Sources for Thai Property Law
Land ownership in Thailand is governed by a complex intermix of laws and regulations. These include, the Land Code, BE 2497 (1954), the Civil and Commercial Code, the Land Reform for Agriculture Act, BE 2518 (1975), the Condominium Act, BE 2551 (2008) and the regulations issued from time to time by the Ministry of the Interior.
Purchases of Land and Buildings
Although Thai law does not permit foreigners the right to freehold land ownership, they do have the right to own buildings and condominium units. If a foreigner wishes to purchase land in Thailand in order to build a property or to purchase an existing (non-condominium) property, two options are available: Form a limited company with majority Thai ownership; or, secure a long-term lease (usually of thirty-years duration) for the land on which the property is to be built or is situated, together with the right of lease renewal.
Forming A Limited Company With Majority Thai Ownership – This involves the incorporation of a private company of which the foreigner will own a maximum of 49% of the shares. (Thai nationals must, according to Thai law, hold the remaining 51% of the shares.) The company is initially formed with Thai nationals owning 100% of the shares. After the company formation is complete, minority ownership and control of the company by the foreigner is effected by share transfer and amending the Articles of Association to appoint the foreigner as sole Director of the company. As sole Director of the company, the foreigner becomes the only person who can undertake any contractual dealings, thereby effectively giving the foreign minority shareholder control over the company.
It is important to note that any company with more than 40% foreign ownership that purchases land could, under Section 74 of the Land Code, be investigated by the Central Land Office in Bangkok to ensure that the company has not been set up solely for the purpose of circumventing the rule that prohibits foreign land ownership. Restricting foreign ownership of the company to 39% can ameliorate this risk. That, together with the recommended amendments to the Articles of Association and the foreigner’s appointment as the sole director of the company, will further protect the foreigner’s ownership and control over the property. Finally, as is required of all Thai limited companies, an annual balance sheet must be submitted to the Department of Business Development and there will be a small yearly tax obligation. The costs for preparing this annual filing are minimal and the lawyer that formed the company should be able to assist with the required filing.
Securing a Long-Term Lease – Securing such a long-term lease means that although the foreigner will not really own the property, he/she will gain effective control of the property for at least thirty-years. This entails purchasing land (or land and buildings) in the name of a Thai national and then securing from this individual a long-term, renewable lese for the land on which a foreigner wishes to build a property, or the land an which an existing property is situated. While the building(s) situated on the land can be purchased outright by a foreigner, the lease many be structured to include both buildings and land. Leases usually run for a minimum term of thirty years and can be renewed, in thirty-year increments, for a total of ninety years. However, as extensions of thirty-year leases are wholly dependent upon the willingness of the lessor, there would likely be little chance of success when trying to legally enforce the automatic renewal of such a lease. Additionally, if the owner (lessor) dies, and the property transferred to his/her next of kin, the lease renewal may also be contested.
It is important to note that the lease agreement must indicate that all rental moneys under the lease have been paid in advance. Additionally, in order for leases with terms greater than three years to be enforceable under Thai law, they must be registered with the Land Office. There is a registration fee and stamp duty applicable, based on a percentage of the rental fee for the whole lease term. The originally registered lease remains in force and effective even if the property is subsequently sold.
Finally, and most importantly, in order to resell the property, the foreigner must ensure that the current owner can transfer the title deed to the new owner and then return the cash from the sale to the foreigner. There is, of course, no way to guarantee that this will happen.
Purchases of Condominiums
As set forth above, restrictions on property ownership do not apply to condominium units, which can be bought freehold in a foreigner’s own name. In fact, foreigners may buy as many condominium units as they like. The only rule is that in any particular condominium development, Thai nationals must own at least 51% of the units, while foreigners may own the remaining 49%. Assuming a suitable condominium property is located where the quota that is allocated to foreigners has not yet been reached, a foreigner should have no problem buying a unit in their own name. Resale and transfer of the unit should also not prove problematic, as the property would be owned on a freehold basis. A condominium unit owned by a foreigner may be sold to another foreigner or to a Thai national. Should the latter be the case, it will mean that the percentage of ownership in the condominium development will change, freeing up the availability of another unit in the development to be sold to a foreigner.
It is important to remember, that if a foreigner is not working in Thailand, they will need to prove that the money for the purchase of the condominium has come from outside of Thailand by way of a foreign currency transfer receipt and/or a letter from their bank. (This is a relatively new requirement, intended to prevent money laundering.) The money used to buy the condominium should be remitted from abroad in foreign currency to a bank in Thailand, (in the name of the person that will be registered on the title deed), with the annotation “to purchase a condominium.“ The prospective buyer should also obtain a “Thor Tor Sam” from from the bank where the transferred money arrives. This will facilitate repatriation of the funds by the initial buyer, if or when the condominium is sold.
