So they deserve a bit of good fortune and, maybe in the future, the events of the 8th August 2007 will be remembered as a very important day.