The Essential Steps to Follow When Buying Property in Phuket, Thailand
Phuket, Thailand is a wonderful place to live, but if you choose to buy a property here, there nuances which need to be understood in order to ensure that you get exactly the home you are looking for with a minimum of fuss.
Good Legal Representation
The first step is finding a good lawyer, and it is best to ensure you have the right legal representation before even starting your search for a property. Foreign property ownership is subject to Thai law, which in some cases restricts the type of residence you are able to buy.
If you don’t have the right lawyer, you could waste your time viewing properties that don’t give you the legal ownership guarantees you are looking for. And if you are flying to Thailand specifically to hunt down the perfect home, that is time you cannot afford to waste.
The most important, and oft-overlooked, measure you can take is a title search on the property, to ensure you know exactly what you are buying. A title search confirms the current legal owner, and even traces the land ownership the whole way back to the original owner. It is also able to determine whether there are any loans, mortgages or liens on the property.
Thai Residential recommends that all buyers find a good lawyer to represent them, but for additional peace of mind, we have our own lawyers check out all the documents, offering you an added layer of protection.
Contact us to request our list of reputable lawyers for the area where you are looking to buy.
Transferring Money into Thailand
Once your lawyer has checked everything and gives you the thumbs up, the next step should be ensuring that you bring the money into the country correctly. If you don’t, you may find it hard to take the money out again at a later date, should you decide you want to sell the property and/or leave Thailand.
If you bring more than US$50,000 into Thailand to purchase a property, you must request a Foreign Exchange Transaction Form (FETF) from your bank and obtain a Foreign Exchange Transaction Form Certificate.
If you are a non-resident of Thailand and wish to buy a condominium, the 1991 Condominium Act states that you have to transfer the funds to pay for the condominium from overseas. It is therefore necessary for you to be able to prove that the full purchase price was transferred into the Kingdom from abroad, and the FETF certificate must be presented to the Land Department for you register the condominium in your name.
The instruction on the bank transaction form should also state that the payment is for the sole purpose of purchasing a condominium. If you find that the only way to do this is to pay directly to the developer, then the developer must collect the FETF forms on your behalf.
Taking the money out of Thailand at a later date is relatively straight forward if you have all the supporting documents. This is especially important if you have borrowed money from a financial institution, or have an overseas mortgage on the property because you will need to send the money abroad to settle the loan amount upon selling the property.
Again, it is wise to consult a good Thai lawyer throughout this process.
What Types of Property Can You Buy in Thailand?
Freehold Condo ownership is fairly clear-cut and a great way for foreigners to own property in Thailand. Thai law states that a condominium can have up to a 49% foreign ownership quota, with the other 51% owned by Thai nationals.
The condominium title includes a part of the building together with the other owners, in the form of a fractional interest. This includes the common property of the condominium complex such as the gymnasium, swimming pool, gardens, car park and the reception area.
The title of the condominium should state the floor space of the unit itself, but also the area of the common property and the percentage interest that the new owner holds. That fractional interest also represents the voting interest that the owner holds within the residents or owners association.
The beauty of a freehold condominium for foreigners is that it can be fully and legally owned. Your ownership is permanent and in perpetuity until you decide to sell it to someone else. Another benefit of a freehold condominium is more favourable succession laws. If you die, you are able to pass the condominium to your heirs.
Unlike a freehold condominium where you have ownership of the unit in perpetuity, a leasehold apartment only allows ownership for 30 years, with the option to extend the leasehold for further 30 year periods.
Occasionally, a superbly managed leasehold apartment development may seem attractive, but it limits your length of ownership and leasehold apartments are usually the same price as those available as freehold. A lease contract is typically terminated upon the death of the lessee, and without a provision for a succession clause cannot be passed on to your heirs.
It is our opinion that you are best served looking for a freehold condominium, rather than a leasehold.
Villas, Houses and Landed Property
It is not possible for foreign nationals to own land on a freehold basis in Thailand, however, they may have rights of ownership over the building itself, assuring possession by virtue of the fact that the property occupies the land.
The land may be purchased on a 30-year leasehold basis, but with a well drafted contract, buyers can also expect extensions to this lease. Most villa developers understand that it is in their best interests to offer strategies which assist the purchaser in extending the initial leasehold period.
If the land owner or estate manager agrees, it is advisable for a “Purchase Option” to be written into the leasehold for a villa, which will enable the buyer to purchase the land at a later date if they wish. (This is normally written into the addendum of the lease.)
If the landlord is an individual the lessee must exercise the purchase option within one year of the landlord’s death. With this purchase option the leaseholder may, during the lease period, place the property in a spouse’s name or another Thai national’s name and then lease it back from them.
It is also wise to ensure that the lease itself may be cancelled and renewed for a new 30 year period for any new buyers, otherwise the value of the property will decrease as the end of the lease period gets closer. There will be a fee for doing this, but this may be borne by both the owner and the new buyer.
There is always the possibility that land ownership laws could change in Thailand in the coming years. If that transpires, a relevant clause should be added to the lease contract to incorporate the changes if and when they happen. In this way, the leasehold buyer can then benefit from these changes should they occur.
Buying Land in Phuket, Thailand
Foreigners are not allowed to own land under Thai law. The easiest way for a foreigner to own land in Thailand is through leasehold ownership.
If a foreigner enters into a purchase of land and property with Thai partners, they are not allowed to own any more than 49% of the shares of the Thai company used to buy the property. As long as the company continues to exist, the ownership remains in place in perpetuity.
