Real Estate Investment in Thailand: Legal Guide for Foreign Buyers

Real Estate Investment in Thailand: Ownership and  Opportunities

Who can do a real estate investment in Thailand?

Ownership of fixed property in Thailand is primarily governed by the Land Code Act B.E. 2497 (1954) along with other applicable statutes for example the Condominium Act of 1979. These laws stipulate strict regulations on who can possess land or property in the country, with clear distinctions between Thai nationals and overseas individuals.

Thai Nationals

Under Thai law, Thai citizens have unrestricted rights to own land and fixed property. This encompasses both sole ownership and possession through Thai-registered juristic bodies like companies or partnerships. To validate eligibility for land ownership, Thai nationals must furnish proof of their citizenship, such as a Thai identification card or a home registration certificate.

Foreigner individuals

The restriction on overseas land possession in Thailand originates from the Land Code Act B.E. 2497 (1954), which establishes the basic principle that only Thai nationals and certain approved entities can own land. This legal framework mirrors Thailand’s long-standing policy of preserving land ownership for its citizens and confirming that control over immovable property stays within the hands of Thai nationals.
The related provisions under the Land Code Act B.E. 2497 explicitly state :

– Section 86: “Foreigners shall not be qualified to own land in Thailand except where otherwise ordained by law.”

– Section 87: Defines “foreigners” as :

• Individuals of non-Thai nationality.
• Juristic persons registered under Thai law but with over 49% foreign ownership or foreign voting rights.
• Juristic persons registered under foreign laws. These provisions broadly restrict the possession of land by non-Thais.To address possible attempts to circumvent the prohibition, Section 96 of the Land Code states that land acquired in violation of these rules will be confiscated by the state. This includes land held through nominee arrangements, where Thai individuals or entities are used as proxies for foreign possession. Authorities rigorously investigate such cases, particularly focusing on companies with foreign-majority shareholders or significant foreign influence.

What type of real estate investment in Thailand can  Foreigners do?

Properties Foreigners can buy or rent

Condominium Units

Foreigners are allowed to directly own condominium units, provided the building’s foreign ownership quota of forty-nine percent is not exceeded. Compliance with the Condominium Act B.E. 2522 (1999) requires funds transfer to Thailand in foreign currency. Proper paperwork ensures a seamless registration and ownership rights confirmation process.

Long-term Land Leasing

An alternative to land ownership is long-term land leasing. While direct ownership is banned, foreigners can enter non-permanent leases for residential, commercial, or industrial use. Registered at the Land Department, agreements may last up to 30 years and include optional extensions. This arrangement supplies stability akin to possession.

Observation: While the maximum lease period is currently limited to three decades under Section 540 of the Civil Code, there was once a proposition to permit foreigners contracts up to ninety-nine years. This 2007 amendment aimed to attract long-run investment, especially in real estate and tourism, through expanded leasing terms. The draft allowed foreigners longer interests in Thailand that may boost confidence. However, some objected over concerns of foreign influence over domestic land. Critics argued extensions undermine the 1954 Land Code barring most non-Thai possession. Ultimately, disagreements caused the bill’s abandonment before passage in 2010, keeping the thirty-year cap with the possibility of one or two renewals, subject to the lessor’s agreement.

Corporate-owned property

Foreign investors may consider ownership corporate structures for their real estate investment in Thailand. However, this approach carries meaningful lawful and practical hazards. While a Thai company could theoretically hold terrain and belongings, the Foreign Business Act impose strict limitations. Laws necessitate genuine participation and investment from Thai stakeholders: utilizing nominee shareholders – Thai individuals or bodies that maintain share on behalf of outsiders – is severely prohibited. Infractions bear intense punishment, even asset confiscation. Even legally adherent setups necessitate fastidious conformity difficult to continue, necessitating continuous documentation and transparency surpassing costs. Experts advise seeking advice in advance to circumvent dangers and fulfill responsibilities suitably when using companies for land acquisitions.

