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To become a real estate developer in Thailand
Thailand’s real estate sector is increasingly attractive to foreign investors, offering significant opportunities in residential, commercial, and tourism-focused developments. However, foreign developers face legal challenges, especially concerning land ownership, as Thailand’s property laws heavily restrict foreign involvement in real estate. Becoming a successful real estate developer in Thailand requires a thorough understanding of these restrictions and strategies to navigate them. This article explores the legal hurdles and provides a detailed guide on how to develop real estate projects in Thailand, including the role of Thai partners and leasing solutions.
Table of Contents
What are the property ownership restrictions for foreigners in Thailand?
Thailand’s legal framework places strict limitations on foreign land ownership. Under the Land Code, foreigners are generally prohibited from owning land directly. This restriction is rooted in the government’s desire to maintain Thai control over national resources, particularly land. Exceptions are rare and limited to highly specific cases, such as investment under the Board of Investment (BOI) promotion or through treaties, but these do not cover the majority of real estate transactions.
- Foreign ownership limitations
According to Section 86 of the Land Code, foreigners are allowed to own only 49% of the shares in a Thai company that holds land. Therefore, direct ownership of land by foreign individuals or entities is effectively prohibited unless specific conditions apply, such as BOI incentives for particular industries.
How can foreigners bypass these restrictions?
While foreigners cannot directly own land, they can still participate in Thailand’s real estate market through two main approaches: forming partnerships with Thai nationals or leasing property.
- Finding Thai partners
One of the most common ways to navigate ownership restrictions is by forming joint ventures with Thai partners. A foreigner can own up to 49% of a Thai company, with the remaining 51% owned by Thai nationals. This allows the company to acquire land legally, with the foreign partner having significant influence over the company’s operations.
In this structure, it is essential to ensure that the Thai shareholders are genuine investors, not just nominal partners, to avoid violating the Foreign Business Act (FBA), which prohibits foreigners from using Thai shareholders to circumvent ownership restrictions. The shareholders’ agreement must be carefully drafted, ensuring that the foreign partner’s interests are protected without breaching Thai law.
- Leasing for subleasing
Another viable option for foreign real estate developers is to acquire long-term leasehold rights. Under Thai law, leases can last up to 30 years, with the possibility of renewal. Foreign developers can lease land or properties and develop them for commercial or residential use. This is particularly common in tourist hotspots, where developers lease land for the construction of resorts or condominiums.
By entering into lease agreements, the foreign developer retains control over the property and can then sublease it to the final customers, ensuring legal compliance while maintaining a profitable business model.
What are the primary responsibilities of a real estate developer in Thailand?
Real estate developers in Thailand carry out various tasks that range from conceptualizing the project to managing its completion and sale. These responsibilities include securing land, obtaining financing, managing the construction process, and ensuring compliance with legal and regulatory requirements.
- Land acquisition and financing
Securing the land, either through purchase by a Thai company or leasing, is the first critical step. Developers must conduct thorough due diligence to ensure the land’s legal status, zoning regulations, and environmental concerns are properly addressed. Financing is often obtained through a combination of equity investment and bank loans, with the developer being responsible for securing favorable terms.
- Project management and construction oversight
The developer is responsible for overseeing the entire construction process, from design and permits to completion. They must coordinate with architects, contractors, and local authorities to ensure the project complies with building codes and regulations. Selecting a reputable construction firm is vital, and due diligence should be performed on the contractor to assess their financial stability, past performance, and legal standing.
- Marketing and sales
Once construction is underway, developers must create and execute a marketing strategy to attract buyers or tenants. This includes setting up a sales office, producing marketing materials, and working with real estate agents. Sales contracts must be meticulously prepared to protect the developer’s interests and comply with Thai contract law.
What are the essential steps in a real estate development project in Thailand?
To successfully navigate the complexities of real estate development in Thailand, developers must follow a series of structured steps. Each phase involves crucial legal and financial considerations, and failure to comply with Thai regulations can result in delays or penalties.
Due diligence is the foundation of any successful real estate project. It involves verifying the legal status of the land, ensuring clear ownership, checking for any encumbrances or disputes, and confirming compliance with local zoning laws. This step is critical to avoid legal complications down the line.
- Drafting the reservation contract
Once the due diligence is completed and the project is ready to move forward, a reservation contract should be prepared. This contract secures the property for the buyer or tenant and outlines the terms and conditions of the transaction. The reservation contract is typically accompanied by a small deposit, demonstrating the buyer’s commitment.
- Payment of the deposit
A deposit, usually ranging from 5% to 10% of the purchase price, is required to move the transaction forward. This amount secures the buyer’s interest in the property and acts as a guarantee of their intention to complete the purchase.
- Drafting the purchase contract
The purchase contract formalizes the transaction and sets out the legal obligations of both the buyer and seller. It includes essential details such as the purchase price, payment schedule, and the conditions for transferring ownership. Given the legal complexities, it is advisable to work with a law firm to ensure the contract complies with Thai law and protects the developer’s interests.
- Acquisition of the land
The next step is acquiring the land, either through a lease or purchase. If a Thai company is involved, the land will be bought under the company’s name. If the foreign developer is leasing, a long-term lease agreement must be finalized, ensuring it is properly registered with the Land Department.
- Selecting a construction company
Choosing the right construction company is critical to the success of the project. Developers should perform due diligence on potential contractors, including reviewing their financial health, checking references, and confirming their legal standing. Contracts with construction companies should clearly outline the scope of work, timelines, penalties for delays, and payment schedules.
Conclusion
Navigating the complexities of real estate development in Thailand requires a deep understanding of both Thai law and the local real estate market. From forming partnerships with Thai nationals to drafting ironclad contracts, each step presents unique legal challenges.
Our law firm, Benoit & Partners, specializes in assisting foreign developers through every stage of the real estate development process. Whether you need help conducting due diligence, drafting contracts, or ensuring compliance with Thailand’s complex regulatory environment, our team has the expertise to guide you successfully.