However, it is imperative that the company must be established legitimately from a legal and compliance perspective. This means the Thai shareholders must be legitimate, and the company is required to adhere to the correct procedures, such as filing of balance sheets, etc.
Other Means of Buying Freehold Land
The Board of Investment
Although it is widely known that it is illegal for foreigners to own land in Thailand, for wealthy individuals, some legal exceptions do apply.
The Board of Investment (BOI), incorporated in 1997, was established to assist and provide incentives for investment in Thailand. Although these incentives are also available to Thai nationals, foreigners who wish to invest and promote a business in Thailand have privileges, mainly tax privileges and certain exemptions on foreign ownership of companies, but may also be granted permission to own land.
If a foreigner qualifies for these privileges, they may own up to 1,600 square metres (1 Rai) of land for the purpose of living on that land and the property on that land. The land ownership law under this privilege requires a minimum investment in Thailand of 40 million Baht, and may comprise of Thai government securities or other assets that are deemed to beneficial to the economy of Thailand, and which are approved by the Ministry of Interior. This privilege or right is non-transferable upon death.
As the procedure for making an application to the BOI is lengthy and complicated, it is best done through a competent Thai lawyer. Thai Residential can assist you in recommending a lawyer for this purpose.
Buying in Your Thai Spouse’s Name
Prior to 1998, a Thai women who married a foreigner gave up their right to own land in Thailand. In 1998 that law was changed, however, the foreign husband is not even permitted to co-own land in Thailand with his spouse. When purchasing land in a Thai spouse’s name today, a joint declaration must be made stating that the Thai spouse purchased the house with his or her own personal funds.
This inevitably means that the foreign spouse has no claim to the property. The property may therefore be mortgaged or sold without obtaining consent from the foreign spouse. There are ways to structure the purchase, however, which offer something akin to co-ownership.
Taking a Thai wife and foreign husband (for example), the land and the house can be placed in the wife’s name, and both can then be leased back by the husband. Alternatively, the wife could own the land freehold, which the husband could then lease, and then legally own the building which sits on the land.
As always, we recommend you always consult a reputable lawyer if purchasing a property through a Thai Spouse.
Placing a Reservation Deposit
Once we have helped you find the property of your dreams, you may then be asked to put down a deposit to secure your property. Make sure that your lawyer helps you with this, as it is imperative that your deposit be refundable should things not go according to plan. If both parties are willing to go through with the sale and purchase, there should be no hiccups, but the reservation agreement should clearly spell out the terms of the agreement between the two parties.
Buyers should allow time for a lawyer to check over the agreement to ensure that the deposit is returned to them should anything be found to be wrong with the property after conducting the necessary due-diligence.
Land Taxes and Fees
Aside from the legal fees charged by a lawyer, as in most other countries, there will be some type of government taxes or duties to pay, so you must be prepared for some additional fees when purchasing or selling a property. In Thailand, the taxes and fees will vary depending on the type of transaction and the length of time the seller has held the property in their name.
When buying :
- Transfer Fee – is usually paid by the buyer, although can be shared between the buyer and the seller. On new developments the developer is responsible for 50% of the transfer fee payable. This usually only applies to freehold land, rather than leasehold, and is based on appraised value. Transfer fee is 2%.
- Lease Registration Fee – only payable on leaseholds, this is usually shared by both parties. Lease registration fee is 1%.
- Withholding Tax – is payable by the seller of the property and may be viewed as a part of income tax. If the seller is an individual, the withholding tax is calculated on a progressive taxation basis, and is based on the appraised value of the property. Technically, the more profit you make on the sale, the higher the withholding tax should be, although the longer you have owned the property, the lower the appraised value, which means less tax you have to pay. Withholding taxes may be claimed back later when paying income tax. For companies, withholding tax is 1% of the official appraised value.
- Business Tax – is payable by the seller of the property and is applicable to both individuals and companies who hold the property for less than 5 years, however, individuals are exempt from this tax if the property was used as a principal place of residence. The Business tax is 3.3% (0.3% of this goes to the local authority) of the higher of either the appraised value or the registered sale value of the property. If you are exempt from this tax, then you’ll have to pay stamp duty.
- Stamp Duty – only payable by seller and only payable if exempt from business tax. Stamp duty is 0.5% of the registered value of the property.
Ongoing Running Costs/Taxes
- Maintenance/House and Land Tax – these taxes are normally collected locally, but only if the property is rented out. If it is your primary residence and you occupy it yourself or the property remains vacant for much of the year the tax does not need to be paid. House and Land tax runs at 12.5% of the assessed rental income per year. You may also need to consider paying a progressive scale income tax on rental income. Tax rates are low or non-existent for low rental income producers, but can be as high as 35% for rental income exceeding 4 million Thai Baht per annum.
- Local Development Tax – is a tax imposed on the possession of land, usually undeveloped. The rates are variable depending on the appraised value of the land area by local authorities. These taxes are, in many cases, also negligible.
Other Condominium Costs
- Sinking Fund – this is for new developments and is usually a one-off payment which contributes to the condominiums reserve funds. Its purpose is to have funds to fall back on in case of emergencies and other unforeseen circumstances.
- Service Charge/Maintenance fee – this is the owner’s share of the costs to maintain the condominium and keep it in good working order, as well as also covering management costs. It pays for the upkeep of the condominium such as the swimming pool, gardens, reception area, security etc. as well as paying for electricity in common areas. The share paid is based on the size of the unit.