Facts about real estate deals in Thailand

Here we have developed a list of checks that anyone, who wants to invest in a second home in Thailand, should undertake.

Once you have found your ideal home you can engage the services of an independent consultancy that shouldn't have any connections with the builder, in order to have a good chance to recognize right from the start any "skeletons in the closet". Usually the consultancy commissions an official examiner who will look into all aspects of the builder's business.

The checking process consists of a legal and a financial examination. Looking at the financial side of things, it has to be established that the builder is running a sound business while one should also enquire about future developments in the property market, as these can greatly influence the value of a property at a later date.

As the word suggests, the legal examination is concerned with all legal aspects of an intended transaction. To show that everything is above board the builder should provide the following documents:

A detailed description of his company, its standing in the market, and a list of law firms and tax consultants it is dealing with. 

• Exact data regarding the object that is supposed to be invested in, i.e. who the architect, the agent and the bank is that extends the finances.
• A correct description of the object's location as well as a quality assessment of its soil.
• Is there any security guarantee for payments made before the transfer of the property?
• Any payments made in advance should ideally go into a trust account. Only after the transfer of ownership should those amounts be released to the builder.
• Have all existing laws been complied with, especially the building and environmental regulations?
• Is the object located in an area that is officially designated as a building and residential zone?
• Are any guarantees given for the completion of the project, and are they backed by the architect and engineers associations?

As always, we cannot claim that this checklist is complete, but it should be of some help to potential investors.

Land ownership is governed by the Land Code BE 2497 (1954), the Civil and Commercial Code, the Land Reform for Agriculture Act BE 2518 (1975) and the regulations issued by the Ministry of the Interior.

Although you can own a house or structure in your own name, Thai law does not allow foreigners to own the land the building is erected on.

However there are a number of ways in which you can circumvent this rule:

• Invest in a private Thai limited company. This involves the incorporation of a private company of which the foreigner holds a maximum of 49% of the shares. The remaining 51% of the shares must, according to Thai law, be held by Thai nationals.
  This is the method that has been adopted by tens of thousands of foreigners who protect their property ownership with this "legal framework". The author is not aware of any case where such a contract has been revoked, as long as certain basic rules have been observed. All steps of this process are legal within themselves and have been approved by all authorities concerned. All foreigners who have bought their properties in this way, can rest assured that their ownership will never be disputed, because Thai laws cannot be retroactively amended. Should you consider this option, the consultation of a competent legal advisor/lawyer is strongly recommended.
  However, we would like to draw your attention to a few more noteworthy points:
  Any company with more than 40% foreign interest 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. This results in the foreign ownership of the company being restricted to 39%, but with the recommended changes to the Articles of Association, the foreigner can become the only director of the company, and the only person in that company who can undertake any contractual dealings - effectively giving the minority shareholder control over the company. The company must submit an annual balance sheet and there will be a tax obligation, but the costs are minimal and your lawyer should be able to assist you with the above.
• Become a Thai resident or citizen
• Invest in a new export oriented Board of Investment (BOI) approved company. The most you can currently own freehold is one Rai of land (1600 sqm.)
• Make an approved investment of 40 Million Baht or more, which has to be maintained for a specific number of years.
• 30 year lease with the option of renewal. This can be done by taking out a registered 30 year lease (residential) to the foreigner in the foreigner’s own name with pre-paid options to renew for two further periods of 30 years each. The foreigner could also be given the option to purchase the land, in case the law in respect of foreign land ownership rights changes. Under Thai law, a foreigner can own the building (for example a house) erected on the land. In order to be enforceable, any lease for a period of more than three years must be registered at the respective 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 sold.

Under the strict application of the law, it is actually prohibited for foreign individuals or juristic persons (e.g., foreign majority-owned companies or partnerships), to own land in Thailand. However, there are exceptions to this rule which can be found in the law itself, as well as other methods of effectively purchasing land and buildings.

The Land Code has been changed to allow foreigners to own land if they meet the following requirements: 1) The land is strictly for residential purposes. 2) The land area does not exceed one Rai. 3) No less than 40 million Baht is being brought into Thailand for investment in approved BOI projects. 4) Foreigners must abide by the Ministerial Regulations governing the nature of the business that the foreigner wishes to undertake, the period of time for maintaining the investment, and the location of the land owned. 5) Permission has to be granted by the Minister of the Interior.

According to article 97 of the Thai Land Law, the definition of a foreigner also extends to a Thai registered company or partnership in which more than 49% of the capital is owned by foreigners or of which more than half the shareholders or partners are foreign nationals.

So to all intents and purposes foreigners are prohibited from owning freehold land and for that reason the three above mentioned methods of structuring ownership and control have evolved.

