What is Leasehold Property Ownership in Thailand?
This is one of the most frequently asked questions we get from our buyers. Thai law is straightforward when it comes to owning property, but for those who are not familiar with the laws, it can be complicated.
In this article, we’ve tried to make things clear. Though please don’t hesitate to contact us if you still have further questions or anything isn’t clear. We’d be happy to answer your questions.
Buy a Condo in Phuket – What is the Difference Between Leasehold and Freehold?
According to the 1979 Thai Condominium Act, non-Thai Citizens can’t own more than 49% of the sellable square meter space in a condominium in Thailand. For example, let’s say there is a condominium building with 100 equally sized units; 49 of those units can be sold to non-Thai citizens while 51 of those units have to be owned by a Thai Person or Thai company.
Those 49 units can be sold under the Foreign ownership quota via what is commonly known as a “Foreign Freehold” land title. In actual fact, it is exactly the same land title that Thais can own – a “Chanote”. A Chanote is the land title with the maximum ownership rights issued under Thai law.
The Chanotes of the remaining quota of 51 units can be held by a Thai person or Thai company. A non-Thai can purchase a unit in the condominium on the Thai side of the ownership quota via a lease, but here is the catch – the Chanote of the leasehold units here is still owned by a Thai Company or Thai Person.
In a condominium development, it is almost always the case that the Chanote is held by the developer, which will be a Thai company, and a lease will be issued to the non-Thai purchaser of the unit for maximum 30 years on a renewable basis.
It is a common practice in Thailand for developers offer leases of 30 years + 30 years + 30 years, totaling 90 years of leases for buyers. Since the issuer of the lease (the lessor) is a limited company or a publicly listed company (PLC), rather than a juristic person, the renewal of a 30-year lease is safeguarded
Is Leasehold Safe?
The 30-year period of a lease is legally protected under Thai law and so this ownership period cannot be disrupted. The ambiguity arises when it comes to renewal of the lease. What actual provisions are in place so that the lessor will renew a new 30-year lease period?
Problems have arisen in the past in cases where the property owner is an individual instead of a company. There were incidences where properties purchased via a leasehold structure directly from a Thai person, then that person passed away and the legal successors of the lease didn’t wish to extend.
A Thai Company is an enduring legal entity used by developers, often in part ownership with leaseholders, that can be cleanly run to maintain its purpose of renewing leases for owners.
We recommend that a leasehold purchase should always involve a Thai company as the lessor and the Sales and Purchase Agreement be executed under the supervision of a lawyer with the extension and termination clauses properly stated.
Why is Leasehold Property Cheaper?
In the past, the Foreign Freehold units in developments popular with overseas buyers would usually have their Foreign Freehold quota sold first, leaving the developer having to sell the units in the Thai quota as a leasehold to Foreigners or to either Thai individuals or Thai Companies.
As a result, units in the Thai quota generally took longer to sell. In addition, when it comes to reselling a unit in the Foreign Freehold quota a premium is added to the resale price. These two factors combined inspire developers to charge a premium of approximately 10,000 THB per square meter at the point of purchase for a unit under the Foreign Freehold quota.
In addition to the premium on the price tag for a unit in the Foreign Freehold quota, the taxes and transfer fees are 6.3% of the value in relation to freehold as opposed to 1.1% of the value in the case of a lease.
In summary, the combined effect of no premium and lower taxes means that in reality, a leasehold unit can overall be approximately 10 – 15% cheaper than a foreign freehold unit.
Is it Worth Paying More for Freehold Ownership?
It is true that Foreign Freehold units are more desirable in the resale market so there is an opportunity for the purchase premium to be recouped. Furthermore, in Thailand the overall property tax burden is low over the lifetime of owning a property especially in comparison to foreign countries. For example, there is no capital gains tax in Thailand and the yearly property tax paid to the local government is very small indeed.
There some key facts to consider when deciding whether it is worth paying more to purchase a condominium under the Foreign Freehold quota and we hope that this article has helped to shed some light on those facts.
Please do not hesitate to contact us directly if you would like to further information. We provide free consultation and advice and guide our clients every step of the way through the purchasing process.