PROPERTY BUYERS GUIDE
Buying property in Thailand has never been as easy as it is today, there are many preconceptions about what type of property foreigners can and cannot buy in Thailand, and how best to go about purchasing property here. However, various revisions in the law over the years has made the entire process easier. As a foreigner, it is important to understand the various steps involved. This guide is intended to assist you in making informed decisions when purchasing a property in Phuket and hopefully avoid any complications during the buying process, although us and our recommended lawyer’s can guide you along the way.
WHY INVEST IN PROPERTY IN PHUKET
When investing in Thailand you may want to consider the following options for purchase, common reasons are:
- Primary Residence
- Rental Income
- Holiday home
- Office or Workspace
- Retirement Home
- Capital appreciation Investment
By keeping in mind reasons to purchase the property, you will be able to better decide which prospective properties suit your needs and requirements. Phuket is very diverse and can provide you with a multitude of options that suit your needs. There are many different factors in terms of Location, facilities, Management, usage, views etc etc….this factors will vary depending on your reason for buying.
WHAT TYPE OF OWNERSHIP STRUCTURES ARE AVAILABLE TO FOREIGNERS?
One option for foreign buyers is Foreign Freehold that is available in freehold condominiums, lots of lawyers recommend this is the best option. Condominiums in Thailand have a special status as outlined in the condominium Act BE 2522 (1979), allowing foreigners direct freehold ownership of the condominium unit as well as common property co-ownership. Foreign freehold ownership offer absolute ownership of the propert y and is the best form of tenure that the foreigners can be granted in Thailand. Foreigners can be granted up to 49% of the total floor area of a condominium on a freehold basis. Therefore It is important to be aware of the condominiums ownership quota before purchasing.
Alternatively, foreigners may register the leasehold rights at the land office, this maybe the lease of a condominium or land. Through this process, foreigners can effectively use land through a leasehold tenure and are permitted to own buildings or structures erected on that land. Thai law limits the use of lease to a maximum of 30 years, after which the lease can be renewed for an additional 30+30 under such law.
Taxation is another factor to take into consideration and one that not many buyers understand. Many individuals who are investing or considering investing in property in Thailand are often unaware of the tax implications involved
The transfer applies to the purchaser of freehold properties. The transfer fee is equivalent to 2% of the official appraised value of the property. Whether the buyer or the seller pays the transfer fee depends upon the terms agreed by both parties in the sale and purchase agreement at the date of the ownership transfer. The fee is paid to the district land office where the property is located.
LEASE REGISTRATION FEE
If the lease term is less than 3 years, a lease registration is not required for the lease to be legally enforceable. Lease exceeding 3 years up to 30 years should be registered with the land office in order to ensure enforceability in court. Currently, the lease registration fee is 1% of the total rental fee over the entire lease term. This cost is often borne equally by the lessee and lessor upon mutual agreement by both parties
SPECIFIC BUSINESS TAX (SBT)
SBT is payable by companies and individuals who wish to see their property which they have held for less than 5 years. The tax rate is 3.3% (including municipal tax) of the selling price, or the official appraised value of the property, whichever is higher.
WITHHOLDING TAX (WHT)
Where the seller is a company, the withholding tax is calculated at 1% of the Land departments official appraised value or the contracted sales price, whichever is greater. An individual who earns income from selling a property, which includes condominium units, is subject to withholding tax under the revenue code of Thailand. The withholding tax is calculated at a progressive rate based on the official appraised value of the property.
PROPERTIES TO CONSIDER
Compulsory leaseback options will give you a guarantee rental, example 5% for 5 years return. But this will only entitle you to between 45-60 days usage and usually will have black out periods for the peak times in the Season, so you will not be able to use this for Xmas, New year etc…Banyan Tree Phuket is an example of a Compulsory leaseback offering 6% guaranteed rental for 6 years
These are purely investment properties, you will never be able to live here and your property will always be in the rental pool.
Buying into a condominium development is a very popular option for foreign buyers. Condominiums are set up so that 49% of the condominium will be allocated to foreign freehold ownership, meaning that you will own the condominium unit in your name forever, unlike a leasehold unit where you can only lease on a 30+30+30 year basis
Apartments that do not have Condominium title can only be leased on a 30+30+30 year basis. Most development are using a protected leasehold structure. This means that when you purchase your leasehold unit you will actually be buying the shares in the landholding company where your unit sits. Once all the units are sold out the owners will have voting rights in the land holding company, effectively giving you a perpetual lease.
Development with hotel or rental facilities
Developments with Hotel facilities. i.e. Andara residence will give you the options to add your unit to the rental pool. They will not give you a guaranteed rental like the compulsory leaseback but will give you a varied income depending on occupancy rates. Where as some developments do not have hotel facilities they do have rental options. However developments that are run as a hotel will generate a higher rental income as they will charge for your unit to be in their rental pool and the income will be split between owner and hotel. This is a popular investment as it has the advantages of knowing your unit is being looked after by the hotel and they are driven to make money for themselves which will ultimately benefit you as the owner.
Residential villas tend to have a more long term rental income or specifically for high season rental. Most people who are looking at staying in Phuket for maybe 6 months of the year would prefer this option as they would have someone to look after the unit, but is available for you use 365 days a year. In term of an investment, it will be through appreciation of your property and unlikely by rental income.