There are many restrictions placed on foreign investors who wish to own land and property in Thailand, but because the investment opportunities are so great, many foreigners commit to the market anyway and use the various ways and means that exist that allow them to get around or work with the restrictions. However, although foreigners are legally prohibited from owning land in Thailand, there are proven and effective ways in which land can be purchased and owned while complying with Thai laws.
Limited Liability Companies
One form of land purchase, popular with foreign investors is through a Limited Liability Company. The foreigner can own a maximum 39% of the company shares, but can easily – and legally- organize to be the only director of the company who can commit or bind the company in any contractual dealings. This effectively allows the buyer total & secure control of the company and its assets. Six Thai shareholders would need to be appointed and upon the company’s incorporation each of the Thai shareholders sign undated share transfer contracts which effectively transfers control of the company to the foreign director and gets around the issue of them having a smaller share of the company.
Leasehold Agreement
Another form of land purchase for foreigners is through a Leasehold Agreement. These are generally written up as 30 year leases with two additional prepaid 30 year renewals for a total of 90 years. The lease will include clauses that automatically allow freehold ownership if Thai law ever changes to allow foreign ownership, and the right to sell, sublet, or transfer the property. This makes Leasehold purchase effectively ownership.
Condominium
Buying a condo is the simplest and easiest option for foreigners wishing to buy property in Thailand. The only restriction is that the units of a building block owned by foreigners cannot exceed 49%. Also the funds used to buy the condo have to be remitted from abroad and correctly recorded as such by a Thai Bank on a Tor Tor Sam.
Legal Issues
Once properties have been viewed that meet an investor’s objectives and an offer to purchase has been made and accepted, the property investor’s lawyers will need to check the history and validity of any title deed that exist on the property. In Thailand many parcels of land and pieces of property have title deeds but there are some areas of the country that have yet to be surveyed and in these areas a lawyer will need to check documents known as Nor Sor documents which show transactions but not ownership rights
Can a foreigner obtain a mortgage loan?
Generally no. However most financial institutions in Thailand provide loans for real estate purchasing to Thais and Thai companies. It is common for a real estate developer to arrange for his customers to have a financing package from a financial institution. In most real estate development projects, a down payment can be made in instalments from 10 to 24 months. After the down payment has been paid, the sale contract will be made and the balance amount is paid through the loan which is financed from a financial institution. The financial institution requires you to mortgage the property with it as collateral against the loan.
Costs
- Stamp Duty – 0.5%
- Transfer Fee – 0.01%
- Business Tax – 0.11% levied against an owner who has been in registered possession of the property less than 5 years.
- Income Tax – usually between 1.0% - 3.0% on property is comparable replacement to
- Capital Gains Tax – None
- Lawyer and estate agent fees
There are no set rules on who pays the income tax, and it is just another part of the bargaining process, as with all the other costs of transfer of ownership.
Investment Potential
The majority of property investment in Thailand exists because of, and is heavily linked to, the tourism industry. Since the late 1990’s any investor buying into the Thai property market has benefited from a tourist industry that has risen and risen. Following the tsunami, though prices were largely unaffected, there has been a smaller audience in which to target regarding holiday leases and short-term lettings. This should begin to pick up again in time.
You need to be aware of the laws in Thailand governing international property investment. As it stands it is possible for a buyer to own a property but not the land that it sits on. The majority of those who buy in Thailand are interested in a single property – a holiday home for example – and for these people a renewable 30 year lease on the land and to pay for up to three renewals upfront and have a contract giving them first right to buy should the laws in Thailand change
For an international property investor interested in multiple properties or even land to develop this option is not suitable. But as with any restrictive clause like this there are always ways around the problem and in Thailand there are many consultancy companies willing to assist the overseas investor establish a limited liability company with a local Thai majority holding and negate the effectiveness of the Thai majority through the issuance of preferred and ordinary shares for example. This is just one such solution to a problem that is predicted to change anyway, and basically an investor who can recognise the opportunity for profit in Thailand’s property sector will soon navigate the necessary restrictions the opportunity for profit in Thailand’s property sector will soon navigate the necessary restrictions and controls and access the market and profit from it.
The appeal of Thailand is obvious, the attractions of the property and holiday market are intense and the future prospects for the profitability of the property sector are very good indeed. Therefore despite the present restrictions on foreign freehold ownership of land in Thailand investors are still keen to get into this market because the overall appeal of Thailand as a destination has not changed. It is a vibrant, exotic, charming, beautiful and exciting country that offers property investors medium to long term potential.
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