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Buyer’s guide

BUYERS GUIDE:

 

1. THAILAND LAND MEASUREMENTS:

Talang means (squared)
1 talang mett = 1 sqm
1 Wah = 2 m
1 Talang Wah = 4 sqm
1 Rai = 1600 sqm
1 Rai = 400 Talang Wah
1 Rai = 0.40 Acre (approx.)
1 Rai = 0.16 Hectare
1 Ngan = 100 Talang Wah
Metric to Thai

1 m = 0.5 Wah
1 sqm = 0.25 Talang Wah
1 Acre = 2.53 Rai
1 Hectare = 6.25 Rai

2. TYPES OF TAXES PAID WHEN PURCHASING PROPERTY:

What types of taxes must be paid when purchasing land or property in Thailand?

The transferring fee, withholding tax and the stamp duty or Specific Business Tax (SBT) must all be paid by either the buyer or seller when a property is purchased. Although Sale and Purchase agreements differ, the buyer is typically responsible for the transfer fee, while the seller pays the stamp duty or specific business tax and the withholding tax.

Transferring Fee: 2% of the registered value of the property; paid at the Land Office on the day of transfer of ownership

Stamp duty: .5% of the appraised value of the property or the purchasing price, whichever is higher

Specific Business Tax (SBT): 3.3% of the appraised or actual price of the property, whichever is higher; Imposed only if the property is transferred less than five years after its purchase (If the SBT is levied, stamp duty will not have to be paid.)

3. HIRING AN ATTORNEY:
If you decide to hire a local law firm, be sure that law firm you hire does not have a pre-existing working relationship with the seller. Such law firms may be biased in their assessment. In most Western countries, it would be deemed a serious conflict of interest and breach of ethics for the same company to act as a real estate broker and a lawyer for the same client. However, in Thailand, certain companies marketing to non-Thais do exactly that. Bangkok-based law firms in Phuket can be retained. You may feel more confident that the Bangkok-based law firm will operate independently and 100% in your interests. Our company has a reputable list to choose from.

4. TAKING TITLE:
What are the different types of title deeds to land in Thailand?

Chanot (Nor Sor si (4): This type of title deed, registered at the Land Department in the province in which the land is located, grants the holder of the documents full rights over the land. It is therefore the strongest type of title deed. The title deed contains a legal description of the land boundary markers that are carefully ascertained and referenced by satellite images.

Nor Sor sam (3) Gor: This land title designates ownership of land with fairly certain boundaries, however it is not yet a full land title (chanot). A final official measuring is required by the land department along with the placing of official markers. This type of land title may be sold, transferred, or mortgaged. If the owner of the land files a request with the Land Department, surveyors from the land department will measure the land, the title may be changed to Chanot.

The Chanot and the Nor. Sor. Sam.(3) Kor. are the only titles over which register able, right of ownership or lease can exist, and are as such the only ones that a prudent foreigner should consider.

Nor Sor sam (3): Although ownership of the land covered in this title is relatively ascertained, the Land Department has never measured or recognized the boundaries. Therefore boundary markers are normally placed by property owners rather than government authorities. Accordingly, the main risk is whether the boundaries and size of the land is accurate.

Below the Chanot and N.S.3. title there are a host of other forms of land claim document such as the Sor. Kor. Nueng (S.K.1)., the Tor. Bor. Tor. Hoc. (T.B.T.6) and the Tor. Bor. Tor. Ha.(T.B.T.5.). These rights are essentially a form of squatter or settler’s claim which has been filed with the district office and upon which a small fee has been paid. Unlike the Chanot and N.S.3.. it is neither possible to register a sale or lease over these land rights, nor will a bank accept them for collateral and most importantly one cannot apply for (or obtain approval to) build on such land.

Documents needed when buying a condominium:
For foreigners to be eligible to purchase a condominium in Thailand they must present proof to the Land Department that the funds have been remitted from overseas in foreign currency. Without such proof the Land Department will not permit the transfer of ownership to the foreign buyer.

