The Purchase of Private Land for Low-Income Housing Development

Most purchases of land for low-income housing development involve the purchase of private pieces of land rather than public land. The chosen plots of private land are typically inexpensive and previously hosted squatter settlement or rental properties. This article discusses the experiences of 12 community leaders who have purchased private land for low-income housing development.

1. Preparation for the Purchase.

When the community faces a certain crisis, such as rental contract termination or eviction, it can utilize various strategies to deal with the problem. These strategies include:

- the establishment of a savings co-op
- data collection from the affected residents including data on the number of affected residents, ages, incomes, expenses, debts, and savings. These data can be used to provide and estimate of the amount of money that can be pooled together to purchase land.
- The formation of teams that will collect data, exchange information with other communities, and co-ordinate with relevant agencies.

2. The Purchase of Land.

Most communities would like to continue living in their existing locations. These locations are typically located in the inner city, and the costs of purchase are typically prohibitive. However, it has been shown that the purchases of private land in prime locations for low-income housing development do happen in the following cases:

- The private land has no or little road access. The purchase of such land can happen when the land has the following characteristics:

o small size (less than 3 rais) with no access of public utilities such as electricity and water. Examples include the Hua Fai Community in Chiang Mai and the Wat Chan 3 in the Pasicharoen District of Bangkok

o a community that has formed strong social ties with the owner, such as the Charoenchai Nimitrmai community, is a unique case. This community used its good, long-established relationship with the owner to get a bargain from the price of 35,000 Baht per rai to 7,500 Baht per rai.

o The purchase from Thai Asset Management Corporation (TAMC). TAMC is a state agency that was established after the 1997 Asian Financial Crisis to take transfer of impaired assets from state-owned and private financial institutions and asset management companies and manage them for the purpose of reviving the economy. TAMC’s assets may come with certain restrictions, such as problems with access to the land. But TAMC’s lands are more affordable than other types of privately -owned lands.

o The purchase of lands in the suburban area is more affordable than those in the city.

Choosing the Land for Purchase

The process of selecting the right land requires the following considerations:

1. The Characteristics of the Land:

o Location: The location should not be too far from the existing location, which is close to jobs and schools. Some projects set the distance limit to 5 kilometers from the existing location. However, if the new site is far from the existing site, it should offer certain advantages, such as access to public transportation, jobs, schools, hospitals, temples, and markets.

o Affordability

o Size: the size of the land should match with the planned number of residents. If the land is too big, then project developers will need to recruit more members, who may not commit to the project. For example, if new members are from other communities that do not have housing crises, they may easily leave the project once problems arise.

2. Searching for the candidates

o Members of the project may need to search for available land sales from several sources, including the existing owner, nearby land sales, TAMC, announcements in community radios, and the internet. They also need to compare different options. For example, lowland may be cheaper but the cost of filling the land will significantly add to the cost of purchase. Some lands are cheaper because of the lack of road access. In these cases, project members should check for foot access or the potential to purchase road access. All these costs must be taken into account. Some TAMC’s lands are cheaper than market prices, but the buyers cannot survey the land before the purchase and have to take the land as is.

o Members should participate in the research process. They should also visit the potential site and negotiate the prices.

o Important details about the land should be examined. Examples include neighboring site plans and possible mortgage default.

o Relevant laws should be reviewed, especially zoning law.

o Land history, including the current owner, the old owner, the contact person. In looking at land history, one should look for the potential for fraud.

o Consulting with those with experiences in land transactions.

o Conducting a comparison between official estimates vs. market prices.

o Getting to know the future neighbors. Asking them about the geographical factors that affect the land, such as flooding pattern and pollutants from factories.