Although Thai law does not allow foreigners to own land in Thailand, foreigners have the right to own buildings (See "purchase of condominiums". Foreigners have no right to freehold land ownership). If foreigners want to purchase land in Thailand in order to build a property, they have two options, either to form a joint venture limited company with a majority Thai ownership or to secure a long term lease with a right of renewal.

The Board of Investment (BOI) may grant a foreign-owned company permission to own land if the proposed use of the land is for any activity promoted by the BOI. Prior to the purchase, the BOI must inspect the land and the construction plans, and agree that the land is suitable for the promoted activity. After the land has been bought, it may only be used for that activity and, in the event that the business conducting the activity stops operating, the land must be sold within one year of that date. Another benefit of this BOI promotion is that businesses which have been granted the right to own land under these conditions may also be eligible to conduct other business activities that would otherwise be restricted to foreign individuals and juristic persons.

Buying a property in Thailand

Buying a property in Thailand is actually much easier than in other countries. Land offices are efficient and the documentation required for ownership transfer is relatively simple to prepare. Although it usually takes 30 to 60 days, a purchase can be wrapped up much quicker, especially when a newly built property is being purchased. 
This is mainly due to the conditions in the Thai market. With a high proportion of cash buyers and much of the property in the Kingdom being relatively new, the process is generally less complicated than in other countries. However, due diligence is still advised. It is therefore sensible to undertake a complete check of the property being purchased.

The buying process

Once a suitable property has been chosen an inspection can take place. The initial viewing should give the observer a good indication of the condition of the property and its fittings and fixtures. For previously owned properties it is wise to undertake a more thorough inspection that should include a structural check, a valuation, and, in case of a condo or a house in a developed area with shared facilities, a check of the common area and its maintenance history.

It is an agent´s primary function to find a buyer for the property to the satisfaction of the seller’s instructions, and to inform the seller immediately when any offer is received by the agent. The agent will oversee all negotiations with the aim of ensuring that both parties come to an agreement. When dealing directly with a developer, although some discounts may be offered in the current market, most prices are usually fixed, while concessions take normally the form of free extras like air conditioners or built-in furniture etc.

Once both parties have agreed on a price, a lawyer can be engaged. Some agents offer to take over the preparation of contracts and other paperwork themselves, but it can be a good idea to hire your own lawyer so that your interests are managed independently. On the other hand, it can happen that a local lawyer asks the agent for a commission for having recommended to his client to sign the deal.

Normally the lawyer will draw up the contract, hire a surveyor and have a look at the land records. If everything is in order, the contract can be signed and a deposit paid. This will usually be a previously agreed amount of ten percent and the contract will usually specify, that this amount is forfeitable if either party fails to complete the transaction. Although very often the deposit is paid to the seller as an advance payment of the sale price, it can also be held in trust.

It will be stipulated in the contract at which time the balance is payable. Usually it's between 30 and 90 days, though it can be earlier. For a purchase made directly from a developer, it can be agreed that the deposit will be paid in stages over several months or even years, especially if the dwelling is still under construction.

On the agreed date the transfer can proceed. Both parties or their respective lawyers, will go to the land office to arrange for the land documents to be updated with the new owner's data. Transfer of the remaining balance usually takes place at the same time, with a receipt being issued to verify that the sale has been effected.

Allow about one day for the property transfer to be processed, but if the land office is not too busy, the entire process could be completed in just one hour. When this is done the seller will receive his funds, and the buyer will be the new holder of the property.

Property purchases by foreigners in Thailand are simple but there are some restrictions. These restrictions, however, don't apply to condominium units which can be bought freehold in one's own name. In fact foreigners can buy as many of them as they like. The only rule is that in an apartment building Thais must own at least 51 percent of the units, while the other 49 percent can be owned by foreigners.

Assuming you arrive before the quota that is allocated to foreigners is sold out, you will have no problem to buy a unit outright. Resale and transfer is no problem, as you own the property on a freehold basis. A unit owned by a foreigner can be sold to either another foreigner or a Thai national. Should the latter be the case, it will mean that the percentage of ownership will change, freeing up the availability of another local owned unit in the building to be sold to a foreigner.

Remember, you must show that the money for the purchase has come from overseas by way of a foreign currency receipt and/or a letter from your bank. (This is a relatively new regulation, intended to prevent money laundering). Ownership papers will be issued in your own name.