A condominium title (first established under the condominium act of 1979) is a title to a part of a building or buildings with multiple owners, and a fractional interest in the land (always a Chanot) and other common assets (such as a swimming pool) and common parts of the building (such as the stair well or lobby). The title will state the floor area of the private apartment, the ground area of the common land and the percentage interest which that apartment has in the common property. This percentage also represents the value of the voting interest in the condominium company or owners’ association.

5. CONDOMINIUM OWNERSHIP BY FOREIGNERS:

Who can own a condominium:
Basically any foreigner who can enter Thailand legally can buy a condominium.

Foreign freehold ownership of a condominium in Thailand means that:

a) not more than 49% of the total floor area of all apartment units added together in a condominium building can be foreign owned, the remaining 51% must be owned by Thai natural or juristic persons.
b) foreigners buying a condominium must qualify for ownership under section 19 of the Condominium Act, usually this means having properly brought into Thailand foreign currency at least equal to the total purchase price of the condo and having exchanged this amount to Thai baht inside Thailand.
Note: Outright foreign ownership of a condominium refers to a unit in a condominium registered and licensed under the Thailand Condominium Act.
In case the foreign ownership quota in a condominium project is sold out the remaining units may be sold to foreigners under a condominium lease agreement. As opposed to buying a condominium freehold in Thailand there are no separate laws issued regulating leasehold purchases of condos by foreigners. Leasehold gives the right of use and possession of the unit for a set period of time. You won’t own the condo, nor will you have co-ownership in the common areas of the condominium, nor will you have voting rights in the condominium juristic person. Once the set period in the lease expires the lease must be renewed (the owner willing to renew the lease) or possession of the unit must be given back to the real owner. Tourist resort condos are often sold leasehold and freehold to foreigners. A higher percentage of foreign ownership in a condo building is not allowed under the 2008 Condominium Act and at least 51% of a condo project MUST be owned by Thai nationals. Expensive tourist resort condos are not popular among Thais and the units in the required majority Thai ownership percentage of the condominium often remain unsold or sold to foreigners under a leasehold agreement.

What is leasehold in Thailand:
Leasehold of condos in Thailand is NOT governed by the Condominium Act but by the chapter Hire of Property (sections 537 – 574 Civil and Commercial Code). Thai property law does not know lease as a real property right but only lease as a hire of property contract. Leasehold is under Thai law in essence a normal tenancy contract with a (prepaid) fixed term not exceeding 30 years. The lessee cannot freely sell his leasehold during the term of the lease (it is not an asset) but only assign his contract right with the consent and cooperation of the registered owner of the condominium unit, and as a contract right a lease is not automatically transferable by inheritance. Rights associated with leasehold are limited under Thai law and a lease agreement in Thailand can be terminated prior to the agreed term when the lessee defaults on the terms of the lease agreement or when the lessee dies. A leasehold condo does not have the same value and is not equal to freehold ownership.

What are the main considerations when buying a condominium under a lease agreement:
a). Voting Rights:
Unless specifically arranged differently voting rights associated with ownership of the condominium remain with the owner of the unit and are not transferred to the leasehold purchaser. As usually only a few owners turn up in the condominium general meetings the developer with the percentage of voting rights of the leasehold units control the condominium joint owners meetings and matters concerning management and maintenance fees in which he has a financial interest.

b). Selling and assiging a leasehold condo:
The primary right of a leasehold purchaser of a condominium is a personal right of possession of the unit for a specified term. The leasehold purchaser does not have any rights himself to sell or assign the leased condo apartment during the lease term (assignment of a lease is a three party agreement between the owner, the current tenant and new lessee/ tenant). Only the registered owner (developer) has the right to transfer ownership or to accept assignment of the lease to another person and have it formally registered with the Thailand Land Department.

c). Inheritance of a leasehold condo:
A foreign freehold owner of a condominium can pass on a condominium by inheritance in Thailand to another foreigner. Lease in Thailand is a contract right and under hire of property and Thai contract law this type of contract is terminated upon death of the lessee (as confirmed by the Thailand Supreme Court). A lease agreement or right of possession of the condo will not automatically transfer to the heirs of the lessee. Lease in Thailand is a contract right of the lessee and when he dies the contract is terminated. The lease agreement must include a succession clause however this does not offer full guarantee. Transfer of ownership of the condominium does not break rent under Thai law, death of the lessee does.