3. Price Negotiation

o The members should first consult those with experiences in land purchase transactions, such as CODI staff, and ask them to help with the negotiation.
o Members should meet with the seller as a group to prevent future miscommunication. The meeting should be in person and not over the phone.
o Members should negotiate directly with the landowner as opposed to the middleman. In the case of joint ownership, the buyer should determine the most influential and easiest person to negotiate with. Social pressures could also be used to help with the negotiation – for example, the landowner may be inclined to listen to certain people’s recommendations. If the land owner is an institution, supporting agencies should help with the negotiation.
o The limitations of the land should heavily contribute to the decision. Consider whether the limitations can be fixed and at what cost. Those limitations can also be used to negotiate a better price.
o Giving some incentives to the owner. For example, owners may receive benefits from selling the piece of land if the sale leads to improved road access for his other nearby pieces of land.
o Eliciting empathy from the owner by describing the low-income people’s economic hardships caused by land eviction.
o The target price should not be revealed in the beginning. Buyers should negotiate several times, emphasizing the limitations of the land, before they reveal their preferred price.
o The decision on price should be based on a rich set of information, for example, tax payment requirements, commissioning fees, deposit requirement, and the use of cash vs. credit.

Case Studies

These case studies of the purchase of private land has shown that a bargain price lower than the market price and estimated price can be reached.

Khun Kanchan from Ruanmitr Pattana Community, Bangkrui Distric, Nontaburi.

This is a community that has been evicted from the State Railway of Thailand’s land. They were able to purchase 8 rais of land at the price of 13,000 Baht per wa, compared with the estimated price of 25,000 Baht per wa. Her recommendations include: “We formed 4 teams to search for lands. Everyone must be involved. Our major criterion is the proximity to our old place. The first place we looked at (Wat Tongnaprang), is expensive and has limited road access and utilities. The second site at Wat Ponon has road access but also a dead end. The third place at Fahmai has potential access conflicts with the existing community. Our teams were assigned to look at these different sites and came back to reach a conclusion together.”

Aunt Charn Kuapichitr, Klong Lumnun Community:

“Once our neighborhood was developed, we were evicted. The eviction lasted for a few years; residents were captured; they marched toward the Parliament. During this time, we were looking to buy land where we occupied. They belittled us and thought that we couldn’t afford the land. And even if we were able to buy it, the owner was afraid that he couldn’t be able to sell the rest of the land. Finally, we bought a piece of land about half a kilometer from our old community. There was no road access, but there was a pedestrian path along the canal about 1.15 meters wide. We had to negotiate for this foot access. The price was reduced from 15,000 Baht to 3,000 Baht per wa. Today’s price has increased to about 35,000 Baht per wa.”

Nong Kam Co-op:

We were located originally in a temple with road access. Then the temple granted the land to the city for the purpose of road expansion; they terminated our contract. So we united with 6 other communities that had similar problems. We found a piece of land about 20 km from our old site. The land is near schools and temples, so we decided to take it. But after we acquired the land, a new zoning law designated it as a green area, meaning that the local district office cannot approve housing development. Therefore we had to contact the zoning department to determine if the date of purchase was before or after the law became effective. We were lucky the date of purchase was before the effective date of the law. This was partly because we rushed to buy the land for fear of eviction, so we couldn’t get a big bargain.”

Sirindr Group, Kongsan:

“We were evicted in 2004. Six months after that, we were sued in court. So we contacted CODI and co-ordinated with the Rakban group. We went through many rounds of negotiations with different land owners. At first we went to look at the Bangbon land, which had little access from the road. To pay for this access was very expensive so we decided not to go ahead. Then we went to look at the Bangbuatong land. It was very far and cost 2,000 Baht per wa. It was too far for most of us who worked in the city. Next we searched the internet and found 2 plots of land owned by TAMC. The first plot was in Soi WatCharn, Petchakasem 48 and was about 15 rai. We negotiated for about 5-6 months and didn’t get loan approval. The project was too big, consisting of more than 300 co-op members. They believed that we wouldn’t be able to get an agreement from all members. Then we looked at the second plot, which was located in front of Bang Chak school. The size was 7 rai 8 wa. We negotiated with TAMC a few times with the helped of CODI. We were able to bring down the price from 14,000 Baht to 9,017 Baht per rai. It was a good deal – right next to a school, a health clinic, near a temple and was about 8 km from our old site.”

