real estate
Buying property in Thailand, What are the risks?
08/12/2023
As an enticing destination for property investment for those considering buying a villa or a condominium, there are diverse options for buying real estate in Thailand. Thailand offers the possibility of owning your own villa via long-term land leases or full condominium ownership anywhere in Thailand. However, investors should be aware of the risks, such as the land ownership restrictions for foreigners associated with real estate in Thailand.
In this blog post, we will identify the best options and the risks of buying property in Thailand, identifying key aspects such as ownership structures, legal safeguards, and the essential due diligence required for a secure and safe investment.
Key points
- Foreigners cannot own land in Thailand
- Foreigners can own buildings on the land (the villa).
- The maximum term for a lease is 30 years with an option to renew
- Usufructs grants a right of use and allows the holder to obtain a limited amount of control over another person’s immovable property for a period of up to 30 years.
- The right of superficies legally separates the ownership of land and property for a period of up to 30 years.
- Due diligence is crucial when buying a property in Thailand to avoid potential legal and financial risks.
Can foreigners own land or buy property in Thailand?
In Thailand, land ownership rights for foreigners are subject to certain restrictions and regulations. Generally, Thai law prohibits foreigners from directly owning land, and this applies to both individuals and foreign companies.
However, there are legal alternatives available to foreigners for property ownership. One common option is the long-term leasehold of land for an extended period, typically up to 30 years, with the ability to renew for another 30 years.
Another option for foreigners is owning condominiums, as Thai law permits foreigners to own condominium units outright. However, this is provided that the total foreign ownership of the area in a condominium does not exceed 49%. This has made condominiums an attractive option for foreigners seeking to invest in Thai real estate.
It is also worth noting that foreigners are allowed to build and own structures and buildings situated on leased land. This means that while the land itself may be subject to leasehold arrangements, foreigners can have full ownership rights over any buildings, houses, or other structures constructed on that land.
This provision enables foreigners to invest in and enjoy the benefits of owning a house or villa without violating the legal requirements on land ownership. The ownership of structures is often considered a separate entity from the land, allowing foreign investors to ensure security.
Leasing land in Thailand
Under Thailand’s Civil and Commercial Code, the maximum term for a lease of land is 30 years. There is a possibility to extend, however this is not an automatic right and a new contract will have to be agreed upon.
Leases of over three-years must be registered with the land office to be valid. Failure to register may limit the enforceability of the lease agreement to three years.
When leasing land a rental agreement should always be agreed between the parties. A rental agreement in Thailand is a legal contract between a landlord and a tenant to use a property for a specific period. Rental agreements will typically outline the terms and conditions of the rental, including:
- the agreed rental price,
- payment schedule for the rent,
- how much will be required for the deposit and
- any other terms that both parties have agreed upon.
Can foreigners buy property in Thailand?
Thailand may not allow ownership of land as a foreigner, but it is possible to own structures on the land, such as houses or villas. In practice, this is often achieved through leasehold arrangements where the land is leased for a maximum period of 30 years, with the possibility of renewal for another 30 years. Importantly, foreign owned structures on the leased land, such as houses or villas, can be owned outright by foreigners.
Thai law also offers the following options to protect the rights and interests in any property owned by a foreigner on leased land.
Usufruct
A Usufruct is an instrument that grants a right of use and allows the holder to obtain a limited amount of control over another person’s immovable property.
An usufruct transfers possession, use and enjoyment of land from the owner to the beneficiary of the usufruct. It is important to note that a usufruct can only be registered over properly titled as immovable property. Usufructs must be registered at the local land office.
An usufruct can provide the following protections for a foreigner owning property on leased land in Thailand:
Usage Rights: The usufruct provides the foreign owner with the right to use and derive benefits from the property, even though they may not own the land itself. This legal right ensures that the foreigner can enjoy and utilize the property as if they were the owner during the specified period.
Security and Control: By using a usufruct, the foreign owner gains a level of security and control over the property. This legal arrangement safeguards their interests and usage rights, preventing unauthorized actions or disposals of the property without the usufruct holder’s consent.