Usufruct

A usufruct is an authorized right granted under Thai Civil and Commercial Code (Sections 1417 to 1428) that allows a person, alluded to as the usufructuary, to utilize and appreciate the benefits of a property possessed by another party. For overseas financiers in Thailand, this plan presents a means to lawfully make use of real estate without ownership, which is limited by Thai law under the Land Code Act.
The usufruct right is specifically pertinent in cases where foreign investors wish to safeguard long-term use of land or property for residential, agricultural, or commercial intentions. It permits them to inhabit or lease out the property and appreciate the fruits of the terrain (e.g., income from leasing) while the ownership stays with the landowner.

Advantages involve :

• Legal Right to Use: Overseas individuals can legally use and benefit from Thai property despite restrictions on land ownership.
•  Income Generation: The usufructuary can lease the property and retain all income derived from it.
• Security of Rights: Once registered at the Land Office, the usufruct is enforceable against third parties.
• Flexibility of Usage: The property can serve residential, commercial, or agricultural aims as agreed upon with the landowner.
  
  

Drawbacks involve:

• Temporary Duration: Usufruct ends upon the death of the usufructuary and cannot be inherited or prolonged. Ownership stays entirely with the landowner.
• No Ownership Rights: The usufructuary lacks any claim to ownership.
• Maintenance Responsibilities: Upkeep costs like taxes and insurance fall to the usufructuary. The property must also remain undamaged.
• Potential Early Termination: Misuse or harm could lead to cancellation of usufruct before planned end.

Real estate investment unattainable for foreigners

• Land Ownership

Thai land ownership is expressly forbidden by the Land Code Act B.E. 2497 for the foreigners. Proxy plans to circumvent this law are illegal and risk severe repercussions like potential confiscation of the property.

• Majority Shares in Thai Companies for Land Property

Foreigners can’t hold majority shares in Thai corporations made solely to acquire property. The Foreign Business Act demands Thai shareholders have genuine financial participation. Companies formed to circumvent ownership restrictions are deemed invalid and carry significant legal risks.

Comprehensive steps for Real Estate Investment in Thailand

Primary Step of a real estate investment in Thailand: Due Diligence’s Importance

Due diligence is the cornerstone for any real estate investment in Thailand. It means checking a property’s legal standing, ownership, and adherence to local statutes. Skipping this step can lead to financial loss and legal complications.

Verifying Legal Standing and Ownership

Due diligence begins with confirming ownership. Investors must :

• Verify title deeds: check the Title deed (“Chanote”) to ensure it is genuine and reflects the seller’s ownership. Under the Land Code B.E. 2497, only full ownership deeds, such as the Chanote (Nor sor 4) guarantee clear ownership rights. Other types like the Certification of utilization may only give a possessory right to their holder and may come with usage restrictions or pending surveys.
• Conduct encumbrance checks: confirm that the land is free from encumbrances like unpaid mortgages, liens or ongoing disputes. Encumbrances can jeopardize the real-estate investment in Thailand and lead to unforeseen liabilities. The Land Office allows verifying the land is unburdened per Section 4 of the Land Code.
• Land zoning and land use restrictions: ensure that the property complies with zoning regulations under the Town and City Planning Act B.E. 2518 in order to confirm permissible uses. Particular regions may restrict commercial or residential development.
• Developer and project verification: For off-plan properties, thoroughly vet the developer and project details:
• Track Record: research past projects and reputation in the market to assess reliability and track record.
• Approvals: confirm all necessary construction and environmental permits have been acquired under the Building Control Acts 2522 before work commences.
• Escrow account: ensure deposit protection by verifying payments go into an escrow account as mandated by the Condominium Act B.E. 2522 for condo developments. This safeguards buyers from financial risks if the developer fails to complete the project.

Environmental and structural compliance

All properties in Thailand must comply with environmental regulations and building codes.
For every real-estate investment in Thailand, foreigners must confirm that the property hold valid building permits per the Building Control Act B.E. 2522 and comply with environmental laws like the Environmental Quality Promotion Act B.E. 2535, especially near protected zones or coastlines.

