Significant improvements in roads, entertainment venues, accommodation, healthcare facilities, and high-end dining have further boosted Phuket’s appeal. The property market has not only rebounded but surpassed pre-pandemic levels, with the villa market growing by 126.3% from 2022, particularly in areas like Bang Tao and Cherng Talay, driven by Russian, Chinese and European buyers. This influx of international capital is poised to further strengthen the market, continuing the trend of rising property values and increasing investor interest in this idyllic island.
While taking a slice of Phuket’s growing property market presents an exciting opportunity, it also comes with a unique set of legal, regulatory, and tax considerations that foreign buyers need to understand. In this article, we will provide essential insights into foreign ownership laws, requirements for acquiring real estate, and other important considerations to ensure compliance with Thai laws.
FOREIGN OWNERSHIP LAWS
According to Thailand’s Land Code Act of 1954, foreigners are explicitly banned from owning land in Thailand. However, there are several avenues available for foreigners to invest in property. One option is leasehold agreements, which allow foreigners to lease land for up to 30 years, with the possibility of renewal for another 30 years. These agreements grant lessees the right to use the land for construction purposes and must be registered with the Land Department for legal enforceability. Leasehold rights are often transferable, enabling property sales, transfers, or inheritance, though the cost of leasing land varies depending on factors like location and size, typically requiring upfront payment for the lease term.
Alternatively, foreigners can own condominium units outright, provided that foreign ownership does not exceed 49% of the total floor area of all units in the complex. This has made condominiums a popular choice for property investment among foreigners, with funds required to be transferred into Thailand as foreign currency via a Thai bank. Another option is establishing a Thai Company to purchase land, though Thai nationals must own at least 51% of the company’s shares. While companies promoted by the Office of the Board of Investment (BOI) may be fully foreign-owned in certain cases, this route entails high costs, strict requirements, and is limited to specific BOI-promoted activities.
Lastly, foreigners married to Thai nationals can purchase property in their spouse’s name, with the foreign spouse declaring the funds as the Thai spouse’s separate property.
DUE DILIGENCE
Due diligence is a crucial step when acquiring property. Property buyers are strongly advised to rigorously verify property documents to confirm that the seller has a clear and legal title to the land or property. Buyers must also ensure that there are no disputes or limitations on the property that could complicate the transfer process.
A key aspect of this is the verification of title deeds, which confirm the legal ownership and boundaries of the property. In Thailand, the most definitive proof of land ownership is the Chanote, a title deed that grants the holder full rights to the land. This title deed indicates that the land has been officially surveyed and marked by the Land Department, ensuring the accuracy of its boundaries. Another important title is the NorSor 3 Gor, which, while slightly less definitive than the Chanote, still provides substantial legal assurance regarding the property’s boundaries and ownership.
Beyond title verification, due diligence should also include a thorough review of land use and environmental regulations. For example, Phuket has stringent land use policies and environmental laws that may require special permissions. Another key consideration is establishing a right of way for properties not connected to a public road. This typically involves negotiating with neighbouring landowners and agreeing to terms of access by contract. This agreement should specify the width and allowed uses of the path, such as whether it will accommodate pedestrian or vehicular traffic, as well as maintenance responsibilities.
TAXES AND FEES
When buying or selling property in Thailand, there are several fees and tax obligations that must be accounted for:
Negotiations over who pays these taxes and fees are typical and can significantly affect the final cost of a transaction. Consulting a Treasury Department official valuation may be an important step as it would help determine the appraised value used to calculate these fees.
LEGAL CONSIDERATIONS
Drafting property contracts and agreements with developers requires careful attention to detail. These documents should include several key elements to ensure clarity and protect the interests of all parties involved.
Firstly, the terms of sale must be clearly defined. This includes specifying the price, payment schedule, and any required deposit. Detailed specifications of the property should also be included, such as descriptions of the location, size and boundaries, to prevent misunderstandings or disputes.
Additionally, the contract should outline any warranties or guarantees provided by the developer. It is crucial to include penalties for late completion or non-compliance with the agreed terms. The conditions under which deposits and payments can be forfeited should also be clearly stated to avoid potential conflicts.
All terms must be clear, as the contract will be legally binding, with protective clauses in place to safeguard both parties’ interests. Ensuring that property transfers are conducted with a proper contract will help avoid potential disputes and ensure transparency throughout the transaction process.
CONCLUDING COMMENTS
Investing in Phuket’s property market comes with its own set of complexities that require careful navigation. Understanding the intricacies of foreign ownership laws, such as leasehold agreements and condominium ownership limits, is crucial. Additionally, conducting thorough due diligence ensures that property titles are clear and that any potential land use or environmental regulations are addressed.
Tax considerations, including transfer fees, business taxes, and withholding taxes, must also be factored into the overall investment strategy to avoid unexpected costs. Crafting detailed and legally sound property contracts helps protect all parties involved, minimising the risk of disputes and ensuring transparency throughout the transaction.
Addressing these legal, regulatory, and financial aspects will ensure investments made by foreign investors are safeguarded.
‒ Dr Maria Schlueter
The information in this article is only for general knowledge and learning purposes. Silk Legal does its best to keep it accurate and current, but there’s a chance some details might be outdated or not entirely on the mark. What you find here shouldn’t be treated as legal advice or the go-to for making major decisions, be it in business or law. Consulting a qualified legal professional is always recommended.
For personalised advice tailored to your situation as a foreign property investor, contact Silk Legal at info@silklegal.com