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Tuesday 27 February 2007

Thai Airways suspend maiden flights to Samui

Comments on a report in The Samui Express 23 Feb 2007
Originally planned to commence operation on 1st March with two flights a day, Thai Airways have, according to Koh Samui Tourist Promotion Association, decided that the landing costs imposed by Bangkok Airways are too high and have scrapped those plans.

(We have to wonder why at this late stage they have changed their opinion as we are not aware that the landing charges have changed since they first announced the intention of flying here. The usual criticism is that Bangkok Airways airfares are excessive. Koh Samui is not shown as an available destination on the Thai Airways website so it is not possible to compare what they would have charged. We did check a return flight from Surat Thani to Bangkok and the total price was Baht 7,390. An equivalent fare with Bangkok Airways was Baht 8,030 so the additional Baht 640 saves a bus, ferry and bus trip to Surat. The Bangkok Airways promotional fare is only Baht 5,265. A flight from Bangkok to Phuket return was Baht 8,160 and to Krabi was Baht 7,830 so it seems that Bangkok Airways are once again being made the whipping boy for Koh Samui’s problems in not attracting tourists over the recent high season when the bad publicity last year and hotel prices probably had as much to do with that as did the much cheaper general packages to the Andaman Resort areas working hard to regain custom after the tsunami. So once again we are seeing calls for a second airport but there seems to be no evidence that this would produce cheaper fares and unless the hotels are prepared to compete on price with the Andaman coast then the tourists will still not come. There are an ever increasing number of high quality hotels coming to Koh Samui. Four Seasons has just opened, Evason has been here for a while and both Conrad and W have announced plans to be here soon. Others we hear are also planning new five star operations on the island. It is unlikely that guests to these hotels are going to worry too much about a difference of Baht 1,000 on an airfare. So what does Samui want? High end tourists only in which case the existing airport can probably cope or a second airport to attract mass tourism with no guarantee that on its own it will succeed? Can two airports operate at the same time on the island? The original plan for the second airport was parallel to the road from Hua Thanon to Nathon but there now appear to be issues with flight paths and wind shears off the surrounding hills. Also with the present interim government, do they have the will at this time to approve such a project? The land acquisition process itself could take years as compulsory purchase orders will need to go through the Courts and then the funds will have to be available to buy the land and build the airport by which time we will no doubt have a different government to that now in power or in power after the next election – so who knows where it could go and if Suvarnabhuni Airport in Bangkok can be used as an example we probably have another 45 years to wait anyway! )

Friday 16 February 2007

To lease or not to Lease on Koh Samui!

The fall out from the bitter dispute between the military backed interim government and the ousted ex-Prime Minister Taksin Shinawat has been the attack on the nominee structure of foreign controlled Thai companies which for years have been the accepted way for foreigners doing business in Thailand to control their investment. The statement that they are merely clarifying the law rather than amending it is a purely face saving one to avoid admitting that they are changing the law retrospectively. They are doing this by amending the Foreign Business Act but as yet no one knows just what the final version will be and if there will be changes to the Class 1, 2 & 3 lists of prohibited and permitted businesses in which foreigners can have an interest. Consequently there is a great deal of uncertainty in business and in the property sector in particular as the nominee structured Thai company was the usual and accepted way for foreigners to acquire an interest in land in Thailand.

What is certain however is that a foreigner can lease land and this lease can be registered at the Land Office for a period not exceeding 30 years. There is a provision within the Land Code for a further extension of 30 years after the initial lease has expired. Section 540 of the Civil & Commercial Code states:
“The duration of a hire of immovable property cannot exceed thirty years. If it is made for a longer period, such period shall be reduced to thirty years. The aforesaid period may be renewed, but it must not exceed thirty years from the time of renewal.”

So let us look at the pros and cons of leasing land in Thailand as the law stands today.

Firstly and most importantly the interest in the land under a lease is completely legal and enforceable in the Courts.
Secondly, it is possible and again perfectly legal for the lease to be renewed for a further thirty years – and by implication that could go on indefinitely, but subject to the comments below.

The downside to leases are the following.
1) A lease is a depreciating asset. Whereas a freehold will increase in value in line with property values generally, a lease will decrease in value with the reducing remaining term.
2) The renewal of the lease after 30 years is based on a contractual option with the original Lessor. It may not be enforceable against his heirs and successors if he has disposed of his interest or died, although a recent Supreme Court ruling seemed to indicate that it might be provided the option has actually been exercised prior to the Lessor’s death.
3) The lease must be carefully drafted and so registered at the Land Office stating that the lease holds good not only to the Lessee but to his heirs and successors, preferably named, because if he dies the lease, if not, dies with him and is terminated.

These reservations apply principally to leases with individuals. Many developers now are offering 30 year registered leases with both options to buy should the law change to allow that and to extend the lease at the end of the term. These are relatively safe in that the Lessor being a company cannot “die” and the Articles of Association require the company to renew leases when the fall due.

So for the time being the only totally legal way for a foreigner to acquire and interest in land in Thailand is by way of a lease. Will that change? The most likely change being muted currently is to extend the period for which a lease can be registered and both 60 and 90 years have been bandied about. We must wait and see.