The process of purchasing a property
Buying a property in Thailand is actually much easier than in other countries. Land offices are efficient and the documentation required for ownership transfer is relatively simple to prepare. Although it usually takes up to 30 days, a purchase can be wrapped up much quicker, especially when a newly built property is being purchased. This is mainly due to the conditions in the Thai market. With a high proportion of cash buyers and much of the property in the Kingdom being relatively new, the process is generally less complicated than in other countries. However, due diligence is still advised. It is therefore sensible to undertake a complete check of the property being purchased.
The buying process
- Once a suitable property has been chosen an inspection can take place. The initial viewing should give the observer a good indication of the condition of the property and its fittings and fixtures.
- It is an agent´s primary function to find a buyer for the property to the satisfaction of the seller’s instructions, and to inform the seller immediately when any offer is received by the agent. The agent will oversee all negotiations with the aim of ensuring that both parties come to an agreement. When dealing directly with a developer, although some discounts may be offered in the current market, most prices are usually fixed, while concessions take normally the form of free extras like air conditioners or built-in furniture etc.
- Once both parties have agreed on a price a small deposit is paid to take the property off the market. This is usually held by a third party (the agent) and then a lawyer can be engaged to perform due diligence on the property and/or company.
- Most agents offer to take over the preparation of contracts and other paperwork themselves, This is fine but it is also a good idea to hire your own lawyer to check the contracts so that your interests are managed independently.
- If everything is in order, the contract can be signed and a more substantial deposit is paid. This will usually be a previously agreed amount of ten percent and the contract will usually specify that this amount is forfeitable if either party fails to complete the transaction. It is usually held in trust by the agent.
- It will be stipulated in the contract at which time the balance is payable. Usually it's around 30 days, though it can be earlier or later as agreed with the seller. For a purchase made directly from a developer, it can be agreed that the deposit and balance will be paid in stages over several months or even years, especially if the dwelling is still under construction.
- On the agreed date the transfer can proceed. Both parties or their respective lawyers, will go to the land office to arrange for the land documents to be updated with the new owner's data. Transfer of the remaining balance by a cashiers cheque to the seller takes place at the same time, with a receipt being issued to verify that the sale has been effected.
- Allow about one day for the property transfer to be processed at the land office, but if the land office is not too busy the entire process could be completed in a few hours. Once complete the seller will be in possession of his funds, and the buyer will be the new holder of the property.
Ownership by foreigners
Property purchases by foreigners in Thailand are simple but there are some restrictions. These restrictions, however, don't apply to condominium units which can be bought freehold in one's own name. In fact foreigners can buy as many of them as they like. The only rule is that in an apartment building Thais must own at least 51 percent of the units, while the other 49 percent can be owned by foreigners. Assuming you arrive before the quota that is allocated to foreigners is sold out, you will have no problem to buy a unit outright. Resale and transfer is no problem, as you own the property on a freehold basis. A unit owned by a foreigner can be sold to either another foreigner or a Thai national. Should the latter be the case, it will mean that the percentage of ownership will change, freeing up the availability of another local owned unit in the building to be sold to a foreigner. Remember, you must show that the money for the purchase has come from overseas by way of a foreign currency receipt and/or a letter from your bank. (This is a relatively new regulation, intended to prevent money laundering). Ownership papers will be issued in your own name. When it comes to buying a house, or just a plot of land, a foreigner cannot become the owner of that land, so you can do one of three things:
- a) You can find a Thai national and use their name (e.g. get married to a Thai citizen). In this way you are entitled to use the property as long as you don´t have a disagreement with your Thai partner. Doing it this way, you will never really own the property. The Thai partner will be the owner.
- b) You can lease some land or a house. Leases usually run for 30 years, but can be renewed. A 30 year lease means that although you won’t really own the property, you will gain control of it for at least 30 years. Similarly you could arrange a 30-year lease with two 30-year extensions. However, extensions of 30 year leases much depend on the willingness of the lessor, and you will have little chance of success when trying to legally enforce an automatic renewal of such a lease.
- The best way to achieve this is to adopt step (a), and buy the property in your Thai friend’s or partner´s name. Then a legal document must be drawn up whereby this person leases the property to you for both the first 30-year period plus any additional renewal periods. The contract must show that all rental moneys for the lease(s) have already been paid in advance. Make sure that the current lease is registered at the land office.