Legal and Financial Liabilities

Foreigners seeking to do a real-estate investment in Thailand must thoroughly scrutinize any potential issues, including :

• Outstanding Taxes: Be certain all levies tied to the property under the 2019 Land and Building Tax Act B.E. 2562 have been paid on schedule.
• Pending Litigation: Confirm the developer or property isn’t embroiled in ongoing legal disputes. The Civil and Commercial Code oversees contractual duties and remedies.
• Debt Obligations: Inspect for any unpaid loans or commitments connected to the property.

Comprehensive due diligence can consume time, yet retaining a property attorney ensures thorough vetting and conformance, shielding the investor from future complications.

Second Step of a real estate investment in Thailand: Contractual Drafting

Contracts form the backbone of real estate investment in Thailand. Properly drafted contracts safeguard the interests of all parties and outline the terms and stipulations of the purchase. Legal know-how is indispensable to confirm the contracts are enforceable under Thai law.

Contracts for Individuals vs. Companies

The terms and conditions of real estate contracts may diverge noticeably depending on if the buyer is an individual or entity. For individuals, contracts regularly center on personal capacity, financing options, and ownership rights under Thai law, particularly the 1979 Condominium Act, which allows foreigners to individually own up to 49% of the total saleable area of a condominium undertaking. For companies, extra provisions may include corporate guarantees, adherence with the 1999 Foreign Business Act, and clauses addressing the entity’s registration and operational jurisdiction. Companies may also negotiate terms regarding tax advantages and liability ceilings, reflecting the intricate nature of corporate transactions. Tailoring the contract to the precise character of the buyer ensures all legal and financial facets are adequately addressed.

Reservation Contract

The reservation contract preliminarily secures the property for buyers during the Sale and Purchase Agreement drafting. Key clauses include:

• Deposit Amount: the deposit, typically 5-15% of the property’s selling price, is usually non-refundable. It is governed by Civil Code Section 377 on deposits.
• Specific Conditions: the contract should specify forfeiture/refund conditions for the deposit if developers fail to secure permits, allowing refunds.
• Timeframe: a clear timeline for signing the SPA must be included into the reservation contract to ensure smooth progression of the transaction. However, property lawyers frequently advise clients to conduct comprehensive due diligence before entering into the reservation contract. This ensures that the buyer does not risk losing their deposit due to unforeseen legal or financial issues with the property or developer. While the reservation contract may specify a tight timeframe for moving to the SPA, it is crucial to allocate adequate time for due diligence to mitigate potential risks and secure the buyer’s interests.
  The reservation contract must clearly define obligations for both parties, preventing disputes. Review by lawyers is essential to safeguard buyers.

Sale and Purchase Agreement (SPA)

The SPA is the definitive legal document that governs any real estate investment in Thailand. Essential clauses include :

• Parties Involved: Full buyer, seller, intermediary details, preventing fraudulent claims.
• Description of Property: Comprehensive title deed number, land measurements and property location details.
• Purchase Price and Payment Terms: The contract details a breakdown of the purchase price, payment schedule including any taxes or transfer fees due as per provisions of the Civil and Commercial Code.
• Contingencies: the SPA should address potential hindrances such as financing approval, property evaluations or the completion of off-plan developments.
• Warranties and Representations: Clauses should ensure the right of the seller to sell the property, and the absence of undisclosed encumbrances as stipulated in Section 456 of the Civil and Commercial Code.
• Termination Provisions: Circumstances allowing either party to end the agreement penalty-free are expressly defined.
• Dispute Resolution: Thai law typically governs but arbitration under the Arbitration Act B.E. 2545 can also be included as an alternative despite the complex legal processes involved.

