Property law: Buying, selling and leasing real estate in Thailand

The price of real estate properties like land, house or apartment condominium in resort areas like Samui, Hua Hin, Phuket and Pattaya might be considered reasonable and buying a real estate property seems an attractive investment. Real estate prices in Thailand are reasonable compared to prices in most western countries or other tourist destinations, however, ownership of land is not open to foreign nationals and unless it is a condominium registered under the Thailand Condominium Act a property purchase in Thailand does not offer full ownership rights. A lease interest in land in Thailand cannot exceed 30 years at the time and is in a standard situation basically not more than a pre-paid rental (not inheritable and ends at death of the lessee).

Overall property laws and buying realty in Thailand has its own specifics but are basically not different from other countries like Germany, Australia, or the US, the main difference and restriction is that foreigners may not own land in Thailand. Foreigners in Thailand may own:

Until the recent regulations preventing and restricting the use of front companies for land ownership by foreigners a Thai limited company was a commonly used by foreigners to purchase land. The current sale structure for foreigners in Thailand is a registered leasehold of up to 30-years for all types of titled land, preferably combined with separate ownership over the house.

Lease structures aimed at foreigners can be divided into 2 categories:

• True lease 30 structures, preferably combined with freehold ownership over the house and this preferably by an additional registered right of superficies.
• Contractual lease structures that aim to become more than a 30 year hire or lease of property

Under Thai law lease or more correctly a 'hire of property' is straightforward and the term can't exceed 30 years. The lease may be renewed after 30 years, although there is no guarantee for renewal. A 90-year or perpetual lease does not exist under Thai law and is commonly used in the Thailand real estate industry to sell and suggest longer terms of lease and possession. Lease in Thailand is governed by hire of property in the Civil and Commercial Code and as a personal right is not an inheritable right.

Lease structures for foreigners often suggest a longer than the legally allowed registered term of 30 years. These structures aim to become more than a normal 'hire of property', like the 90-year lease. These structures are more complex and aim to become the normal 'hire of property' laws in the Civil and Commercial Code. The drawback of these structures is that the foreigners registered rights remain a registered leasehold of up to 30-years. The foreigner can't sell the property, nor assign the lease nor renew without the cooperation of the owner, and in case of any dispute with the registered owner or transfer of ownership during the lease it will be up to a court's decision to determine the purchasers true rights. So bear in mind that in any lease structure the registered rights can't exceed 30 years and possession is only guaranteed for 30 years.

A long term lease structure should NOT include the house and the lease should only concern the land. The house should be owned by the purchaser. It could be in the interest of the developer to sell a project under a land and house lease structure, but this is not in the interest of the foreign purchaser.

Property real estate development projects in Thailand

There are 2 types of developments in Thailand, government licensed and private developments. The government licensed developments have to comply with various laws and regulations, private smaller developments are not regulated. Proper legal advice should be sought before engaging in any real estate transaction in Thailand. Do not fully put your trust in any (local) lawyer you hire in Thailand and take legal advice independent from the seller or property development you are interested in. Standard agreements in a 'off the plan' development:

• reservation agreement
• sale and purchase for land and house (purchaser must be a Thai person), or
• lease agreement for land and house, or
• lease agreement land and a sale and purchase for the house, or
• lease agreement land and a construction permit for a house
• other contracts: maintenance service agreement, rules and regulations of the project
• real estate agreements

The licensed development by a reputable developer is safer, but often very pricey (a quote from an article in the Bangkok Post: 'some projects in Samui are overpriced by up to 300%'). A licensed housing development must have obtained licenses and (depending its size) the property development must be allowed under the zoning regulations, obtain a confirmation letter of land use, drawings of the power system must be approved, a connection permit access road must be obtained, housing development permit must be issued by the Land Development Committee, an environment impact assessment must be conducted, construction permits applied for, connecting permit drainage permit obtained, etc. The standard contracts must offer to the purchasers must be approved by the Land Development Committee and comply with consumer protection standards. A private development more or less only has to obtain a building permit.

Some projects offer buy back guarantees or guaranteed rental returns. Unless this is guaranteed by a bank or by a reputable developer with a considerable share capital these promises have in practice little value and will not be paid. It is a bit a scam and mostly offered in private developments and by a limited liability company with a low share capital. Usually you are not dealing with the main company but with subsidiary limited liability companies set up specifically for the development, or the sale and purchase agreement will include something like; 'the seller may at its own discretion and without seeking prior consent from the buyer, assign, transfer or sell the project to its affiliated company'.

Even if you would be successful in a claim against the developer or subsidiary company, you would likely only be paid if there is sufficient capital to cover your claim. Say you have a claim against a company with a 2 million baht registered capital, the shareholders enjoy limited liability, i.e., limited to the remaining unpaid amount, if any, of the par values of their shares. If the money has gone it would be unlikely you would get any money from this company or in a civil action against the director(s) should they be personal liable.