- This method of securing ownership appears to be perfect. However, in order to resell the property one must ensure that the current owner can transfer the title deeds to the new owner and return the cash from the sale to you. This is by no means guaranteed. And there could be another problem: if the owner passes away and the property is transferred to his next of kin, then the renewal may be contested.
- c) You may form a company, which means using Thai shareholders, and then transfer the house into the company's name. The company can then grant you the right to reside at the property, and as director you can arrange to obtain majority voting rights in that company even though you are a minority shareholder. However, you will not own the property (the company will) and your share holding in the company must remain at 49 percent or less in order to maintain the company’s status as a Thai limited company. If the company owns property your holding should remain at 49 percent or less.
The company can be set up by a lawyer or even by the developer’s legal experts prior to a property sale. Often the Thai shareholders will be nominees used by the lawyer who sets up the company. Since it is rather unlikely that you will choose the nominees yourself, it is advisable to at least keep track of the nominees in order to assure that they are independent from any other party involved in the property deal. While this is technically illegal, it has become a common practice among ten- if not hundred thousands of foreigners. Even some condo developers have tried to sell condominium units by way of company ownership, trying to circumvent the 49 percent foreign ownership rule, but the resale of such a condo would be just as difficult as selling a Thai owned unit. It is therefore not advisable to buy a condo in a company's name unless you get a significant discount compared to a similar unit under foreign quota.
Financing real estate projects
For Thai nationals, mortgage financing has not suffered such a sharp tightening as has been the case in many other countries. After the 1997 Asian financial crisis banks may have been a little more conservative and therefore have not had the same exposure to the housing market as their western counterparts. Although this means that a Thai person has a good chance of gaining approval for mortgage financing, it does also mean that in recent times the requirements have become more stringent than they may be in the rather lax Western markets. Furthermore, since Thai banks are all too aware that the process of repossession can be a long and drawn out affair lasting many years, there is less importance given to the valuation of a property as security for a loan, but more emphasis on simply ascertaining that monthly repayments will be made on time. In other words, lenders in Thailand look for a stable backdrop, like a stable employment history, as well as pay slips and other documents to support future employment outlook. In most cases it would be difficult to obtain bank financing of more than 70 percent of the purchase price, so to insure a smooth process one should have a substantial deposit in hand. For foreigners it is almost impossible to obtain financing in Thailand. Nevertheless, some foreigners who have a work permit, and can show a stable history of employment as well as a healthy deposit, can obtain mortgage finance from a number of Thai banks. While these banks observe the current foreign ownership restrictions, they usually extend loans only for the purchase of condominium units sold on the basis of freehold foreign title. For those foreigners looking to finance the purchase of a property while they are still working in their home countries, the options would be limited to finance by the developer or the owner, or to obtain a personal unsecured loan from a bank in their country of residence.
- Lately the practice of “owner financing” has become very popular in Thailand:
- A property owner who doesn't immediately need the entire proceeds from the sale of his property, may be willing to offer payment in instalments charging interest comparable to current bank rates.
- Buyer and seller agree on a selling price and a down payment as well as the time frame in which the money owed has to be paid in full, including the interest rate payable.
- The terms and conditions can be freely discussed and must be agreed to by both buyer and seller.
Document checklist for property transfer
- The title deed for the property (Chanoot).
- Document from the juristic person of a property where there are common areas (i.e. all condominiums) stating that all maintenance fees are paid up.
- Copies of the passport or other identification documents of both the buyer and the seller.
- Copies of the entry stamp (in passport) of the buyer and/or the seller, if foreigner(s).
- Purchase agreement.
- Thor Tor Sahm document from the buyer's bank indicating that funds have been brought in from another country. (for purchases in the name of a foreigner only)
What about long term leases with rights to renewal?