Long-Term Usage: Since usufructs can be valid for 30 years, they provide a stable framework for foreigners to invest in and enjoy the benefits of a property on leased land over an extended timeframe.
Transferability: Typically, a usufruct can be transferable or inheritable, allowing the foreign owner to pass on these rights to another party. This flexibility enhances the property’s value and may facilitate estate planning for the foreign owner. Furthermore, the usufruct does not prevent the sale of the property by the owner. However, upon the sale of the property, the usufruct nor the rights included are terminated and will be transferred to the new owner.
In Thailand usufructs can be granted for:
- a period of up to 30-years or;
- for the life of the owner of the land or;
- for the life of the beneficiary.
An important consideration is that in practice, registering an Usufruct with the land office can be difficult. However, if the foreigner is married to a Thai national, registration is a lot easier to achieve.
The Right of Superficies
The right of superficies is where the ownership of the building has been legally separated from the land. The right of superficies can be used when a house or building has been built upon a piece of land you do not own.
The right of superficies establishes a registered right to use the land and to own the structures you build upon that land and allows the beneficiary the right to build upon a piece of land without needing to obtain any ownership rights over the land itself.
A right of superficies can be granted for:
- a period of up to 30-years or;
- for the life of the owner of the land or;
- for the life of the beneficiary.
The right of superficies (for a specified term) is a transferable and inheritable interest in land, this means should the land be sold or the owner dies, the right of superficies will be transferred to the new owner. However, once the right of superficies expires, the owner of the land can sell or take any of the structures on the land as long as they leave the land in its original condition.
The Right of Habitation
The right of habitation does not offer any ownership rights, but rather focuses on the right to live in a house. The right of habitation allows the beneficiary the right to live in the property and is not required to pay rent to the grantor.
The right of habitation can be granted for:
- a period of up to 30-years or
- for the life of the owner of the land or
- for the life of the beneficiary.
Please note, that if the beneficiary of the right of habitation starts to make rental payments, the matter becomes that of a tenancy, and the right to habitation is lost.
What are the risks of buying property through a company?
While Thailand allows the acquisition of real estate owned by a company, it’s crucial to understand the potential risks involved before doing so. Purchasing the shares and the company itself from the previous owner offers a way to own land, but it comes with significant risks.
Accounting Accuracy:
Proper accounting is paramount. Ensure the land, property value, and any buildings are accurately recorded. Improper accounting, including manipulated values for tax benefits, can lead to legal and tax issues for the new shareholders who assume ownership of the company and its land.
Hidden Tax Liabilities
Selling the land in the future might trigger unexpected taxes based on the pre-recorded value. This could become a substantial burden if the assets were not properly declared, leading to financial losses for the new owners.
Due Diligence and the risks of buying property and land in Thailand
When buying property or engaging in a long term lease in Thailand, undertaking due diligence is highly recommended. Due diligence is the process of researching and investigating a chosen plot of land in order to gather information and assess the risks and benefits associated with the transaction. Due diligence provides a way of verifying the accuracy and evaluating the potential consequences of a particular transaction.
Due Diligence can help you identify potential risks and opportunities associated with the investment, allowing you to make an informed decision.
When undertaking the due diligence process for real estate in Thailand, it is important to consider the following points to ensure a transparent and legally sound transaction.
The first and most important aspect is undertaking a title deed search. By undertaking a title deed search, the following can be established:
- the title deeds have been lawfully issued,
- who is the current owner and;
- is the land encumbered by any endorsements, liens, mortgages, easements or any active disputes that may affect the buyer.
Due diligence will also allow the following important components to be verified:
- Land size, shape, orientation of the property and its border to public property, such as roads, streams or beaches. It is important to ensure that the title and descriptions accurately represent the offered property.
- Verifying the legal right of access to the land from public roads and any zoning regulations and permitted uses within the area.
