Buying a house on Koh Phangan: legal framework, advantages and risks

How to buy a house on Koh Phangan

Leasehold and freehold

• Leasehold (long-term lease):

Under Thailand’s Land Code Act (B.E. 2497), foreign buyers cannot own land. One alternative is to sign a 30-year emphyteutic lease, renewable twice for a total term of up to 90 years. This lease offers foreign buyers the possibility of renting the house built on the land on a long-term basis, without owning it.

This type of contract offers many advantages, not least long-term security equivalent to ownership. The tenant is also free to carry out any work or modifications during the term of the lease. However, certain risks remain, such as the absence of an absolute guarantee of renewal after the first 30 years, although this may be mentioned in the contract. It is therefore advisable to have the terms of the lease carefully validated by a specialist lawyer.

• Freehold for buildings:

Although foreigners cannot own land in Thailand, they can own buildings freehold. According to article 1336 of the Thai Civil and Commercial Code, a foreigner can buy a house as separate property from the land on which it is built. This separation between the building and the land is an interesting option, offering a degree of legal certainty without being subject to the limitations of a lease. However, this solution only concerns the ownership of the house. It is therefore essential to sign a land lease contract to avoid any future problems concerning the use of the land.

How to get around the restrictions on land ownership to own both the land and the property?

• Acquisition through a Thai company

Without the option of owning land directly, foreigners can opt to purchase real estate through a Thai company. However, under the Foreign Business Act (B.E. 2542), foreigners can only hold a maximum of 49% of the shares in a Thai company, the remainder having to be owned by Thai citizens.

Once the company has been set up, it can then acquire both the house and the land. However, the use of this structure requires particular vigilance. It is imperative that the company is legally constituted and that the shares held by the Thai partners are effective, otherwise the acquisition may be challenged. Thai law provides for severe penalties in the event of non-compliance with these provisions, notably under Title 36 of the Foreign Affairs Act.

• Marriage

Marriage to a Thai citizen represents an alternative for foreigners wishing to buy a house on the island of Koh Phangan. Under Thai law, a foreigner married to a Thai citizen cannot hold land in his or her own name, but it is possible to acquire land in the name of the Thai spouse.

According to article 1470 of the Thai Civil and Commercial Code, real estate acquired during marriage is presumed to belong to both spouses. However, to ensure legality, the land authorities require a written declaration stating that the funds used for the purchase come solely from the Thai spouse, thus circumventing the prohibition on foreigners owning land.

It should be noted, however, that this solution, while legal, presents risks, as the foreigner will have no direct ownership rights to the land, and any marital disagreement could jeopardize the security of the property. Careful assessment of the legal implications and specialist legal advice are therefore essential before resorting to this method.

Legal and tax obligations when buying a house on Koh Phangan

• Taxes on property and real estate transactions

Buying a home on Koh Phangan involves a number of tax obligations. Among the applicable taxes are:

• Transfer Fee : 2% of the property price, to be paid upon transfer of title.
• Specific Business Tax: 3.3% of the sale price if the property is resold within five years of acquisition.
• Registration fees: paid when the lease or transfer of ownership is registered with the Land Registry.

• Land ownership obligations

As an island, Koh Phangan is subject to special rules concerning environmental protection and land management, under the Environmental Protection Act B.E. 2535. Before any construction or acquisition project, it is imperative to check that the land is free of any legal or ecological restrictions, particularly in protected coastal areas.

Legal procedures for buying a home on Koh Phangan

• Checking the property’s legality

 Before any transaction, it is essential to check the validity of the property title. In Thailand, there are several types of land title, but only Chanote (or Nor Sor 4 Jor) titles offer fully secure and transferable ownership rights. Nor Sor 3 Gor and Nor Sor 3 titles also allow certain transactions, but present restrictions on construction and sale. A lawyer should ensure that the land is not encumbered by any outstanding mortgages or litigation. This avoids any legal risk associated with the acquisition of the property.

• Contract signature and transfer of funds

Once the house has been selected and all legal checks have been carried out, a sales contract must be signed. This contract, drawn up in Thai, must be carefully analyzed by a lawyer to ensure that the buyer’s rights are respected. Funds must be transferred from abroad to a bank account in Thailand, in compliance with the exchange control procedures imposed by the Bank of Thailand. A Foreign Exchange Transaction Form (FETF) will then be issued, an essential document for finalizing the transfer of ownership.

• Koh Phangan’s specific legal characteristics

Although Koh Phangan is subject to national legislation, its status as a protected tourist destination means that it has a number of special features. All property purchases must take account of strict local building and sustainable development regulations, particularly in coastal areas. It is advisable to check with local authorities such as the Land Office of Surat Thani for any restrictions that may apply to certain plots of land, and to seek advice from a real estate lawyer.

Conclusion

Buying a home on Koh Phangan is an ambitious project that requires a thorough understanding of local legal and tax mechanisms. Whether you opt for a long-term lease, purchase through a Thai company or own a building separate from the land, each method has its advantages and risks. It is essential to surround yourself with legal and real estate professionals to secure the transaction and comply with current legal obligations. Koh Phangan, with its fast-growing real estate market, offers excellent investment opportunities, but it is essential to respect local rules to fully enjoy this tropical paradise.