Since a foreigner is not restricted from purchasing real estate, one of the most effective ways to acquire land with an existing structure is to acquire temporary possession of the land with a 30-year leasehold and an option to extend that lease for subsequent 30-year periods. Leases are limited to 30 years, except on land that is used for industrial purposes, which can be established for 50 years. Similarly, lease extensions are restricted to three terms of 30 and 50 years respectively before renewal of the lease would be required. However, the renewal of a 30 year lease is a tricky matter and promised perpetual renewals are simply not possible or cannot be enforced in case of a legal dispute. Possession of the land leased for an already owned building is protected because the building sits on the land; ownership of the building is separate from the land ownership and cannot be seized by the lessor once the lease expires. Leases with the duration of more than three years are enforceable only for three years unless they have been registered with the Land Department. That means that a 30-year lease must be registered with the Land department. In addition, a lease remains valid even in the event of the land being sold.
What is a Thor Tor Sam ?
- A Thor Tor Sam is a bank document that is issued by the receiving bank when you deposit foreign currency into a/your bank account in Thailand.
- You must ask the receiving bank for a Thor Tor Sam when you are remitting funds to Thailand for the purpose of buying a condominium, and the Thor Tor Sam must state that the remittance is only for the purpose of purchasing a property - Code 5.22.
- Are title deeds being issued in Thailand?
- Yes, they are called “Chanote” or “Nor Sor Sie Jot” or with a slightly minor “quality” “Nor Sor Sahm Gor” and are the only documents which can be described as land title deeds, because they alone confirm ownership of land. The land is properly surveyed and its area and boundaries are established using GPS or conventional measuring devices. Land parcels can also be partitioned into smaller plots.
- For areas not surveyed, there are other documents to prove possession such as evidence of the right to utilize the land.
Can my Thai wife own land?
Before 1998 any Thai woman married to a foreigner lost her right to purchase land in Thailand, but she could still retain land that was in her possession prior to marrying the foreigner. That has now changed. According to a ministerial regulation decreed in 1999 Thai nationals married to foreigners can purchase land, but the Thai spouse must prove that the money used to buy that land is legally hers and has not been provided by a foreigner. This can be achieved if the foreign spouse signs a declaration at the land office, declaring that the funds used to buy the property belonged to the Thai spouse prior to the marriage and that the foreigner has no claim to it.
Some property developers guarantee certain rental returns. Can such guarantees be trusted?
The promise of a guaranteed return should be viewed with caution, as returns are subject to the market situation, which nobody can predict accurately. Another question is, what is actually being guaranteed. Some developers offer a net return, others offer a gross return or a profit sharing scheme. The latter is very difficult to control. Especially first time developers are often not in the position to calculate such a rental guarantee and the tax issues related to it. If a well known real estate company offers the guarantee, chances are that they can deliver as they will have a history of renting out properties. If you have doubts about those promises, decline the offer and ask for a price reduction instead.
How can I reduce the risk when buying off plan?
It is obviously more risky to buy off plan from a first time developer than from someone with a long standing reputation and a record of completed projects. A lawyer or agent can act as an intermediary and collect documents and funds to be delivered to the appropriate parties as stage payments are due. When buying into a housing project, one can ask the developer to transfer the ownership of the land or register a lease agreement on the buyer's plot after having paid a reasonable deposit. This option is not possible when purchasing a condo, because the condo license and therefore the individual titles can only be issued after having completed 90% of the construction. It is quite common now for developers to make the final payment a larger amount with smaller stage payments over the construction period. Most developers offer 50-70% only payable when the project is complete and you can take possession. This makes your investment risk substantially lower with only 30-50% payable over the construction period.
Are there any taxes and costs applicable when purchasing property in Thailand?
Whenever a property in Thailand is bought and sold, there are four taxes you should be aware of.
- 1. Land registration (transfer fee) at 2 percent of the assessed value of the land.
- 2. Stamp Duty/Fee of 0.5 percent of the assessed value or the sale price - whichever is higher.
- 3. A specific Business Tax of 3.3 percent of the assessed value or the sale price - whichever is higher - this tax will be applied to all sales by companies and to private sales that take place within 5 years of the date of purchase.
- 4. Income Tax. This is calculated on a very complicated formula based on the assessed value of the property, the length of time it has been owned and the applicable personal income tax rate. In practice, this will work out to less than 2 percent of the price for low to medium value properties, and up to 3 percent for properties with a higher value.
The Thai system of taxing property is based on an arbitrarily assessed value, which is determined by the local Land Department, rather than the true market value. There are no specific rules as to who pays for which taxes. It is just another part of the bargaining process when purchasing property in Thailand.