Should a foreigner wish to purchase a condominium unit in a development in which the foreign ownership quota has been reached, the options of buying the unit in a limited company name or via a long-term lease agreement (as detailed in the above section) are also available.
An additional consideration in purchasing a condominium unit is the legal obligation under the Condominium Act to pay annual service charges or common fees that are used for the maintenance of the common areas of the condominium development, such as the swimming pool, gardens, gym, elevators, corridors, building entrances, the provision of security services and the provision of building management services. While annual condominium service charges or common fees are quite reasonable in Thailand compared with other countries, they can vary considerably according to the degree of luxury provided by the existing infrastructure and the number of units in the development. Also, many condominiums have a sinking fund that requires initial, annual or intermittent payments, on a basis proportionate to the size of the condominium unit owned. These sinking funds are used to ensure that new condominium developments have adequate funds available after start-up to cover management and maintenance expenses and, in the case of older developments, to cover the cost of major infrastructure repair or improvement projects.
Financing Real Estate Purchases
In Thailand, mortgage financing has not suffered the sharp tightening that has plagued many other countries. After the 1997 Asian financial crisis, many Thai banks have been a bit more conservative in their lending practices and, therefore, have not had the same recent negative exposure to the housing market as their western counterparts. Although this means that a Thai national has a good chance of gaining approval for mortgage financing, it also means that in recent times, the requirements for mortgage financing have become more stringent.
Furthermore, since Thai banks are all too aware that the process for repossessing a property from an owner in default of his/her mortgage obligations can be a long and drawn out affair lasting many years, there is less importance given to the valuation of a property as security for a loan, but more emphasis on simply ascertaining that monthly repayments will be made on time. In other words, lenders in Thailand look for a stable backdrop, like a solid employment history, as well as pay slips and other documentation to support the likelihood of a borrower’s future employment prospects. In most cases it is difficult to obtain bank financing for more than 70% of a property’s purchase price. Therefore, a substantial deposit is usually required.
Unfortunately, it is almost impossible for foreigners to obtain bank financing in Thailand. Nevertheless, some foreigners who have a work permit, and can show a stable history of employment in Thailand, as well as healthy bank deposits, can obtain mortgage financing from a number of Thai banks. While these banks generally observe the current foreign ownership restrictions provided by Thai law, they usually extend loans only for the purchase of condominium units sold on the basis of freehold foreign title. For those foreigners seeking to finance the purchase of a property while they are still working in their home countries, their options would be limited to private financing, either by the condominium developer or the existing property owner, or obtaining a personal unsecured loan from a bank in their country of residence.
Sometimes, condominium developers can arrange for foreign buyers to be granted a financing package from a Thai bank. After the down payment on the property has been made, the sales contract will be drawn up and the remaining balance paid through the loan, financed by the Thai financial institution. As is the case in nearly all countries, the bank will require the property to be mortgaged as collateral for the loan.
Thai land mortgage documents must be drawn up in writing and registered with the Land Office. Any building built on the land after the mortgage is not included in the mortgage, unless this was agreed upon prior to signing the mortgage documents. Furthermore, buildings and other permanent structures can be mortgaged separately and would need to be registered separately with the Land Office.
The practice of owner financing has become quite popular in Thailand. A property owner who has no immediate need for the entire proceeds of the sale of his/her property, may be willing to offer a prospective buyer the opportunity to make full payment in installments over a fixed period of time, charging a rate of interest comparable to current bank mortgage rates in Thailand, which are notably higher than mortgage interest rates in other countries.
Taxes To Be Paid While Owning Property In Thailand
There are no property taxes in Thailand that could be compared to the property taxes in other countries. However, comparable taxes levied on properties in Thailand would be the Land Tax and the Building Usage Tax. The Land Tax (only levied on land) is so low, that in practice, the agency charged to collect it rarely bothers to do so and if it does, usually waits several years until the amount accumulates. The Building Usage Tax applies only to buildings, is collected by the Municipal Office or District Office and is only applied to properties used for commercial purposes.
Property Investment as a vehicle for Long-Term Immigration Benefits
The Thai Government has recently instituted an investment visa opportunity. Through this program, foreigners who invest THB 10 million in a condominium unit, under certain conditions, and who meet other legal requirements, can be granted a one-year investor visa. This visa is subject to annual renewal, provided the investment and other legal requirements continue to be met. If you are interested in exploring this option in greater detail, please contact us for additional information and/or a referral to competent Thai legal counsel.