Buying land and house in Thailand.
The ownership of land and real estate by foreigners has been limited by the Thai government to protect the Thais. If this would not be the case and foreigners, still being more financially strong, could buy as much property as they want, the real estate prices would increase quickly. Thai people would no longer be able to purchase land and real estate in their own country, and this without taking the sovereignty and cultural integrity into account.
Foreigners are not allowed to own land. There are however several ways to maintain a certain control over the land (and consequently the property standing on it). A land lease might be the easiest way to fully control the land you have property on. Similar to a lease is the usufruct. Another possibility is to purchase the land via a Thai company.
Thai law provides another possibility, but this one is limited to wealthy foreigners: they may own one rai of land (about 1600 square meters) and they may live in the property that is built on it, if they have done an investment of 40M THB (not including the price of the land and house) during the last five years. Let’s be honest, that is a huge amount and a lot of land which will most probably only be used to build a vacation house on it. Maybe a fair ratio between the investment and the amount of land would have made this option interesting.
Do note that it is illegal for a Thai person to hold property in his/her name for the account of a foreigner. If this would have been agreed on in a written contract, it remains the question if this agreement will be considered valid by the court. This doesn’t count when a Thai spouse bought the land or property, but – as it is assumed that the property was purchased with the funds of the Thai spouse – it will be really difficult to prove, in case of a divorce, that the property belonged to the foreign spouse or to both spouses together. Sometimes, at the moment of the acquisition, one even has to declare that the funds belong to the Thai spouse. A prenuptial agreement, or an additional lease between the Thai and foreign spouse, could thus be of high importance.
A land lease gives the foreigner a 100% interest for a (first) lease period of 30 years. This period can, after those 30 years, be extended with an additional 60 year period (two times 30 years). The land lease may comprise maximum one rai of land. The administrative requirements are rather limited, which makes a lease interesting for any foreigner acquiring property in Thailand. Only the land leases exceeding a period of three years (and the leases that are renewed after 30 years) have to be registered at the Land Department. The registration has as a welcome advantage that the lease is ‘traceable’ and the property thus doesn’t return to the owner when you come to decease but is automatically transferred to your heirs. Moreover, the lease is transferred along with the property. The foreigner can thus not be deprived from his rights when the property is sold. An additional advantage is that the lease rights are formally taken up in Thai law.
Do note that taxes are due on the paid lease amount. Additionally, the landowner can in fact not be obliged to renew the lease. Even if this would have been taken up in the contract, claiming this right in court would be expensive and time-consuming.
Section 1417 of the Thailand Civil and Commercial Code states that usufruct is a right which allows the original owner to retain ownership, but allows the holder of this right to enter and occupy the property. The main characteristics are: it’s a lifelong right to enter and occupy the property, and which can but does not have to be remunerated. The holder of the usufruct can at his turn lease or rent the property.
There are nonetheless some huge disadvantages:
- The usufruct holder is not the legal owner
- In case of decease, the usufruct right is not automatically transferred to the children
- The owner can grant multiple usufructs (if accepted by the Land Department official)
- Although Thai law does not forbid a foreigner to enjoy the usufruct right, it is up to the discretion of the Land Department official to grant him/her this right or not
Usufruct will in most cases be granted if the foreigner intends to use the property for commercial purposes. This is also the rationale of the right (‘obtaining the fruits of the land, mining, forestry and masonry’, but oddly enough these are all activities that are prohibited to foreigners in accordance with the Foreign Business Act). Thai officials fear that usufruct might be used to get round Thai law prohibiting foreigners from owning land and they thus tend to decline the application if the foreigner wants to live in the property (note that the right to reside in the property is not mentioned in section 1417). A right of habitation could in this regard be problem-solving.
Acquisition via a company
A foreign company can in principle not purchase any land, unless the BOI has given special permission to do so. Do note that the BOI will most likely only permit a foreign company to buy land if the land is used for certain industrial or business purposes.
A Thai company on the other hand can buy land. As per the Land Department’s requirements, Thai need to hold at least 60% of the shares of the company and a Thai director is required to sign on the transfer at the land department.
Owning a real estate
Although land cannot be owned by a foreigner or foreign company, a house can be purchased. However, all real estate standing on the land owned by someone else (in theory a Thai), will become the property of the land owner unless specific agreements are made. A lease, usufruct and/or servitude combined with a sale and purchase agreement are common structures in this regard.
There is one exception: in principle any foreigner can purchase a condominium as long as only 49% of all condominiums in the building are owned by foreigners. In order to proof the latter, you will need a document signed by the owner of the building stating that after the sale, more than half of the building will still be Thai owned. The ratio of the restriction is again control over the land. When you buy a condominium, you automatically become co-owner of the land on which the building is build (and the land that is used for everyone’s benefit). This would mean that – if more than 50% of the building would be owned by foreigners – they would have a majority interest in the land, which conflicts with Thai law for the abovementioned raison.