When it comes to buying a house, or just a plot of land, a foreigner cannot become the owner of that land, so you can do one of three things:

• You can find a Thai national and use their name (e.g. get married to a Thai citizen). In this way you are entitled to use the property as long as you don´t have a disagreement with your Thai partner. Doing it this way, you will never really own the property. The Thai partner will be the owner.
• You can lease some land or a house. Leases usually run for 30 years, but can be renewed. A 30 year lease means that although you won’t really own the property, you will gain control of it for at least 30 years. Similarly you could arrange a 30-year lease with two 30-year extensions. However, extensions of 30 year leases much depend on the willingness of the lessor, and you will have little chance of success when trying to legally enforce an automatic renewal of such a lease.
  The best way to achieve this is to adopt step (a), and buy the property in your Thai friend’s or partner´s name. Then a legal document must be drawn up whereby this person leases the property to you for both the first 30-year period plus any additional renewal periods. The contract must show that all rental moneys for the lease(s) have already been paid in advance. Make sure that the current lease is registered at the land office.
  This method of securing ownership appears to be perfect. However, in order to resell the property one must ensure that the current owner can transfer the title deeds to the new owner and return the cash from the sale to you. This is by no means guaranteed. And there could be another problem: if the owner passes away and the property is transferred to his next of kin, then the renewal may be contested.
• You may form a company, which means using Thai shareholders, and then transfer the house into the company's name. The company can then grant you the right to reside at the property, and as director you can arrange to obtain majority voting rights in that company even though you are a minority shareholder. However, you will not own the property (the company will) and your share holding in the company must remain at 49 percent or less in order to maintain the company’s status as a Thai limited company. If the company owns property your holding should remain at 39 percent or less.
  The company can be set up by a lawyer or even by the developer’s legal experts prior to a property sale. Often the Thai shareholders will be nominees used by the lawyer who sets up the company. Since it is rather unlikely that you will choose the nominees yourself, it is advisable to at least keep track of the nominees in order to assure that they are independent from any other party involved in the property deal. While this is technically illegal, it has become a common practice among ten- if not hundred thousands of foreigners.
  Even some condo developers have tried to sell condominium units by way of company ownership, trying to circumvent the 49 percent foreign ownership rule, but the resale of such a condo would be just as difficult as selling a Thai owned unit. It is therefore not advisable to buy a condo in a company's name unless you get a significant discount compared to a similar unit under foreign quota.

For Thai nationals, mortgage financing has not suffered such a sharp tightening as has been the case in many other countries. After the 1997 Asian financial crisis banks may have been a little more conservative and therefore have not had the same exposure to the housing market as their western counterparts. Although this means that a Thai person has a good chance of gaining approval for mortgage financing, it does also mean that in recent times the requirements have become more stringent than they may be in the rather lax Western markets.

Furthermore, since Thai banks are all too aware that the process of repossession 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 stable employment history, as well as pay slips and other documents to support future employment outlook.

In most cases it would be difficult to obtain bank financing of more than 70 percent of the purchase price, so to insure a smooth process one should have a substantial deposit in hand.

For foreigners it is almost impossible to obtain financing in Thailand. Nevertheless, some foreigners who have a work permit, and can show a stable history of employment as well as a healthy deposit, can obtain mortgage finance from a number of Thai banks. While these banks observe the current foreign ownership restrictions, they usually extend loans only for the purchase of condominium units sold on the basis of freehold foreign title. For those foreigners looking to finance the purchase of a property while they are still working in their home countries, the options would be limited to finance by the developer or the owner, or to obtain a personal unsecured loan from a bank in their country of residence.

Owner financing

Lately the practice of “owner financing” has become very popular in Thailand:

A property owner who doesn't immediately need the entire proceeds from the sale of his property, may be willing to offer payment in instalments charging interest comparable to current bank rates.

Buyer and seller agree on a selling price and a down payment as well as the time frame in which the money owed has to be paid in full, including the interest rate payable.

The terms and conditions can be freely discussed and must be agreed to by both buyer and seller.

• The title deed for the property (Chanoot).
• Document from the juristic person of a property where there are common areas (i.e. all condominiums) stating that all maintenance fees are paid up.
• Copies of the passport or other identification documents of both the buyer and the seller.
• Copies of the entry stamp (in passport) of the buyer and/or the seller, if foreigner(s).
• Purchase agreement.
• Thor Tor Sahm document from the buyer's bank indicating that funds have been brought in from another country. (for purchases in the name of a foreigner only)

Since a foreigner is not restricted from purchasing real estate, one of the most effective ways to acquire land with an existing structure is to acquire temporary possession of the land with a 30-year leasehold and an option to extend that lease for subsequent 30-year periods. Leases are limited to 30 years, except on land that is used for industrial purposes, which can be established for 50 years. Similarly, lease extensions are restricted to three terms of 30 and 50 years respectively before renewal of the lease would be required. However, the renewal of a 30 year lease is a tricky matter and promised perpetual renewals are simply not possible or cannot be enforced in case of a legal dispute. Possession of the land leased for an already owned building is protected because the building sits on the land; ownership of the building is separate from the land ownership and cannot be seized by the lessor once the lease expires. Leases with the duration of more than three years are enforceable only for three years unless they have been registered with the Land Department. That means that a 30-year lease must be registered with the Land department. In addition, a lease remains valid even in the event of the land being sold.

