Economists’ Views on the Global Economy

Land Trust Law & Its
Importance for Both
Public & Private UseAuthor
Naoyuki Yoshino

Naoyuki Yoshino & Pornchai Wisuttisak

Land Trust

while still allowing the landowners to retain their land right.

Land acquisition can be a daunting task for property developers,
who must persuade landowners to sell their land to make way fordevelopment projects such as commercial buildings, apartments,and infrastructure. In Malaysia, some of the infrastructure projects
have to contribute more than 50% of their total costs for landacquisition. Thailand offers a potential solution to this challenge in its
recently adopted concept of land trusts. Land trusts allow
landowners to retain ownership but lease their land to developers forfinancial and commercial purposes in exchange for rental fees.
Land trusts have recently been embedded in Thai law through theRight Over Property Act, which was passed on April 30, 2019 andcame into effect on Oct. 30, 2019. While the Thai Civil Codemandates that only landowners have the right to use their land to
apply for a mortgage from a bank, Section 4 of the Right OverProperty Act stipulates that owners can set up a land trust by
applying to the Land Authority of Thailand. Following approval, they
are free to transfer the land or use it as collateral for any financial
purpose, including using it to seek a loan from a bank. As such, theact has transformed traditional land and financial laws, allowing
those leasing the land to utilize the land trust for commercial benefit

CHART 1Business model of the developmentof apartment and commercial
buildings following Thailand’s Right
Over Property Act 2019
Leaseagreement

Landowners

Developers ofcommercialbuildings andapartmentbuildings

Monthlylease fees

New Land Act to Induce Land Trusts in Private &Public Projects
A major benefit of the new land act is that it can facilitate thedevelopment of apartments and commercial buildings. Inner-city
areas typically have many landowners, making it extremely difficult
to negotiate with individual landowners for the construction of largecommercial buildings or apartment complexes. Landowners areoften hesitant to sell their land if it was inherited or if they wish topass it on to future generations. In these cases, property developerscan utilize land trusts as tools to assist in negotiating the use of theland and for securing loans from banks while allowing thelandowners to still receive fees from their lease agreements. Some
examples of business models based on land trusts are shown inCharts 1 & 2 (“High-quality infrastructure and land acquisition forinfrastructure development through land trusts” by Naoyuki Yoshino,
Umid Abidhadjaev and Nella Sri Hendriyetty, Global Solutions, Issue
4, 2019).

CHART 2Business model of the developmentof infrastructure projects following
Thailand’s Right Over Property Act
2019
Many
landowners

Mortgage/Loan

Banks andfinancial
institutions

Leaseagreement

Monthlylease fees

https://www.jef.or.jp/journal/

Investors ininfrastructure
projects: railways,
energy, water,
roads

Mortgage loan

Banks andfinancial
institutions

FinancialsupportFinancialsupport

Revenue from user charges andspillover taxes returned toinfrastructure operatingcompanies

Revenue of commercial
developers and apartmentbuilders from rent

Source: Compiled by the authors

Author
Pornchai Wisuttisak

Source: Compiled by the authors

Japan SPOTLIGHT • March / April 2020

47

Economists’ Views on the Global Economy

Land Trust in Japan
In Japan, trust business can only be carried out by entities
licensed under the Trust Business Act (Act No. 154 of 2004, asamended) and financial institutions licensed under the Act for
Financial Institutions' Trust Business (Act No. 43 of 1943, asamended). Until the early 1990s, trust business was monopolized byeight financial institutions, of which seven were known as trustbanks. Following the reform of the financial system in recent years,
today over 200 financial institutions and entities are licensed to carryout trust business in Japan.

1) Difference Between Commercial Bank & Trust Bank
Banks deal with deposits, lending affairs and other money-related
businesses. On the other hand, trust banks, in a limited sense,
receive trust of the money. They also receive trust of movable
property and real property other than the trust of bonds and funds ormoney. In addition, they take a role in real estate brokerage orappraisal when they are entrusted with the trust of real property.
They may deal with inheritance affairs, too.
From a functional perspective, there are four distinctive types ofcommercial trust in Japan, and applying the basic principles
recognized under the Trust Act to any of these types would lead tounwarranted results. (1) Trusts similar to deposit taking and lending:e.g., loan trusts. (2) Trusts for asset management: e.g., money trusts
and securities investment trusts. (3) Trusts for securitization: e.g.,
money claim trusts. (4) Trusts for business: e.g., land trusts.

2) Land Trust Structure
There are three bodies in trust: entruster, entrustee and beneficiary(Chart 3).
When an entruster has an asset that he wishes to leave to a

CHART 3

Trust Contract / WillEntrustee(Trust Bank)

EntrusterSet the purposeof the trust/trasnfer of theassets

Give profit
from trust

Manage / Divest
Trust Asset

Source: Compiled by the authors

48 Japan SPOTLIGHT • March / April 2020

Control/Oversight
Authority• Due care ofprudent
manager• Duty of loyalty• Obligations toseparately
manage trust
assetsBeneficiary

beneficiary, but does not want to give it right away, he may entrust theentrustee with the asset with certain conditions for the beneficiary toreceive the asset. This method can be used for trust by will.
The entrustee must manage the trust asset by following the threerules stated below:I) Due care of prudent manager
Entrustee must manage the trust asset with care as a prudent
manager.
II) Duty of loyalty
Entrustee must manage the trust asset for the beneficiary
following the purpose of the trust. Entrustee must not use thetrust asset for benefit of himself or a third party.
III) Obligation to separately manage trust assets
Entrustee must manage the trust asset apart from thebeneficiary’s property or any other properties.