Third Step of a real estate investment in Thailand: Property Ownership Transfer

The final step in real estate investment in Thailand is the legal transfer of ownership at the Land Office
Qualified legal counsel ensures a meticulous process, fulfilling statutory requirements, clearing taxes and completing formalities to officially transfer ownership registered at the Land Office.

Taxes

Several taxes affecting the transition require prudent understanding and planning to minimize costs.

• Transfer Fee: Calculated at 2% of appraisal price as the Land Code B.E. 2497 stipulates, the transfer fee is commonly split unless otherwise negotiated. It is payable upon registration at the Land Office. For example, a property valued officially at THB 5 million property would incur THB 100,000 in transfer fees.
  (ap) Income Tax: The tax rate varies depending on the seller’s status. Individual sellers are subject to a progressive rate ranging from 0% to 35% based on their total annual income. In contrast, corporate sellers face a flat 1% tax on the higher of the sale price or government-assessed value. For instance, if authorities valued a property at THB 10 million but it sold for THB 9 million, the income tax would be 1% of THB 10 million, equating to THB 100,000.
• Specific Business Tax (SBT): Levied if the property is sold within five years of purchase at 3.3% higher of the sale price or appraisal price. However, those who use the space as their primary residence for over a year may qualify for exemption. For example, unloading a THB 7 million property after three years incurs a SBT of THB 231,000.
• Stamp Duty: When SBT doesn’t apply, a 0.5% stamp duty as outlined in the Revenue Code is assessed. For example, a THB 4 million sale commands stamp duty of THB 20,000.

Payment at the Land Office

The Land Office is where the ownership transfer is realizes for any real estate investment in Thailand. Key steps include :

• Document Submission: Both parties must provide requisite documents like the title deed, sale agreement (SPA) , tax clearance certificates, and identification documents.
• Tax Settlement: All taxes must be paid before processing the transition. The Land Office calculates the precise amounts utilizing the property’s appraised cost.
• Transfer Fee Payment: Generally, the buyer fulfils the transfer fee unless stipulated otherwise in the contract. Payments commonly employ bank drafts to ensure transparency and comply with Thai law.
• Bank Draft Process: A bank draft provides a safe means of payment commonly used in property deals for real estate investment in Thailand. Buyers must prepare the draft through their Thai bank, noting details like the recipient’s name (often the seller or Land Office) and exact amount. The draft must be ready in advance and presented at the transfer. Employing a bank draft offers an extra layer of protection, confirming funds release solely upon transaction completion. Buyers are advised to work carefully with banks and lawyers to ensure meeting all payment needs.
•  Ownership Registration: The Land Office updates the title deed displaying the new owner’s name. This finalizes the deal for any real estate investment in Thailand.
  Additional Consideration: Buyers also need accounting for ongoing costs for instance property taxes, maintenance fees (for condominiums), and insurance. These recurring expenses often get overlooked during purchase but are essential for long-range planning.

Conclusion

Real estate investment in Thailand certainly permits profits for overseas individuals, yet careful navigation of legal ins and outs is indispensable. Due diligence ensures the property’s lawful and fiscal soundness, while strong contracts shelter both parties. At long last, completing the property transfer at the Land Office renders the transaction formal and warrants possession rights.
To summarize succinctly, the three principal steps are:

• Step One: Due Diligence that confirms lawful status, possession, and adherence to local laws to shun hazards.
• Step Two: Contractual Drafting that includes framing and assessing reservation and purchase agreements tailored uniquely to the buyer’s precise demands.
• Step Three: Property Transfer at the Land Office which include settling taxes, arranging remuneration, and registering possession at the Land Office.
  For abroad financiers, comprehending and abiding by Thailand’s regulatory surroundings is paramount. While Thailand’s rules are constrictive in some respects, numerous avenues exist to lawfully put money into property. Consulting experienced property legal representatives not only reduces risks but also optimizes the investment approach. By intertwining scrupulous planning with expert steerage, financiers can secure gainful and lawfully sound real estate assets in one of Southeast Asia’s most dynamic markets.