5 Essential Tips when Buying a Property in Phuket

There are any number of suggestions we could offer prospective buyers, but some are more important than others.

We have often been pressed to give our “Top 5 Tips” for anyone contemplating a property purchase in Phuket (or Thailand for that matter), so here they are:

Find the Best Legal Representation
Don’t Rush
Research the Developments You Are Shown
Scrutinize Your Sales Agent
Understand Thai Law

Find The Best Legal Representation

Sadly, although it is a lawyer’s job to protect their client, it has become apparent over the years that many foreigners are given poor advice, even from qualified lawyers.

If you have your heart set on a luxury house or villa, then you need to know that foreigners are not allowed under existing laws to own landed property in Thailand, and doing so carries risks.

Despite this fact, many lawyers will persuade buyers that it is perfectly acceptable to buy a houses or villa using a Thai company. Courts have ruled on more than one occasion that this violates the spirit of Thai law.

It is not technically illegal for a company with foreign shareholders to buy a villa, but it is illegal if either:

(a) the foreigner can be demonstrated to have a controlling interest in the company which is just a holding company and does not trade, and/or
(b) the other shareholders are Thai nominees. Any such company set up for the purpose of acquiring a villa or landed property would likely be struck down in court.

Please note that it is perfectly acceptable for a businessman to open a legitimate Thai company with legitimate Thai shareholders and as long it is 100% legally compliant, that company may own landed property. The company must be a real business, generate revenue, file audited accounts and pay taxes.

In addition, some lawyers may also advise buyers that lease extensions above and beyond the initial 30 years are acceptable when stated on lease agreement, or on an addendum.

This is another “grey area” which could place the buyer at serious risk. The legitimacy of extended leases is subject to debate in the legal community because they are “not in the spirit of the law”. If the courts were to rule against extended leases, the best case scenario would be the cancellation of the extension clause. The worst case scenario would be invalidation of the initial 30 year lease, meaning you lose your home and the money you invested in it.

Our Advice

Buyers should spend more time finding a reputable lawyer than they do looking for property.

To avoid any conflict of interest – or appearance of a conflict – we will not recommend a specific individual or firm. We advise everyone to seek independent legal advice, but if you want Thai Residential to recommend a reliable lawyer, will provide you a list to choose from.

Cha Cha, Sabai Sabai – Slow it Down

For all you Spanish speakers: tranquillo tranquillo.

If you already live on the island, then there is absolutely no reason to be in a rush. Slow it down. Chill.

If you are on holiday, have limited time, and you feel that you just can’t make a decision this trip, then plan to do it on a future trip.

You’ll find in almost any area of life that a relaxed decision is more often a correct decision. By taking time to sleep on it (sometimes quite literally), you are able to reflect and consider aspects of the purchase which you may have otherwise ignored had you rushed into things.

This is especially true with real estate decisions. If you are buying a property in Phuket you should never be in a frantic state of mind. So don’t push yourself to make a hasty call, and do not allow yourself to be pressured by a sales agent, or anyone else who is only eager to get your business.

You obviously don’t want to lose a good deal by dilly-dallying, so if you are confident it is the property you want, then go for it! But only if you are confident it is the right decision.

Buying property is one of life’s big decisions. It is certainly not a decision which should be rushed because that is when people are prone to either mistakes, buyer’s remorse, or both.

Research the Developments You Are Shown

A reputable real estate agent will have already done at least some basic due-diligence on the companies and developments they are recommending. Ask what they have done to vet the properties they are recommending.

You need to know about reputation, finances, the land titles and what could possibly go wrong with a new development, especially one that has not been completed.

Once you’ve done that, do some research of your own! A good lawyer will do a lot of this ground work for you, but discerning investors should always look into the developers themselves too. Anything that has ever been on the internet has an extremely long half-life, so dig around and see what you can find out about the individuals who run the company and their track record.

Don’t transfer any deposit until you are 100% comfortable with the developer and the development.

Scrutinize Your Sales Agent

If you are using a sales agent, look at the way they do business. If they are using high-pressure sales techniques to force you into a quick decision, and you feel this is putting you under stress, then you may want to consider changing agents.

