In the latest effort to protect small-scale land owners from loan sharks, the government has approved a draft bill on sale with the right of redemption (kai fak).
Kobsak Pootrakool, the Prime Minister's Office Minister, said the steering committee on the government's policy acceleration approved the draft bill on sales with right of redemption, one of two new laws aimed at protecting low-income earners.
The other new law allows people who grow high-value trees such as teak, Siamese rosewood and Burmese rosewood on their own land to harvest them for income and promote reforestation.
Sale with right of redemption is a contract of sale wherein the seller who owns the real estate has a legal right to redeem his or her sold property within an agreed period. With this method, the seller transfers ownership of the property to the buyer at the seller's expense.
The redemption takes place upon reimbursement of the entire amount by the buyer, including all related fees incurred in the process.
Transfer of ownership back to the original owner takes place only when the buyer gets the money back on the agreed date.
The period to buy back the property will be registered on the title deed. The buyer must return the property in the condition it was at the time of redemption. If there is destruction or deterioration through the fault of the buyer he will be liable to pay compensation.
In the event that the seller fails to comply within the kai fak period or when the kai fak period expires, the seller loses the right to redeem the property from the buyer.
Right of redemption is not a financial debt. This method is widely used in Thailand as an alternative to mortgages.
A mortgage is a debt instrument or a contract, secured by the collateral of specified real estate property, that the borrower must pay back with predetermined payment terms. Real estate purchases can be made without paying the entire value of the purchase up front through mortgages.
Mr Kobsak said the two new laws are scheduled to be submitted for the cabinet's approval over the new few months.
"Thailand has been trying to issue and enforce this new act for over 50 years, but has never managed to make it happen," he said.
"Thailand has a total of 300 million rai of arable land, 150 million of which is farmland, and half of the remaining 150 million rai is land farmers rent from landlords. That means farmers have completely lost ownership of farmland."
Mr Kobsak said about 30 million rai of the remaining land is mortgaged and the reach of kai fak contracts may amount to several hundreds of thousands of rai that are at high risk of being confiscated by loan sharks, who exploit existing laws to seize land from farmers or low-income earners.
