Buying a property in Koh Phangan: what and how?

Condominium ownership in Koh Phangan

Legal conditions

Under the 1979 Condominium Act, foreigners can own up to 49% of the units in a single building. This is the most straightforward method of property acquisition for non-residents, as foreigners can directly own the unit without needing to lease or create complex legal structures  

A critical legal stipulation is that acquisition funds must be transferred internationally into Thailand in foreign currency. Under Section 19 of the Condominium Act, this transfer must be documented through a Foreign Exchange Transaction certificate issued by a Thai bank. In practice, this means that potential buyers must bring funds into Thailand in a foreign currency, such as euros or dollars, and prove this transaction when registering the condominium.

Advantages and risks 

Advantages:

• Ownership Rights: Foreigners can fully own a condominium unit in their name, with the rights to sell, rent, or bequeath the property.
• Clear Legal Framework: The law around condominium ownership is well-defined, making it the least risky option for foreigners.
• Growing Real Estate Market: Koh Phangan’s popularity as both a tourist destination and an expat retreat makes it a potentially lucrative investment, particularly for short-term rentals.

Risks:

• Foreign Quota Limitations: If the foreign ownership quota (49%) is already reached in a condominium, buyers must wait for new developments or buy units from other foreign owners.
• Currency Exchange Risk: Foreigners must comply with strict financial regulations, and any failure to transfer funds in the proper currency could invalidate the sale.

Process

Foreigners:

• Foreigners can directly own up to 49% of the total area of a condominium building under the Condominium Act of 1979.
• The purchase must be made in foreign currency, transferred into Thailand, with proof of this transaction via a Foreign Exchange Transaction Certificate.
• The buyer must ensure that the condominium’s foreign ownership quota is not exceeded, and register the property with the Land Department.

Local buyers:

• Thai nationals can purchase a condominium outright without any limitations.
• The process involves signing a sale and purchase agreement, conducting due diligence on the title deed, and registering the transfer of ownership at the Land Department.

Land Ownership: leasehold vs freehold in Koh Phangan

While condominium ownership provides residents rights to their unit in perpetuity, land purchases pose challenges. Land ownership remains prohibited for non-Thai citizens. Even leasing land long-term requires creating a limited company and granting at least 51% ownership to Thai nationals. The complexity and legal gray areas make land riskier than condominiums, though ownership provides control over development.

Target Audience:

Leasehold ownership is best suited to retirees or expatriates seeking long-term residences on Koh Phangan, while freehold ownership through BOI promotion is geared toward large-scale investors looking to develop commercial properties or resorts.

Leasehold Agreements:

Foreigners can lease land for up to 30 years under a leasehold agreement, with options for renewal. The Lease of Immovable Property for Commerce and Industry Act B.E. 2542 (1999) allows foreigners to lease land for business or residential purposes. Leaseholds are the most common legal solution for foreigners who want to build homes on Koh Phangan but are restricted from outright land ownership.

Leasehold Advantages:

• Control Over Land: A leasehold gives foreigners legal control of the land for an extended period (up to 30 years), allowing them to build homes, run businesses, or rent the property.
• Flexibility: Leaseholders can negotiate extensions or renewals of their lease, providing long-term security.

Leasehold Risks:

• No Ownership: Leaseholders do not own the land, and disputes can arise if the lease is not renewed or if ownership of the land changes.
• Market Volatility: The value of leasehold properties may fluctuate based on the local real estate market, impacting resale potential.

Freehold ownership through BOI:

In very limited circumstances, foreigners can acquire freehold land in Thailand under the Investment Promotion Act B.E. 2520 (1977) if they qualify for Board of Investment (BOI) promotion. This method applies primarily to large-scale investment projects such as resorts, tourism businesses, or manufacturing facilities.

Freehold Advantages:

• Full Ownership: BOI-approved foreign investors can fully own land, giving them complete legal control over the property and any developments on it.
• Investment Potential: For large-scale projects, freehold ownership provides long-term investment security.

Freehold Risks:

• Strict Requirements: BOI approval is rare and requires substantial financial investment and regulatory compliance, making this an impractical solution for many individual investors. 

Process

Foreigners:

• Foreigners cannot own land in freehold. They can only lease the land through a leasehold agreement for a maximum of 30 years, with renewal options.
• An alternative is to set up a Thai company where the foreigner owns up to 49% of the shares, and the Thai nationals hold the remaining 51%. The company can then own the land, but this must comply with the Foreign Business Act of 1999.
• Lease agreements or corporate structures should be registered with the Land Department to ensure compliance.

Local buyers:

• Thai nationals can purchase land outright in freehold.
• The process involves verifying the land’s title deed, ensuring it is properly zoned, signing the sale agreement, and registering the transfer at the Land Department.

Building ownership: corporate and personal structures in Koh Phangan

Corporate and personal frameworks on Koh Phangan for building possession vary. Entities or persons lease or purchase properties relying on individual needs and financial abilities. Overall, investing demands thoroughly understanding applicable laws.

Target audience:

Corporate ownership is befitting for outsider financial specialists searching for developing business or private properties, for example, inns, get-away spots, or rental properties in Koh Phangan.

Legal conditions:

Foreigners are allowed to separately own structures built on land in Thailand. However, gaining possession of both the terrain and buildings usually necessitates forming a Thai business entity. The International Business Act of 1999 restricts outsider possession of Thai companies to 49% while requiring Thai nationals to hold the leftover 51%. The company, once incorporated, can buy land and buildings with the alien investor controlling procedures through preferential voting or shareholder agreements.

Spouses of Thai citizens may additionally buy property, terrain and structures in Koh Phangan under their partner’s name. Notwithstanding, this necessitates prudent lawful structuring following the Civil and Commercial Codes to guarantee the foreign spouse retains rights to the property in case of marital conflicts.

Advantages and risks 

Advantages of Corporate Ownership:

• Indirect Land Ownership: By possessing offers in a Thai company, outsiders can by implication control property and land in Koh Phangan.
• Legal Control: Appropriate structuring of the company permits outsiders to keep noteworthy control over resources, notwithstanding with minority shareholding.

Risks:

• Partners Shareholders: Utilizing Thai nationals as “partners” without their genuine association in the company is unlawful and can bring about charges or criminal retributions following the International Business Act.
• Corporate Scrutiny: Thai experts regularly inspect companies that purchase land to guarantee consistency with outsider possession directions.

Process

Foreigners:

• Foreigners can own the structure (villa), but not the land it sits on. Typically, the land must be leased under a leasehold agreement for up to 30 years, with the possibility of renewing the lease for two additional 30-year terms.
• Foreign buyers should ensure the lease is registered with the Land Department to secure their legal rights and verify the ownership status of the land with the Chanote title deed.

 Local buyers:

• Thai nationals can purchase both the villa and the land in freehold.
• The process involves conducting due diligence, verifying the Chanote title, signing a sale and purchase agreement, and registering the property at the Land Department.

Conclusion

The options presented for foreigners wishing to buy a property in Koh Phangan each carry distinct legal nuances. Condominiums offer individual owners the clearest path ahead, while acquiring land necessitates lease agreements or corporate structures. Those investing in commercial ventures could potentially obtain freehold status under the BOI, though such permits are rarely distributed. Comprehension and adherence to the Condominium Act, Land Code Act, and Foreign Business Act proves imperative for ensuring conformity and safeguarding one’s financial stake. Working diligently with legal counsel well-versed in Thai real estate regulations remains essential for safely navigating the intricacies of property acquisition on Koh Phangan.