Term of the leasehold in the contract:
Real estate lease agreements in Thailand cannot exceed 30 years. Pre-agreed renewals, pre-signed consecutive contracts or even registered contracts suggesting a longer term are not enforceable by legal action under Thai contract law.

Condominium lease contract content:
Selling a condominium freehold in a development is by law a government contract controlled business, meaning that the content of the condo sale contracts must comply with minimum standards and consumer protection laws. Selling the units in the same project leasehold to foreigners is not a contract controlled business and these contracts are primarily written to generate sales and often include terms that are in practice unenforceable under Thai property laws.

The leasee’s additional property tax burden:
As opposed to owner occupied freehold properties, leasehold condominiums in Thailand are subject to a rental tax at a rate of 12.5% over the actual yearly lease price or annual assessed lease price, whichever is higher. In addition to the expenses for the common property becoming the responsibility of the lesee this is also an additional financial burden for the leasehold buyer of a condominium as this is always passed on to the lessee in the lease agreement. For a 4 million baht leasehold apartment this will be an additional financial burden for the lessee of approx 16,000 baht each year.

Registration tax and fees:
Transfer of ownership of a condominium is subject to conveyancing tax and fees. Buying a condominium under a lease agreement is subject to a lease registration fee of 1.1% of the total lease price. Income from lease is taxed as personal or corporate income tax.

Buying apartments not registered under the condominium act by foreigners:
There are two types of residential apartment buildings in Thailand – condominiums registered and licensed with the Land Department offering outright ownership over the individual units, and apartment buildings NOT licensed as a condominium and therefore not offering individual ownership over the units. On the outside these buildings can look the same but legally they cannot be compared. Condominiums registered and licensed with the Land Department must comply with the legal structure as laid down in the Condominium Act which is built around individual unit ownership, joint ownership over the common areas and joint management of the building by all the unit owners. Unregistered apartment structures are not regulated by specific condominium laws and the developer of an apartment building can sell possession (not ownership) of the units in the building under his own terms and conditions. There are various contract structures under which these units are sold which vary from time-sharing schemes, mere apartment leases to leases combined with shares in a holding company. Beware, these apartment projects do not offer individual freehold ownership over the units and the purchasers do not find protection in the law as with registered condominiums. The contract structures and intention of the developer should be triple checked (e.g. the quality of the lease structure, management system of the building, and ongoing financial costs through maintenance and management contracts).

6. CONDOMINIUM VS VILLA:

Whatever property you are buying in Phuket, be it condominium/apartment or villa, it would not be smart to do so without informing yourself about the Thai property law and foreign ownership. For many foreigners, buying a condominium is the preferred way to own property in Phuket because as long as the ratio of 49% is maintained, freehold title can be obtained.
Thai property law prohibits foreign ownership of more than 49% of the units in any condominium development.  The remaining 51% of the units will typically be offered to foreigners in the form of a lease.
When a foreign national wishes to purchase a home or villa, they are only able to obtain a leasehold right on the land. They can own the structure in freehold ensuring them that to some extend that the lease will be renewed when due. However, there are some options for those wishing to purchase a villa outright.

