As tourism grows every year, Thailand, especially Phuket, becomes a more popular location for property investment.
Phuket attracts anyone who wants a home in the tropical sunshine, from entrepreneurs to young families to retirees. And while these people are happy to call Phuket home, it is investors seeking a better return on their capital who seem to be driving this market.
Foreigners can own property in Thailand
If you have a few customers that are interested in buying a Phuket property investment, it is essential that you know how to advise them. They need to find in you the right agent and they also need to feel you work with experienced, and ethical lawyers that will help them during the buying process.
What follows is a description of the most common and legal ways in which your customers can invest in Thai property.
A freehold condominium is the most straightforward way for a foreigner to own property in Thailand. Under Thai law, up to 49% of the unit area of any condominium may be owned by foreigners.
Provided the requisite Thai-owned percentage within a given development is maintained, a condominium unit can be fully and legally titled in the name of a foreigner. This means permanent ownership, in perpetuity, until such a time as the owner chooses to sell the unit.
One interesting detail is the fact that when a foreigner buys a condominium, the title includes a “fractional interest” in the building and all of its common areas. This means your customer will own a tiny piece of the car park, the gardens, the swimming pool, and even the reception area. Furthermore, the fractional ownership interest translates into their share of the vote in the owners association.
Condotels or Hotel-Licensed Condominiums
Condotels combine the services of a hotel and the legal structure of a condominium and are ideal for anyone interested in a sound investment opportunity. Investors can purchase individual properties, and then rent it out as hotel accommodation.
Each owner is typically allocated a certain number of days of use for their unit each year (usually between 2 weeks and 1 month). The rest of the year, the property is rented by the hotel. Note that the hotel will usually run the resort and the rental business.
A Condotel will typically offer the option of either a guaranteed rental return or entry into a rental pool. In a rental pool, participating owners are all required to offer their units for rental, then the rental income is “pooled,” with each owner sharing in the profits.
Because a Condotel has both condominium and hotel licenses, the units may be rented out on a weekly or even a daily basis. With Airbnb growth, the ability to offer short-term rental represents a massive advantage for foreign investors.
This type of investment property falls squarely in the realms of Luxury Property. While branded residences may also be villas, a number of developments in Phuket have been established as luxury condominiums, which means the 51% Thai – 49% Foreigner ownership dynamic must apply. This means that foreigners can buy units in branded residences and own them as freehold.
When a development shares its name with a luxury hotel chain, investors know exactly what they are buying: designs from world-renowned architects, fixtures and finishings of the highest quality, and interiors which simply ooze luxury.
Branded Residences understandably appeal to high net worth investors. Their property is resort managed, including the option to use the rental pool should they not be living there. Furthermore, the high-quality service is everything you would expect from a 5-star hotel chain.
Buying a Condo Through an Offshore Company
While the laws governing inheritance of a condominium in Thailand are favourable to foreigners, you might nevertheless consider buying a condo through an offshore company.
The British Virgin Islands is a popular choice due to its well-established reputation for smooth administration, and its competitive running costs.
Purchasing through an offshore company is ideal for succession planning because companies don’t die. This makes inheritance planning simple and painless because the person who controls the company shares effectively owns the condo. Likewise, if you wish to sell your condo, you only need to transfer the offshore company shares to a new owner.
Landed property refers not only to the actual plots of soil and rock, but also to landed houses, townhouses, bungalows or villas– in other words, land with an extant building sitting on top of it.
Thailand has very well-known laws governing foreign ownership of landed property, laws which essentially forbid titling any land in the name of a foreigner.
With very, very few exceptions, it best to accept this as fact: if you are a foreigner, you are not allowed to own land in Thailand.
Buying Villas Through a Thai Company
There are restrictions in Thai law which prevent foreigners from owning landed property. This includes not only parcels of land, but also landed houses or villas. Foreigners must accept that if they attempt to circumnavigate the law without the proper legal advice there are risks involved.
A common way to try and circumnavigate the law is for a foreigner to set up a Thai Company Ltd. But to be done correctly, the company must be run as a legitimate business. This means that they generate revenue and has proper Thai shareholders (nominee shareholders in Thailand are illegal). The Thai shareholders they find should be legitimate investors, as well as interested parties who have a say in running the company going forward. A foreigner may not own more than 49% of the shares.
Every lease must be registered at the local Land Office, and once this is done the lease agreement acts as lien against the title deed. This actually makes the legal standing of a foreign lessee more secure than that of a foreigner using an illegitimate Thai Company.
