With its low property prices and reputation for “sun, smiles and entertainment”, Thailand has been one of the most popular of the “emerging” markets. But it has not been all smooth going for the thousands of Britons who have already taken the plunge. In recent months, the Thai property market has been unsettled by a string of negative news including the imposition of capital controls, restrictions on tourist visas, a military coup, turbulence on the stock and currency markets, a wave of terrorism in southern Thailand and nine bomb blasts in Bangkok, the capital, on New Year’s Eve, that injured British visitors.

The latest blow was an announcement by the Thai government that it is to restrict foreign ownership of the companies that have been used by many British and other nonThais to buy holiday homes. Foreigners are banned from owning land in Thailand.

“The level of uncertainty is very high right now,” says Dan Tantisunthorn, head of research at Jones Lang LaSalle, an international estate agency. “Times are tough, but Thailand is dependent on foreign investment. So it’s not clear how all this will work out.”

Under Thai law, foreigners are permitted to buy flats (although no more than 49% of the floor space in any condominium building can be in the hands of nonThais), but buying a villa on its own land — the tropical dream depicted in the brochures — is more complex and requires the purchaser to turn to a Thai citizen for help.

The solution for many has been to buy through a Thai-registered company in which the foreigner holds only 49% of the ordinary shares, but, crucially, controls the firm by holding, for example, 80% or more of a separate class of voting shares. Thai nominees — typically a local lawyer or members of his staff — notionally hold 51% of the ordinary shares but exercise no voting rights. “Villas in Phuket and Ko Samui have changed hands for US$1m [£510,000] or more on the security of this structure,” says one resident British company director.

Now the practice has come under the spotlight as an unexpected side effect of last September’s coup. Ignoring protests from the international business community, the leaders of the government installed by the military have ordered rigorous enforcement of the law restricting foreign shareholders to 49% control of companies in protected sectors such as property.

The aim was to punish the family of Thaksin Shinawatra, the ousted prime minister, who reaped a tax-free fortune by selling off their telecoms empire to the Singapore state investment agency through nominee shareholders. But the clampdown on the use of voting shares has sown confusion throughout the economy.

“Property owners will need to consult their lawyers,” says one estate agent. “It’s possible that the nominees could demand control of the holding company to comply with the law, and nobody knows who would arbitrate the price if owners were forced to sell down their voting shares.” There are no reliable figures for the number of British homeowners in Thailand, but one experienced estate agent estimates it is in “the high thousands”, with about a third of those owning villas. More than 700,000 Britons visit every year.

Estate agents say the best way forward for people who are still determined to buy is to opt for a leasehold interest in a property.

“Probably, in our opinion, this is the soundest option for foreigners who want to purchase property in Thailand,” said Robert Collins, managing director of Savills estate agency in Bangkok. “There is a good selection of modern buildings and we find that for the British investor, Thailand always comes up as the preferred choice in this region.”

However, agents may find leasehold a hard sell. Thai law restricts leases to 30 years, so properties are frequently offered with a contract attached to renew the lease once. It is a far from satisfactory arrangement, however, and leading local real estate figures, such as Aliwassa Pathnadabutr, managing director of CB Richard Ellis, are lobbying the government to extend the maximum length of leases to 90 years, and also to allow foreigners to own up to 90% of a condominium.

In the meantime, Pathnadabutr has advised owners and prospective buyers “not to panic”. Claire Brown, of UK-based Claire Brown Realty, also warns against overreaction. “The basic facts haven’t changed,” she says. “Thailand is still one of the best places in the world to own an investment property. The tourists are still coming, infrastructure is improving, and if you buy a premium property you will have a steady rental income.”

However, interviews with estate agents, business executives and diplomats in Bangkok paint a picture of growing concern that, far from further liberalisation, there could instead be further unpredictable moves to placate national pride and to protect powerful Thai interest groups at the expense of foreigners. “There has been a change in the climate,” says one senior diplomat based in Bangkok.

One Thailand-based British executive recently lost a £48,000 deposit on a flat after discovering legal problems with the foreign ownership quota in the building. Another wealthy British owner tells of how residents of his upmarket block awoke one morning to find a Thai developer breaking ground for a 30-storey building next to them, with no prior planning consultation.

Marc Holt, managing director of Bangkok-based Holt-Realty who has lived and worked in Thailand for more than 25 years, warns foreign-based buyers against rushing into the market, especially amid signs that property prices may be falling in reaction to the political uncertainty.

“If you are living overseas, sit back and watch events unfold,” he wrote in a recent newsletter. “I have a feeling that this year is going to be a very ‘interesting’ time in the Chinese meaning of the word.

“It will shake out the real estate market, that’s for sure! Many of the real estate agent ‘cowboys’ who have been operating, especially in Pattaya, Samui and Phuket, will decamp, leaving the field clear for the professionals. That can only be a good thing for the industry, and ultimately you, the buyer.”

Thailand may still be the Land of Smiles, but it is not a place where investors should place much faith in contracts, lease renewals or bureaucratic consistency.

Claire Brown Realty, 07967 258 121, www.clairebrownrealty.com Holt-Realty, 00 66 2693 4146, www.holt-realty.com

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