- If there are plans to construct a property on the land, a review of the zoning laws for construction must be done. This involves checking and translating the construction permit (if any) to make sure the building of a property won’t be in breach of any laws.
Are there any tax requirements for owning land or owning a property in Thailand?
As per the Land and Building Tax Act B.E. 2562, anyone holding ownership, possessory, or usage rights over land or buildings, including condominiums, are required to fulfil land and building tax obligations on the first of January each year.
The assessment of land and building tax is based on the official appraisal value of the property, decided by the Treasury Department. The applicable tax rate is based upon the property’s designated use and its determined appraisal price. This taxation framework is designed to ensure a fair and transparent system, aligning the tax burden with the assessed value and purpose of the property in question.
How can Belaws help?
We offer comprehensive services for Thailand property investments, including legal assistance, tax planning, and property management.
Please note that this article is for information purposes only and does not constitute legal advice.
Our consultations last for a period of up to 1 hour and are conducted by expert Lawyers who are fluent in English, French and Thai.
Consultations can be hosted via WhatsApp or Video Conferencing software for your convenience. A consultation with one of our legal experts is undoubtedly the best way to get all the information you need and answer any questions you may have about your new business or project.
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Frequently asked questions
Is buying property in Thailand a good investment?
It depends on your goals and risk tolerance. Thailand’s property market offers potential for capital appreciation and rental income, but there are also risks like volatility and legal complexities.
What are the risks of investing in Thailand?
- Land ownership restrictions: Foreigners cannot directly own land in Thailand. You can lease land for up to 30 years with the option to renew, but you don’t own the land itself.
- Market fluctuations: The Thai property market can be volatile, with periods of rapid growth followed by downturns.
- Legal complexities: Property laws and regulations in Thailand can be complex and differ from those in your home country. It’s essential to seek legal advice from a qualified professional.
- Currency fluctuations: The Thai baht can fluctuate against your home currency, impacting the value of your investment.
What to know about buying a house in Thailand?
- Choose the right location: Consider factors like proximity to amenities, infrastructure, and potential for rental income.
- Do your due diligence: Carefully research the property, the seller, and the surrounding area. Hire a surveyor and lawyer to ensure there are no legal issues.
- Understand the ownership options: You can lease land for up to 30 years, buy a condominium outright, or purchase a house on leased land through usufruct or the right of superficies.
- Factor in the costs: Aside from the purchase price, consider ongoing costs like property taxes, maintenance fees, and insurance.
Why can’t foreigners buy land in Thailand?
Thai law restricts land ownership to Thai nationals to protect the country’s land resources and prevent foreign speculation. However, foreigners can access land ownership through long-term leases and other legal structures.
How long can you stay in Thailand if you own property?
Owning property in Thailand doesn’t automatically grant you residency rights. You’ll need to apply for a visa based on your specific circumstances.
Do you pay property taxes in Thailand?
Yes, anyone who owns or has usage rights over land or buildings in Thailand must pay land and building taxes annually. The tax rate is based on the property’s appraised value and designated use.
Do foreigners pay property tax in Thailand?
Yes, foreigners who own property or have long-term leases in Thailand are liable for property taxes.
Can you live in Thailand if you buy property?
Owning property doesn’t guarantee you the right to live in Thailand. You’ll need to apply for a visa based on your specific circumstances, such as retirement, investment, or marriage to a Thai citizen.
How much are property taxes in Thailand?
The property tax rate in Thailand ranges from 0.1% to 0.7% of the property’s appraised value, depending on the type of property and its location.
Here are some additional things to keep in mind:
- Transaction costs: Be aware of the fees associated with buying property in Thailand, such as transfer fees, registration fees, and legal fees.
- Exit strategy: Consider how you will exit your investment if you need to sell the property in the future.
- Seek professional advice like Belaws: It’s crucial to consult with a qualified lawyer and financial advisor who specialize in Thai property law and investment.
By carefully considering these factors and doing your research, you can make an informed decision about whether buying property in Thailand is right for you.
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