Even if you are here on holiday, do not be rushed into making a decision just because your flight home is only two days away.

An agent will typically be paid as soon as you have placed the main deposit on a property. Obviously every agent wants to sell you a property – that is their job – but they should be respectful of the time you need to make a decision. Don’t feel you have to make a hasty decision, and never place a deposit on a property without seeking legal advice.

They are likely to be earning quite a satisfactory commission for making the sale, so try taking notice of exactly what their company is doing for you in order to earn that commission. If you don’t see it, ask them.

What sort of due diligence have they done on the developments they are showing you? Have the land titles been checked out by a competent lawyer? Ask them about the developer’s track record, and maybe ask to see some of that developer’s previous work. If you can, try to speak with owners of previous developments about their own satisfaction. (e.g. Some developers in the past have failed to deliver title deeds to owners, yet carried on building new developments.)

If you are not happy with your agent, find a new one.

Know the Law

Ok, it stands to reason you should know the law. But we estimate that 9 out of 10 foreign buyers of Thai villas do not understand Thai law.

It pays to spend some time crunching the numbers, and asking yourself: “How Much Money Can I Afford to Lose?”

You are not buying in Australia or England, France or Germany, China or Russia. You are a foreigner buying in a country a long way from home, with different laws on land ownership.

Trying to circumnavigate the law could end in disaster. If you’re dragged into a Thai court over a questionable villa purchase, what do think your chances are? There are a number of possible violations, which fall under multiple sections of the law (e.g. the Foreign Business Act, the Land Code, and the Civil and Commercial Code.)

Condos are a Good Investment

If you are out to make a sound investment in Thailand, then you can do this by purchasing a condominium. Condos may be owned by foreigners with a freehold title in perpetuity.

If you think a condo is a “substandard” option compared to a villa, then you haven’t seen some of the condos in Phuket. There are plenty of luxurious penthouse units, as well as villa-style condominium developments, to consider. Some of these have gardens and/or roof top gardens with private swimming pools and sea views. These truly can rival many of the villas on the island.

If you wish to buy a villa or a house, and your spouse is not a Thai national, then you must understand that this is not allowed by law. No matter what you will hear from eager parties keen to close a sale, foreigners attempting to buy landed property in Thailand are violating the spirit of Thai law. “Everybody else is doing it” does not constitute sound advice.

As mentioned, some agents, lawyers and developers will tell you that you can buy a house by setting up a Thai company, but a Thai Company with foreign shareholders cannot be established for the sole purpose of buying property.

Some agents will also tell you that a 30 year lease may be extended for a further 30, 60 or even 90 years. This has already been challenged in court, and not to the benefit of foreign owners. A lease can be renewed after 30 years, but there is no legal mechanism for extending it.

If you have your heart set on a house or a Villa, and you are prepared to take the risk, then you must consider what percentage of your net worth is at stake. If the amount that you are investing in your dream home is a small proportion of your overall wealth, and you feel that you can afford to lose it, then go ahead.

We don’t want to be too alarmist here, but the authorities have never viewed any path to foreign land or villa ownership favourably.

Even under pressure from the IMF to codify permission for foreign land ownership into law – which the IMF asked for as pre-condition of Thailand’s bailout from the Asia Crisis – Thailand still balked. The country received $17.2 billion from the IMF, but the restrictions on its property market remain in force to this day.

The safest way to live in a villa for a guaranteed period of time is to take out a “leasehold”, and accept that 30 years is the maximum amount of time that the lease can be guaranteed. Anyone who structures their lease contract (or the addendum to the lease) correctly, should find that they are able to renew the lease for an additional 30 years on expiration.

What truly amazes us is the number of people who buy villas through Thai Companies for millions of dollars. If you have 40 million Baht to invest, you may legally own 1 Rai (1,600 square metres) of land through the Thailand Board of Investment (BOI) Scheme.

So instead of buying a US$3 million luxury villa illegally, why not instead invest US$1.25 million into Thai government securities through the BOI scheme, and then spend the remaining US$1.75 million on your dream villa – 100% legal and 100% above board. (Trust us when we say this, 56 million Baht buys you a lot of villa in Phuket.)