A Thor Tor Sahm is a bank document that is issued by the receiving bank when you deposit foreign currency into a/your bank account in Thailand.

You must ask the receiving bank for a Thor Tor Sahm when you are remitting funds to Thailand for the purpose of buying a condominium, and the Thor Tor Sahm must state that the remittance is only for the purpose of purchasing a property - Code 5.22.

Yes, they are called “Chanood” or “Nor Sor Sie Jot” or with a slightly minor “quality” “Nor Sor Sahm Gor” and are the only documents which can be described as land title deeds, because they alone confirm ownership of land. The land is properly surveyed and its area and boundaries are established using GPS or conventional measuring devices. Land parcels can also be partitioned into smaller plots.

For areas not surveyed, there are other documents to prove possession such as evidence of the right to utilize the land.

Before 1998 any Thai woman married to a foreigner lost her right to purchase land in Thailand, but she could still retain land that was in her possession prior to marrying the foreigner. That has now changed. According to a ministerial regulation decreed in 1999 Thai nationals married to foreigners can purchase land, but the Thai spouse must prove that the money used to buy that land is legally hers and has not been provided by a foreigner. This can be achieved if the foreign spouse signs a declaration, declaring that the funds used to buy the property belonged to the Thai spouse prior to the marriage and that the foreigner has no claim to it.

Purchasing property through a company with limited liability has so far been the most popular method for foreign investors. The regulations vary throughout Thailand, but the Land Office generally requires that Thai nationals must hold a majority interest in order to be able to purchase land legally. In the light of recent government directives it is most important to seek competent professional advice on the implications of obtaining land ownership by this method.

The promise of a guaranteed return should be viewed with caution, as returns are subject to the market situation, which nobody can predict accurately. Another question is, what is actually being guaranteed. Some developers offer a net return, others offer a gross return or a profit sharing scheme. The latter is very difficult to control. Especially first time developers are often not in the position to calculate such a rental guarantee and the tax issues related to it. If a well known management company offers the guarantee, chances are that they can deliver. If you have doubts about those promises, decline the offer and ask for a price reduction instead.

It is obviously more risky to buy off plan from a first time developer than from someone with a long standing reputation and a record of completed projects. Although this practice is not very common in Thailand, the use of a trustee, - a lawyer, for example - will definitely reduce your risk. A trustee is an impartial third party used to secure the completion of a transaction between a buyer and a seller. He acts as an intermediary and collects documents and funds to be delivered to the appropriate parties after the transaction has been completed.When buying into a housing project, one can ask the developer to transfer the ownership of the land or register a lease agreement on the buyer's plot after having paid a reasonable deposit. This option is not possible when purchasing a condo, because the condo license and therefore the individual titles can only be issued after having completed 90% of the construction.Make sure the payment terms are in relation to the stages of construction which must be completed before payment is due.

Whenever a property in Thailand is bought and sold, there are four taxes you should be aware of.

1. Land registration (transfer fee) at 2 percent of the assessed value of the land.
2. Stamp Duty/Fee of 0.5 percent of the assessed value or the sale price - whichever is higher.
3. A specific Business Tax of 3.3 percent of the assessed value or the sale price - whichever is higher - this tax will be applied to all sales by companies and to private sales that take place within 5 years of the date of purchase.
4. Income Tax. This is calculated on a very complicated formula based on the assessed value of the property, the length of time it has been owned and the applicable personal income tax rate. In practice, this will work out to less than 2 percent of the price for low to medium value properties, and up to 3 percent for properties with a higher value.

The Thai system of taxing property is based on an arbitrarily assessed value, which is determined by the local Land Department, rather than the true market value. There are no specific rules as to who pays for which taxes. It is just another part of the bargaining process when purchasing property in Thailand.

There are no property taxes that could be compared to the property taxes in the West. However, comparable taxes on properties in Thailand would be the Land Tax and the Building Usage Tax. The Land Tax levied on land is so low, that in reality the body charged to collect it, rarely bothers to do so, and if it does, it usually waits several years until the amount accumulates. The other tax, the Building Usage Tax, relates only to buildings and is collected by the municipal office or district office. It is only applied to properties used for commercial purposes.

Foreigners generally cannot obtain a mortgage when buying properties in Thailand, however, most of the financial institutions in Thailand provide loans to Thais and Thai companies for the purpose of buying real estate.Very often real estate developers arrange for their customers to be granted a financing package from a financial institution. It should also be noted that in most real estate development projects a down payment can be made in instalments stretching over a period of up to 24 months. After the down payment has been made, the sale contract will be drawn up and the remaining balance is paid through the loan which is financed by a financial institution. The financial institution requires you to mortgage the property as collateral.

Thai land mortgage documents must be drawn up in writing and registered with the Land Department. Any buildings built on the land after the mortgage date are 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 should be registered with the Land Department or local Amphur.