The luxurious design of Thai villas coupled with the scenic beauty of their natural surroundings make such real estate properties one of the most popular investment options in the world. The laidback lifestyle and low-cost of living in Thailand, particularly outside of Bangkok, serve to further enhance the popularity of buying villas and other forms of real estate in the country. However, before deciding to take the plunge and actually purchase a villa in Phuket, Koh Samui, Hua Hin or any other of the scenic resort locations in Thailand, it is important that one investigate and study the various different investment vehicles and methods that are available; needless to say the advice of a reputable lawyer should be considered absolutely necessary and indispensable.
Furthermore, since Thai law restricts direct foreign ownership of real estate, the differences between the various investment methods are mostly a matter of one’s control and degree of ownership over such real estate more so than a difference in tax liability, although tax liability does come into consideration to a certain extent.
Before beginning to explore the different options, it is first a good idea to get a basic background of how property rights are secured in Thailand in the first place.
The Importance of Title Deeds
Generally speaking, in Thailand, property rights are secured by government registration; the Land Department of Thailand serves as the responsible authority over such matters. Failure to register most types of property rights generally results in those rights becoming legally void. The Land Department issues official title deeds to property whereby every transaction regarding the property is recorded on the back of the title deed thereby evidencing the rights of the parties involved. Such title deeds may be of varying classes whereby the different classes indicate the fullest extent of ownership that is potentially possible for the particular parcel of property. Therefore, when purchasing or otherwise investing in Thai real estate, it is important to ensure that one’s rights have been registered and recorded on the back of the title deed issued for the particular property.
Now that we have a basic understanding of the importance of title deeds in securing one’s property rights, the next step is to get a basic grasp of how property transactions in Thailand occur in general.
The Course of a Typical Transaction
One particularly noticeable difference between how property transactions are conducted in Thailand as opposed to other countries is the lack of an escrow agent. Although Thailand has recently passed an escrow law, the use of escrows are not well-known and generally, only commercial banks may serve as escrow agents. Parties to a real estate transaction tend to conduct the transaction between themselves and most of the time with the assistance of the real estate broker.
Having said that, there are generally two major steps to the process: the payment of the deposit and the registration of transfer, which is equivalent to the conveyance of title in other countries.
Upon payment of the deposit, the buyer signs a contract with the seller whereby the buyer promises to purchase the real estate from the buyer at a future date in time, which is normally specified in the contract. Accordingly, the seller promises to sell the property to the buyer on the same date. If the buyer does not go through with the transaction, then she agrees to forfeit the deposit. However, if the seller does not go through, then he must return the deposit to the buyer.
After this initial contract, normally called the “To Sell and to Purchase” agreement is signed, the parties then schedule a date to register the transfer of ownership (or other property right) at the local Land Office with jurisdiction over the property. On that date, the parties will meet at the Land Office wherein the Buyer will present a cashier’s check for the remaining sum of the purchase price to the Seller. At this meeting, a second legal contract, the actual sales agreement, must be signed between the parties, which is actually a government-issued form.
Upon execution of that agreement, the Land Official registers the transaction and records it accordingly on the title deed. The buyer is given an official copy as proof of ownership. It is normally not necessary for the buyer to appear in person and an agent may be appointed to conduct the transaction in her place.
Different Foreign Investment Methods
As stated in the beginning, foreign ownership of real estate in Thailand is restricted. In terms of villas, which are situated upon land, outright foreign ownership of land would only be allowed in the case where a foreign individual has invested at least 40 million baht in the country as specified by law.
Since most foreign investors do not fit into that category, the two most popular methods of real estate investment in Thailand are the 30-year lease and ownership through the use of a locally-registered company. In regards to the former, foreigners are not prohibited from leasing land and furthermore, a lease is strictly limited to 30 years according to Thai law.
In terms of legality, the leasehold option does not present any serious concerns. However, in terms of investment, there is the major drawback that one does not actually own the property. Nevertheless, it is still possible for a lease contract to specify that the owner must compensate the lessee for the fair market value of the property, whereby in such a case it should be possible for the lessee to recover some return on investment.
It is strongly advised the one consult a lawyer to determine whether such a contractual promise may be enforceable. As for the use of a company to own property, such an option does have its benefits, in that it theoretically allows for perpetual ownership and direct control of the property. Nevertheless, such a method is riddled with serious legal problems, such as the use of Thai nominee ownership, the filing of corporate tax returns and financial statements, and the regular execution of other corporate formalities. Assuming that one incorporates a strawman company in order to purchase a villa, the use of such a method may be quite legally risky.
In any case, it is important to remember that Thailand does not outright prohibit foreign investment in real estate, but only restricts it to a large extent. With proper legal advice and planning, it should be possible for one to make a safe and rewarding investment.
DISCLAIMER
This post only serves as a general introduction and does not represent legal advice. We strongly recommend that professional legal advice be sought before conducting any transaction or business in Thailand. We disclaim any liability whatsoever for any damage caused by reliance on the contents of this page.