Under Thai law a foreigner may not own the freehold to land, however, a freehold title for a building which sits on the land can be purchased.
There are a number of different purchase options available to the overseas buyer and most property developers will offer buyers both freehold and leasehold alternatives, such as purchasing the land leasehold and the property freehold. The land on which the property sits can be purchased by a foreigner as leasehold. The developer will lease the land to the purchaser for a period of 30 years with an option to extend, at minimum cost, for a further two 30 year periods to give effectively a 90 year lease. A good leasehold contract should include a clause which states that if the land law in Thailand changes, making a freehold option available, the title may be converted from leasehold to freehold at the leaseholders request.

BVI Company:
The property which sits on the land may be purchased by the individual or a company such as a BVI (British Virgin Islands) company set up by the buyer. It is usual for the purchaser to set up a BVI company which holds the lease on the land and the property freehold title.
If the BVI option is taken it makes the resale process very simple as the company can simply be transferred to the new owner and changes to the land title and lease are unnecessary.

7. OFF PLAN VS RESALE:

Pros
One of the main benefits is that you are buying at the current price. Experience has taught us that the price difference between buying off plan compared to buying a finished property is at least 30-35%. Some people find themselves priced out of the market if they wait until a project is completed before committing themselves.

When buying off plan you might be able to benefit from bigger discounts from the developers. The reason being is that some developers have to finance construction in some way and need to secure some early sales quickly.
For many buyers the possibility of having to pay just a reasonably low deposit when committing and having staged payments according to construction progress enables them to get that dream holiday property.
Sometimes people purchase off plan never intending to wait until it is completed. They sometimes take advantage of the staged payment and put the property back onto the market just before it is completed or almost sold out. By doing so, they take the profit from the natural increase in the property value. There might be some risk involved but when you have selected the right property in the right location good profits can be achievable.
Because of the ‘First come, first served’ principle, when buying off plan you get the best choice of land plots, locations and views.

Cons
One of the major disadvantages for many people is that, when buying off plan, there is nothing to see. You are depending on the ‘Artist impressions’ and other marketing material that the developer has to try to convince you that what you are going to buy is the right choice. Very recently the Condominium Act was amended and strengthened for consumer protection because there were many complaints from buyers who had purchased a property off plan and were not given what they were promised. Now it is written in law that condominium developers can be taken to court if they are not delivering what they promised in their marketing materials like brochures, pamphlets.

Villas are not protected under the Condominium Act. So if buyers of villas are not getting what they were promised by the developer about the only thing they can do is take the developer or contractor to court.
This does not mean that it cannot be done because Thailand recognizes straightforward contract law.
If you are buying off plan with intentions of re-selling the property when it is completed or nearing completion, there is the risk that prices can fall as well as rise. However, experience has learned that on Phuket, with a market so far hardly affected by outside influences it is at present highly unlikely that prices will drop dramatically in the foreseeable future.

8. BUYING RESALE

Pros
Because the property is already completed you can actually see what you are buying. You take no risk at all with the developer. The surroundings are also completed and landscaping is already in place. You get immediate benefit of your purchase, be it by being able to live in the property yourself or be it by having it generate rental returns.

Cons
You pay about 30-40% more for the property than when you would have bought off plan. You need to pay the balance in one go as mortgages are not available for foreigners in Thailand. Almost impossible to make changes to the lay-out and finishings. You might have difficulties tracking down the developer if anything is wrong with the property. You are limited to what is still available because most likely the best plots or units will have been taken by people who purchased off plan or very early stage of construction.

It is all about speculating carefully and taking into consideration all the elements which might affect your investment. Buying off plan is a good idea with clear benefits but you have to be careful where you are buying and who you are buying from. As mentioned above this is where the assistance of a reputable agent is very useful.

9. DISCLAIMER:
Any information, advice or opinion contained within this site should be treated as an interpretation and should not be relied upon as a statement of fact or used as a substitute for obtaining specific professional and/or legal advice concerning individuals situations and/or topics raised on the site.
Property For Sale In Phuket is not responsible for the quality, completeness or accuracy of information contained within the site and furthermore, will not be responsible for any consequential loss or claims arising thereof, whether financial or otherwise suffered by any person(s)failing to act upon the advice contained herein.
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