What is Leasehold Property Ownership in Thailand?
What is Leasehold Property Ownership in Thailand? This is one of the most frequently asked questions we get from clients. Thai law is straightforward when it comes to owning property in Thailand, but for those who are not familiar with the laws, it can be complicated.
In this article, we try to make all things regarding leasehold property ownership in Phuket and Thailand clear, but please don’t hesitate to contact us if you still have further questions or anything isn’t clear. We're 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. You might also want to take a look at our article on the topic Can Foreigners Buy Property in Thailand?
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. Read more about Property and Land Title Deeds in Thailand.
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 a maximum of 30 years on a renewable basis.
It is a common practice in Thailand for developers to be granted a 30-year lease, with the possibility to have a contractual agreement for two subsequent renewals equalling 30 years + 30 years + 30 years, totaling a 90-year lease for the buyer. 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 the 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.
Protected Leasehold / Corporate Freehold
What is protected leasehold property ownership in Thailand? Protected leasehold means that the owners at the estate not only have a lease for their condo, villa or other property, but they are also shareholders of the Thai limited company that owns the freehold (chanote) of the property.
Owners can therefore control the renewal and issuing of leases themselves, and do not have to worry about a lease expiring or change of terms.
This means that the leases can be renewed in-perpetuity during and beyond 30+30+30 years. Protected leasehold is therefore pretty much the equivalent of Freehold Ownership in Thailand when it comes to ownership security.
Why is Thailand 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.
How to Buy and Sell a Leasehold Property in Thailand?
What is the procedure for purchasing and selling a lease in Thailand? When purchasing a property leasehold from an off-plan project, the transaction is straightforward as the developer, a Thai company, issues the lease to the buyer.
If you later want to sell your lease, some developers offer the new owner to sign a new lease for another 30 years. In that case, the owner of the chanote, the seller of the lease, and the buyer of the lease all have to be present at the land office to complete the deal.
If you instead take over a lease, only the buyer and the seller have to be present at the land office. When taking over a lease, you are only guaranteed access to the property as many years as are left on the lease, but that will also be reflected in the price.
Is it Worth Paying the Premium 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. Read more about Condo Market Price Trends in Phuket. 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 further information. We provide free consultation and advice and guide our clients every step of the way through the purchasing process.