Buying property around the world should be an exciting and satisfying experience. But you should always makes sure that you are taking the necessary steps to make sure your investment is secure and free of worry. This is easily done if you are aware of the basics of Thai law and follow the right procedures.
Always Employ the Services of a Lawyer
If you are buying a property in Phuket you should never proceed without the assistance of a competent and experienced lawyer.
Employing the services of lawyer in Thailand is not a legal requirement, but it is always recommended. Failure to engage a lawyer may leave you open to complications further down the line.
It is essential that the lawyer is tied neither to an agent nor to the developer of the project in which you are interested. Free of any “conflict of interest,” an experienced lawyer can help you to understand the contract, while explaining any nuances or Thai laws of which you should be aware.
In addition, before you sign the sales and purchase agreement, a competent lawyer will conduct due diligence on the property you are looking to buy, as well as on the developer. This should ensure that everything and everyone involved are trustworthy.
Due diligence normally involves a title search on the property to verify the developer or the seller is the legal owner, and therefore has the right to sell the property. It is important to confirm that no third parties are involved, as that may jeopardize the ownership rights of any new buyer.
When buying a condominium in Phuket, your lawyer should also request the Chanote title of the entire development to make sure that there are no loans, mortgages or liens against the project.
Although a deposit may be required to secure the purchase prior to due diligence being carried out, a good lawyer will ensure that deposit is fully refundable. Should the due diligence procedures find something untoward about the property or the developer, and you decide not to follow through with the purchase, you will naturally want your deposit back.
When all checks are complete, and the legal documents drafted, you are then ready to sign the contract. When full payment is due, you are also required to pay the fees and taxes to the Phuket Provincial Land Office. The property will be registered in your name at this time. (When buying off-plan, and making payments in stages, the payment of fees and registration of the title are only done upon making the final payment.)
Buying Costs for Property in Phuket
Fees for purchasing property in anywhere in Thailand are comparatively lower than fees payable in other countries.
Condominiums require a transfer fee of 2% of the assessed value, however this is usually split 50/50 between the buyer and seller. With new developments buyers must also pay for the foreign freehold upgrade (the advertised prices are generally leasehold). This fee will be either be a fixed amount or a percentage, depending on the project.
With condominiums you must also factor in the additional running costs for your unit. These will include the common area fee and sinking fund. The sinking fund is usually a one-off payment but if the resort’s fund is depleted, all owners may eventually be required to replenish the fund.
The fees for house and villa purchases are not dissimilar to those for condos. Never more than 6.3% of the property value, the developer may choose how these fees are split with the buyer. A developer may charge a flat fee, a percentage, or they may just split the fees 50/50.
What Are the Important Things Foreigners Should Know
Under Thai law, foreigners are not allowed to own freehold land. This means any landed property such as houses, villas or bungalows.
The safest and most straight forward way for a foreigner to acquire landed property in Phuket is through a leasehold. A leasehold in Thailand is 100% legal and offers foreigners undisputed possession of the property for a minimum of 30 years, with the lease registered at the Land Office in your own name. Renewal of the initial 30 years is possible, and most developers and landlords are happy to assist with this.
If you’re dealing with the best developers and legal representation, you may also find that your property can be sold on for the full purchase price, either as a freehold or with a new 30-year leasehold.
In order to overcome the Thai ownership requirements, some foreigners choose to establish a Thai Company to buy their property, as the legal owner of the villa or house would be the company, not the individual. It is important to understand, however, that this practise is frowned upon by the authorities, and Thai companies should never be used for the sole purpose of buying landed property.
Any such company must also trade as a proper business. This means generating revenue, filing accounts, paying taxes, and even paying dividends to its local shareholders. Furthermore, any Thai company must have legitimate Thai shareholders, not nominees.
If a foreigner sets up a legitimate company with proper Thai partners, then buying and owning landed property through a company is perfectly acceptable. In a tourist area like Phuket, this does open up possibilities for foreign investors because a rental business catering to Phuket tourism would be a very legitimate owner for their property/properties.
Please note, however, that while a foreigner may not own the company outright in their own name, they can be a company director and make use of the property.
The Land Code Act (Section 96) – The Exception to the Rule
There is one exception whereby a foreigner may own villas, houses or even land in Phuket: if they make a “Prescribed Investment” in the country.
A Prescribed Investment must total at least THB 40 million, and be directed into bonds issued by the Bank of Thailand, the Thai Government itself, or any State Enterprise. This includes an investment in any bonds whose capital or interest is secured by the Ministry of Finance.
If the investment meets these conditions, the foreigner may be granted ownership of up to 1 Rai of land (1,600 m2).
Thai Residential Co. Ltd., a Phuket based real estate agency, have written a comprehensive, easy-to-read guide on how to buy property in Phuket safely.
Written in conjunction with two of Phuket’s most respected law firms, this ultimate guide to buying condos & villas in Phuket explains all the pros and cons and the tricks and traps into which unsuspecting foreign buyers have fallen into in the past.