Many developers also have clauses in a sale and purchase addendum that, upon expiry of the initial lease term, the lease will be renewed for a further two 30-year terms, effectively making the lease term 90 years (often referred to as 30+30+30). Although under Thai law these renewals can only be promises, using a reputable developer and an experienced lawyer can ensure a successful renewal.
Own the Building, Lease The Land
Another option for foreigners is to own the actual building, but to lease the land it sits on from the freeholder. The freeholder may be an individual or a company (e.g. a developer).
Because the restrictions on land ownership do not apply to building ownership, some foreigners take out a 30-year lease on a plot of land, then proceed to build their dream villa on that land.
An experienced lawyer can also ensure that the initial 30-year period may be renewed at the end of the first term.
The Secured Lease (also known as Protected or Collective Lease) is a structure whereby the tenant commits to a lease, while simultaneously signing on to a sale and purchase agreement with the Thai company of the developer.
In most cases, the Thai company is developing a collection of villas, which are being leased to foreigners. The foreigners leasing the villas collectively own the shares of the offshore company. The crucial elements of this structure are that the rules governing majority Thai shareholding are respected, and no promises of guaranteed lease renewals are made.
Instead, when the foreigners each sign a 30-year lease on a property, the offshore company in which they have an interest simultaneously takes a minority shareholding in the lessor company. This minority shareholding, however, comes with special rights, such as voting power, which allows the offshore company to determine the direction and actions of the Thai Company.
In other words, you know your lease will be renewed because you and all the other foreign lessees have the power to make that decision. Furthermore, if you ensure that your heirs take control of your offshore company shares, they can further ensure that any succession clause in the lease is enforced to their benefit.
However secured lease have been successfully challenged in court in Thailand, so you must ensure your foreign customer that the developer has structured everything properly. If structured correctly, your lease – and your investment – may be secured for the long-term.
Putting The Villa in the Name of Your Thai Wife
In Thailand, a foreign spouse is not allowed to co-own land. If a couple buys land in the name of the Thai spouse, they must make a joint declaration that her personal funds were used for the purchase. Note that she may decide to mortgage or sell the property without obtaining consent from her husband.
One way of solidifying a form of “joint-ownership” used to be for the Thai spouse (most often is the wife) to own the land, then lease it to her husband for 30 years. In that way, even should the wife decide to sell the land, her husband would have an unequivocal right to remain in the house, on the land until the expiration of the lease.
Note that either party may choose to void the agreement whenever they like (even up to 1 year after divorce).
Using a Thai Friend to Buy Your Villa
Foreigners with extremely trustworthy Thai friends have been known to transfer money to their friend, who then purchases a villa in their own name. The foreigner may have an agreement their Thai friend which states that they own a 49% interest in the villa, but the foreigner will not have their name on the title deed.
In this case, the friend has the right to sell, lease, or otherwise dispose of the property, without the foreigner’s consent. This is a “cheap and easy” way to “own” a villa, but again, you don’t actually own it. Still, it is possible for the foreigner to lease the building from his friend to legally secure use of the property for at least 30 years.
It is also worth mentioning that, in the unlikely event the authorities were to discover that your friend has purchased the property for you, your friend may be deemed an illegal nominee acting on your behalf.
The exceptions to the rule
We mentioned above that there were “very, very few exceptions” to the laws against foreign ownership of landed property in Thailand. Let’s have a look on the exceptions.
For foreigners who have the resources, Thailand’s Land Code Act offers another avenue to foreign freehold land ownership.
The investment must be in bonds of either a State Enterprise, the Bank of Thailand, the Thai Government, or any bonds for which the capital or interest are secured by the Ministry of Finance.
Given that foreigners already buy (or even lease) Phuket villas for up to THB 400 million (US$12.51 million or €11.21 million), there is a case to be made for making a Prescribed Investment of 1/10th that amount, then using the balance to buy a villa.
The Board of Investment (BOI)
Any foreigner wishing to promote a business or invest in Thailand may be granted specific privileges, like the permission to own land.
The Investment Promotion Act grant sincentives to the business, not the individual, but under the BOI scheme a foreigner may control their Thai business, something which can not be done with a conventional Thai Company Ltd. And if they control the company, it means they also have control over any land owned by the company.
Any foreigner who is in a position to utilise the BOI scheme is also afforded legal control of a Thai property.
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