Foreign investors holding Thai property through shell companies using Thai nominees have been warned to restructure their holdings or face prosecution.

"Foreigners using shell companies to buy housing across the country are violating two laws. One, the Land Act that forbids foreigners from holding land and two, the Foreign Business Act by using nominee structures. I recommend that they restructure," Commerce Minister Krirk-krai Jirapaet told foreign journalists at a dinner talk on Friday.

Under Thai law, he pointed out, foreigners can only own land if they have businesses promoted by the Board of Investment, under the Industrial Estate Act or with written permission from the Interior Ministry.

"Look around you - all the land in Samui, Phuket and Koh Chang is in the hands of foreigners. They cannot take the land away but there's a sense of nationalism and therefore they should restructure," a combative Mr Krirk-krai said in response to questions from foreigners.

The resort islands of Phuket and Samui have been the focus of foreign investors who have snapped up million-dollar villas as second or retirement homes, but the imminent changes to the Foreign Business Act have begun to keep investors, developers and buyers at bay.

It is expected that among those to be hurt the most by the new rules will be companies selling villas to foreign buyers, as any foreigner will need to set up a company with at least a 51% Thai shareholding. To comply with the amendments, companies will need to change from freehold to leasehold contracts.

Market experts believe the villa-for-sale market in resort destinations will suffer as a result.

Mr Krirk-krai also said that the government would likely look at ways to plug the loopholes under which companies use Non Voting Depository Receipts (NVDRs) to circumvent FBA-mandated restrictions on foreign ownership.

"I will make sure that over the next three or four months we will plug this loophole," he said.

NVDRs are issued by Thai NVDR, a subsidiary of the Stock Exchange of Thailand, to foreign investors who have bought shares in listed companies that are already up to their foreign-ownership limits.

NVDR holders are entitled to full economic rights, including dividends and rights issues, but are not allowed to vote, except on motions involving delisting. Voting rights are automatically restored if the NVDRs are sold back to Thais.

Mr Krirk-krai said the military-installed government was in a rush to resolve this issue because abuse of the laws was a key reason for the fall of the previous government.

"It's not that we are backtracking from globalisation and not welcoming foreign investors, but what we want is good quality investors, not just any investors," he said.

"If the investors cannot observe one or two laws that are similar to those in other civilised countries, then we should not care about them."