3) Trust of Real Estate
In cities like Tokyo, individuals who live in small houses may
increase the utility of their land by consolidating the land andbuilding apartments or office buildings on it. To do so, thoseindividuals will need help from a trust bank or trust company. The
landowners entrust their land to the trust bank, and the trust bankbuilds a large building on the land to realize the effective utilization ofthe land. And those landowners can live in apartments within thebuilding and receive part of the profit as dividends from the trustbank. Individual landowners can gain more profit by this method. It
can be applied not only to commercial buildings but also toinfrastructure such as roads, electricity and railways (LandAcquisition in Asia: Towards a Sustainable Policy Framework byNaoyuki Yoshino and Saumik Paul, Palgrave MacMillan, 2019).

Land Trust in Thailand
In Thailand, too, if banking laws change, banks can change theirrole from being financers of infrastructure projects to becoming land
trust managers. This can benefit landowners and developers andlead to an increase in successful infrastructure projects. The
resulting expansion in economic activity will encourage theconstruction of commercial buildings, apartments, restaurants, andshopping malls and boost the revenue from property, corporate,income, and sales taxes. In the past, this tax revenue has beencollected by central and local governments, but the increased tax
revenue can be partly returned to those constructing or investing in
the infrastructure projects, together with the user charges, toincrease the rate of return and make the projects more attractive toboth investors and developers.
Examples of business models related to the concept of land trusts

Economists’ Views on the Global Economy

through the use of trust banks in Thailand are shown in Chart 4.
Overall, the passing of the Right Over Property Act in Thailand has
opened a new chapter for land use and land development in thecountry. Thailand will be able to utilize the land trusts set up by thenew act to increase the rates of return on land and infrastructuredevelopment projects. This important change in legislation will
facilitate the efforts of landowners, the government, banks, andinfrastructure developers in the implementation of a variety of landdevelopment projects.

collateral in each case.
Article 12 The right over property is transferable or becomes
collateral for any mortgage according to the Thai Civil andCommercial Code.
The right over property is inheritable.
Any juristic act on the right over property must be registered withthe officers and when registration is complete, the officer will have torapidly issue a notification letter to the owner of the real property
according to the juristic act and ministerial regulations.

Land Trust Law in ThailandLand Price Evaluation
The essential articles of new law – the Right Over Property Act BE
2562 (2019) – are as follows:
Article 4 The owner of property/real property who wishes toestablish a right over the property has to submit an application to theofficers and has to present the registered land deed or condominium
registration to the officers in each case.
Right over property is not to exceed 30 years.
A partial establishment of a right over property on the registered
land deed or condominium registration is not permitted.
Establishment of a right over property, that the property is undermortgage or a collateralized agreement under law or any right over
the registered land deed or condominium registration, will only bepossible with the consent of the mortgagor or the loaner of theIn many Asian countries, the price of land is negotiated bylandowners and buyers of the land for infrastructure and commercialbuildings. In some Asian countries, the mafia can benefit enormously
by selling land at a very high price to the government or buyers dueto the lack of a land evaluation mechanism. Japan has a national
examination for real estate evaluation. If one can pass theexamination, one can evaluate real estate in Japan. Real estateevaluation looks at both the present discount value of the land by
taking its characteristics into account and the actual selling prices
around the property. The present discount value can be computed by
the future rent which the land would earn. Each site of land has its
own location, such as close to a station, school, hospital, etc.

CHART 4

Business model of public infrastructure projects
following Thailand’s Right Over Property Act 2019
(Scenario in which the Bank of Thailand issues permission to banks and financial
institutions to act as trust banks)

Loan

Leaseagreement

Number oflandowners

Trust bankMonthlylease fees

Investors ininfrastructurecompanies:
railways,energy, water,roads
Investment
Investments frominsurance andpension funds

Spillover tax revenue fromregional development
50% of spillover tax revenue
returned to investors in theinfrastructure project

Spillover effects
increase employmentand businessactivities, etc.
Increase property
value

Source: Compiled by the authors

Japan SPOTLIGHT • March / April 2020

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Economists’ Views on the Global Economy

IMAGE

Source: Land Economy and Construction and Engineering Industry Bureau, Ministry of Land, Infrastructure, Transport and Tourism’s website (https://www.land.mlit.go.jp/webland_english/
servlet/MainServlet)

Convenience and other qualities of the land have to be added toassess the value of the land. If the economy is in good condition,
land prices will rise. On the other hand, land transaction prices will
fall in a recession due to lower demand for property. Therefore, theactual price of land traded in nearby areas must also be taken into
account together with the present discount value. The land priceevaluator must understand these characteristics of land prices when
taking the national examination. Each country should set up a
training system on how land prices should be evaluated and train
land evaluators who can value land all over the country.

Disclosure of Land Prices in Japan
In order to assess the price of land, disclosure of transactions ofland prices in each region will be important information for land
value evaluation. The Image shows a website provided by the50 Japan SPOTLIGHT • March / April 2020

Japanese government on which one can get the price of land by
selecting the region. It shows the price of land in each area without
identifying the name of the owner, etc. If similar data can becollected in each country and a disclosure system by Internet set up,
everybody could access the data, not only land value evaluators but
also landowners. This would make it difficult for landowners to askvery high prices for their land when they plan to sell. Collection ofsuch data should be established in each country. Real estateevaluators would be asked to report the prices of each transaction
and this would become the basis of the big data set of land pricevalues in the country. These data would facilitate land transactions
without concealing their prices.
Dr. Naoyuki Yoshino is Dean and CEO of the Asian Development Bank
Institute (ADBI) and professor emeritus of Keio University, Tokyo. Dr. Pornchai
Wisuttisak is Dean of the Faculty of Law, Chiang Mai University, Thailand.