Problems that Often Arise When Purchasing Private Land

o Some members of the community can secretly serve as an agent for the landowner. This situation can lead to a higher price and conflicts in the community. The conflict might lead to an eventual dissolution of the group.
o The land is subject to foreclosure, but someone claims to own it and ask for a deposit. The same could also happen to the access road.
o Buyers could be misled when settling the deal through the phone.
o Timing of payment also affects the success of the project. The rush to put down a deposit could lead to a higher price. Putting down a deposit before negotiations complete or before the loan is approved can lead to unsuccessful negotiation.
o Land agency’s officials may not disclose all information or may side with the landowner.
o Though sometimes the land is inexpensive, the cost of improving the land, e.g., the cost of land filling and the cost of access, may be too high.

Developing the Land

The next steps that should be followed after the purchase of land is complete is as follows.

1. Coordinating with local development agencies, such as local administrative organizations which could help solve certain problems such as access to the land. In the case of Ban Mankong Chantrasomboon, the local administrative organization began to include the project into its map for future supports.

2. Reblocking should involve all members. Different reblocking plans should be crafted and discussed among the members. An important factor that should be taken into consideration during this process is the income level of members and the ability to pay back the loan. When the land is divided into plots of different sizes, even the lowest-income member can join in. An alternative is to divide the land into plots of equal size in the beginning and allow the members to pay back to the loan for a few months to assess their ability to pay back. The plots can then be resized accordingly. Such is the case of the Klonglumnoon Project.

Similarly, the allocation of common spaces, such as roads, playgrounds, co-operative office, should involve all members. Housing projects based on private land acquisition typically can allocate smaller area to common spaces, compared to those that use public land. For example, some projects can accommodate small roads about 3-4 meters in width but without parking spaces.

3. Landfilling. The extent of landfilling requirement and its cost depend upon the land’s original condition. Some plots require so much expense on landfilling that CODI’s utilities development budget may not be enough. To solve this problem, the project may employ certain strategies to manage the expenses, e.g., by arranging a bidding for the lowest landfilling contract, by taking out a loan, or by using a nearby community utilities development budget.

Private Land Purchase: Some Precautions

1. The process of searching for a land to purchase and the process of price negotiation should not be done by one or only a few persons. Nor should they be done over the phone. This is due to several reasons. First, information about the land could change after more members begin to participate in those processes. And second, those few representatives who go search for land to purchase could alter their role to become the landowner’s agents.

2. The land price should not be the only criterion for land selection. Low upfront prices could be associated with higher additional expenses, such as expenses on landfilling, access, or transportation costs.

3. Be cautious of fraud and high prices when purchasing the land through a real estate agent.

4. The land should be surveyed before dividing it into plots. If the land is divided according to the original deed, one may later find missing area.

5. TAMC’s lands are different from privately-owned land because TAMC’s lands cannot be surveyed before purchase and tend to be cheaper. This means that the expected size of TAMC’s land as stated on the deed could be different from the actual size.

Preventing the Transfer of Ownership and Sustaining the Community

- In order to prevent the transfer of ownership of members’ plots to outsiders and prevent land speculation, members should reach an agreement and integrate the agreement into the co-op’s constitution. Any transfer of ownership should be done through the co-op.

-Dividing the land into different plot sizes according to members’ ability to pay for the land would help increase the stability of ownership.

-If a member faces economic hardships, such as unemployment or sickness, and cannot continue to pay mortgage, the co-op could devise a plan to help out. Three communities – Charoenchai Nimitr Mai Community, Klong Lam Noon Community, and Dynamo Community --- divided the land owned by the unemployed member into two plots and sell one plot to an expanding family. The community could also help out by providing local jobs such as guarding or garbage collecting.

Types of Ownership

There are two basic ways that the housing co-op can own the land once it is purchased:

1. Ownership by the Co-operative: Today about 95% of low-income housing projects utilize this model. Advantages of this model include fee exemption in financial transactions and low transaction costs because a committee can act on behalf of the members. A major disadvantage is that the deed cannot be divided and sold.

2. Joint Ownership: The names of all members are listed in the deed. This model of ownership is appropriate for small projects with few members because any legal transactions that will occur will have to receive consent from all members.