Buying a villa in Thailand


Thai law

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:

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.

The property which sits on the land may be purchased by the indivdual 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 unecessary.

Phuket Ocean Villas are able to advise you on this process and can recommend legal professionals to help you with the procedure.

Buying a condominium

Purchasing a condominium is the simplest process for overseas buyers as Thai law allows foreign freehold ownership of condominiums. It states that 49% of a condominium block may be owned by non-Thais, some blocks may even allow 100% foreign ownership if the developer has aquired the appropriate condominium license.

Developers will usually offer a choice of two ownership options, “freehold” or “leasehold”.

A freehold may be purchased if a condominium block is within its' quota for foreign ownership i.e 49% . The freehold will give you rights over the building but not the land.

A leasehold will be offered if the condominiums have had their freehold quota to foreigners fully subscribed. The initial lease duration with an option to renew for two additional 30 year terms effectively giving the buyer a 90 year lease.

The land on which a condominium sits is owned collectively by the individual condominium owners with a majority Thai shareholding. It is governed by a coporate body which is usually set up by the owners.

To qualify for freehold ownership of a condominium in Thailand overseas buyers must send the funds for the purchase in foreign currency from a bank outside of Thailand. They must be accurately recorded as such by a Thai bank in the form of a foreign Exchange certificate, “Thor Tor 3”,
This certificate provides evidence of the sale or deposit of foreign currency in an authorized local bank. This form must bear the bank's authorized signature and seal in the authorized bank column. The Thor Tor 3 must specify that the purpose of the remittance of foreign currency is for the purchase of a condominium unit or units and must in total equal or exceed the price of the condominium. The Thor Tor 3 certificate is readily available from all major banks in Thailand.

The other circumstances in which a foreigner can purchase the freehold to a condominium are;

1. Individuals who are permitted to have residence in Thailand under the Immigration Act.
The documents required are either a passport, residence permit and house registration.

2. Individuals who are permitted to enter Thailand under the Investment Promotion Act.
The documents required are a passport plus a letter from the Board of Investment of Thailand certifying permission to live in Thailand under the Investment Promotion Act.

Thailand Property Tax Laws

Whenever a property in Thailand is purchased or sold there are four potential taxes/fees to be paid. There is a stamp fee of 0.5%, a transfer fee of 0.01%, a business tax of 0.1% (levied against an owner who has been in registered possession of the property less than 5 years), and income tax (similar to capital gains tax) at a variable rate. It should be decided beforehand, as part of the bargaining process, whether the buyer or seller will be responsible for paying transfer fees and taxes.

Which of these taxes/fees will be applicable depends on the details of the transaction, the vendor and the duration of the vendor's ownership. It is also significant to note that most of the fees are calculated relative to the governments "tax assessment value" of the property and this value is well below the market value.

Property Taxes

Once you have acquired the property, there are 2 different types of tax levied on property in Thailand that you need to be aware of:

Land Tax

This is an annual tax levied on land ownership equivalent to just a few Baht per Rai (1,600 m2) the amount is often so miniscule that in practice the body charged to collect it, rarely bothers to do so. When they do collect it, its usually after several years when the amount has accumulated.

Structures Usage Tax

This only applies to properties used for commercial purposes. This is applicable at the rate of 12.5% on the actual or assessed gross rental value of the property. However, this notional value is well below the commercial market rental value.

Notes

If the house is purchased through a company, you need to consider that corporate tax is higher than personal tax, and the cost of setting up the company has to be considered as part of the initial investment, even if this is relatively modest.

If you wish to purchase property in Thailand using Thai Baht, ensure that your funds are transferred to Thailand in foreign currency and converted to Thai Baht here. The receiving bank will issue a Foreign Exchange Transaction Form or Tor Tor 3 confirming the transaction for individual inward transfers exceeding 20,000 US$, which is one of the documents you may need in the future if you wish to repatriate funds without incurring tax penalties.

Repatriation of investment funds and repayment of overseas borrowing in foreign currency can be remitted freely upon submission of supporting evidence. One of these documents would be the Foreign Exchange Transaction Form mentioned above, or in respect of a foreign currency loan and the loan contract. Remittance of funds without proper documentation could be regarded as income and become liable for tax.

Thailand Land Titles , Land Title Deeds  Taxes & Fees

As a buyer you need to be aware of the various land title deeds which exist to understand what you are being offered. A large percentage of the land in Phuket is not titled or even accurately surveyed. Actually, it is because there is a lack of complete surveys that comprehensive titling does not exist.

As a foreigner buying land in Thailand, you should only consider land that comes with a Chanote , Nor Sor 3 or Nor Sor 3 Gor . These can be sold, leased and used as mortgage collateral and are the only titles over which registerable right of ownership or lease can exist. "More importantly, you cannot apply for or obtain approval to build on such land without one of the aforementioned titles. In any event, make sure you have a good lawyer look over the paper work before you commit to anything.

Chanote

True land title deeds are officially called Nor Sor 4 Jor or more commonly Chanote . This is a certificate for the ownership of land and can be used as evidence confirming the right to government authorities. It is issued by the Phuket Provincial Land Office using GPS to accurately plot and survey the boundaries of the land. This is the most secure type of land title but land with a chanote can often be hard to find.

Nor Sor 3

The Nor Sor 3 is a document certifying the use of land issued and maintained by the District Land Office to the proprietor of the land but is not a possessory title. That is to say the person holding the Nor Sor 3 has the legal right to possess the land in question and can use it as a legal document. Nor Sor 3 is a floating map with no parcel points issued for a specific plot of land and not connected to other land plots, but its boundaries are recorded according to its neighbouring plots. Therefore, it may cause some problems in verifying boundaries due to lack of accurate surveys. Any change in ownership of the land must be publicised for 30 days before it can be registered.

Nor Sor 3 Gor

The Nor Sor 3 Gor has the same legal basis as the Nor Sor 3, with the difference being that in general Nor Sor 3 Gor has parcel points on the map of the land area set by using an aerial survey with a scale of 1:5000. It is a more accurately surveyed title as each plot is crossed referenced to a master survey of the land area and a corresponding aerial photograph. Therefore, it is possible to verify the boundaries of the land. However, it is still less accurately surveyed compared to a Chanote .

Sor Kor 1

Sor Kor 1 is a notification form of possessed land, which shows and maintains the existing rights to the particular land. On December 1st 1954, the government advised all land proprietors to notify their possession of land to the government using a 'Sor Kor 1' form. After it was proven that such a proprietor had possessed and used the benefit of the land legally, the government would then issue 'Nor Sor 3' or 'Nor Sor 3 Gor' as an evidence, which are legal certificates stating the owner's name that they have the right to such land according to the principle land administration law. This right will be protected by the law and can be used as evidence in any dispute with a private individual or the government.

Condominium Title

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

Building Transfers

Buildings other than condominiums do not have any form of title document, but their sale or long lease can be registered at the District Land Office. Proof of ownership must be established either from proof of construction or a document showing sale and purchase. Do not confuse this with the House License document, which is only a registration of the house occupants. Transfer of a building, as distinct from its land, requires the posting of 30 days public notice, to see if anyone wishes to contest the ownership. Foreigners may own a building distinct from its land and register such transfer of ownership into their names at the Local District Office or Amphoe .