Real estate developement in Thailand

Many foreign managed real estate/ development companies with the help of Thai locals or nominees subdivide a larger plot into smaller plots by using tricks to get round land allocation and housing development regulations and start advertising a project in magazines and in glossy brochures and on websites with 3D photorealistic images to show how it could look like. There are practically no licenses or permits applied for in these property developments. Until recently there has been little control by the local authorities, currently the government is restricting these practises ( article).

Real estate agencies are not regulated in Thailand and there is no national registry of real estate agents. Qualifications like 'certified property specialist' or 'licensed broker' have no value under Thai law and do not offer any guarantee or security that you are dealing with a licensed development or get proper advice. Finding a reliable lawyer may also be a difficult task.

General procedure

When buying from a Thai individual or developer mostly a reservation agreement and secondly a sale and purchase and/ or leasehold agreement is drawn up. The reservation agreement stops either party changing their minds and gives time to prepare the actual agreements and:

• find out if the property is free of debt, liens and encumbrances
• if the property really belongs to the seller
• if the description of the property matches what the buyer has been told
• if the property has a legal land title document and building
• agree on the terms of the purchase with the selle
• for a new construction, confirm that the developer is the owner of the land, and check the legal status of the developer, approval of the development and construction licenses.

A reservation agreement is usually made under the condition that a proper due diligence will be conducted upon the property and subject to a satisfactory report on the property in question, a sale and purchase agreement or lease agreement shall be entered into. Should the due diligence prove unsatisfactory, the seller shall refund the full amount of the reservation fee to the purchaser.

A reservation fee of 100,000 Thai baht is usually required on signing of the reservation agreement and taken as part payment of the purchase price.

Upon signing of the final agreements a deposit of 20% is usually required to secure a property and total payments should be made upon transfer of the property and/ or registration of the lease. Deposits are normally non-refundable, except by default of the seller. Once the deposit is placed you are committed.

Transfer tax of immovable property (land, house, condominium)

Note: Stamp duty is exempt if Specific Business Tax is charged. Withholding tax; if the seller is a company this is fixed at 1%, for private sellers it calculated based on income at a progressive rate, find calculator at the Thailand Revenue Department's website.

To boost real estate sales the Thai government has granted a temporary tax rate reduction ending March 28 2010 ( article).

Lease registration fee shall be collected at the rate of 1 % of the total rental throughout the lease term. Stamp duty shall be collected on the registration of the lease at the rate of 0.1% of the total rental throughout the lease term.

The seller wants the declared price to be less than what I'm going to pay

Normally the registered price is pretty much lower than an agreed purchase price between the parties. In practice, particularly the seller tend to insist on declaring a lower value rather than the real sale price as this decreases the tax burden of the seller. This is a known practice, but not so common. What is happening is that the seller wants to have to pay less income taxes. The problem for the buyer is that when you go to sell the property down the road, he will then have to pay more taxes. He may have to pay in taxes that the current seller didn't pay. In addition, parties are required by law to state the correct price at the Land Department.

In case the purchaser is a company, for accounting purposes the company accounts should reflect the purchase price as reflected in the actual sale and purchase contract (separate from the land office sale agreement). These are the accounts that will eventually be audited and on which and the company tax return will be based. In case a lower price is declared there is a risk that this valuation discrepancy will be caught in the future. This is for Revenue Department comparing the official land office documents with the company accounts, the situation would have to be corrected and a fine to be paid.

Which party usually pays which tax

Unless you are buying from a developer in a licensed housing development there is no fixed rule for who pays which part of the transfer taxes. This can vary from purchaser pays all to seller pays all. It is part of the overall price negotiation to come up with an appropriate formula for sharing these costs. It's most important that you have resolved this in the sale and purchase agreement so the seller doesn't try to force in this provision a week before the transfer or you must work out such details when you arrive at the Land Office. It should clearly exclude personal wittholding tax if the seller is a private person.

If the seller is a developer the purchaser is usually responsible for up to 50% of the transfer fee (2%) in connection with the transfer of the property only. The developer will be responsible in full for Specific Business tax and Withholding tax.

The registration of a land transfer or lease registration in the land office may take up to six hours, depending on how busy the officers are and the connections of seller or if 'extra money' has been paid to ensure the smooth and quick registration. If the foreign purchaser cannot attend the land office, a proxy can be appointed. In this case, the official Thai script Land Office power of attorney form is required. Other forms of power of attorneys are NOT accepted by the Land Office.

Share transfer

If the owner/ seller is a Thai incorporated holding company selling to another foreigner a share transfer agreement is usually drawn up. The property (land, house or condo unit) sale will look like a share transfers, without the necessity of re-registering the property at the Land Office. It could be deemed a tax evasion to create such legal arrangements. Selling a property naked you will be liable for all of the taxes and fees that were applicable at the time of purchase over the sale amount. The proceeds derived from the sale of property by a company are taxed as corporate income tax.

Information on transferring a house separate from the land here

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