Buying a property in Phuket: legal insights for foreign and local investors

What types of properties can you buy in Phuket?

Phuket’s diverse real estate marketplace provides three primary property choices – condominiums, land parcels, and standalone buildings like homes or villas. Each option adheres to distinct rules regarding permitted ownership based on citizenship.

Condominium 

• Foreign ownership :

Foreign buyers can own up to 49% of any condominium’s total area. This threshold makes condos one of the more accessible options. Funds must transfer internationally in foreign currency accompanied by a foreign exchange form submitted during registration. Meanwhile, Thais can freely purchase condominiums in full ownership without limitations, aided by flexible financing and minimal paperwork compared to foreigners.

• Local ownership :

For internationals, condominiums offer direct title ownership through a streamlined process. Locals find appeal in condos too through rental income potential and lower maintenance costs than land or villas. Overall, careful review of regulations tailored to each property type and buyer’s citizenship helps navigate Phuket’s investment landscape and risks.

• Advantages:
  • For foreigners: Condominiums offer direct ownership and relatively low legal complexity.
  • For locals: Condominiums are attractive due to their potential for rental income and lower maintenance compared to land or villas.

• Risks :

• • The 49% foreign ownership cap means that once this limit is reached, foreigners may face challenges finding available units for purchase.
  • Condo developments are subject to fluctuations in tourism and rental demand.

Land

• Foreign ownership:

Under Thai law, foreigners cannot own land outright but there are alternative arrangements to obtain land rights, such as: 

• • Leasehold agreements: Foreigners can lease for up to 30 years with options to renew. 
  • Thai company: A foreigner can establish a Thai company where they own no more than 49% of the shares, while the remaining 51% is owned by Thai nationals. This company can then purchase land, but this structure must comply with the Foreign Business Act B.E. 2542 (1999) to avoid being considered a nominee arrangement, which is illegal. Note that this alternative is complex and rigorous. You must consult a lawyer able to provide you all the ins and outs of this process.

• Investment schemes:

In certain cases, foreigners can acquire land rights through Board of Investment (BOI) promotion, though this is limited to specific industries.

• Local ownership:

Thai nationals face fewer restrictions and can obtain freehold title deeds like Chanote, providing full control over use and development with potential for profit. Shorter sentences avoid redundancy while varying sentence structure and length.

• Advantages of lease agreements:

Lease agreements allow foreigners long-term secured use of property for residential or business needs. For locals, land ownership enables capital gains from development and ongoing maintenance responsibilities, especially for vacant plots.

• Risks of lease agreements:

Lease contracts could be voided without proper registration or renewal. The company structure may be scrutinized if not managed appropriately. Locals assume higher tax burden and obligations for undeveloped land.

Buildings (houses, villas)

• Foreign ownership:

Foreigners are prohibited from owning land in Thailand but may purchase the buildings situated on leased plots of land through long-term agreements. 

• Local ownership: 

Local possession provides control over both structures and the grounds they stand upon when Thais own the property housing them.

• Advantages:
  • For foreigners: Villas provide a luxurious lifestyle, especially in tourist-heavy areas where rental income from short-term leases can be lucrative.
  • For locals: Villas and houses offer greater privacy and space compared to condominiums and can appreciate significantly over time.

• Risks:
  • For foreigners: Leasehold arrangements on land can be precarious if not properly managed or renewed.
  • For locals: High maintenance costs and potential market fluctuations in the tourism sector can affect the long-term value of the property.

Legal intricacies for local and foreign property investors

The statutes governing real estate title in Phuket, as with all of Thailand, create separate conditions for foreign and local investors defined by an assortment of regulations such as the Land Code Act, Condominium Act, and Foreign Business Act.

• Foreign investors : Foreigners face several legal restrictions when it comes to property ownership in Thailand:

• • Condominiums: As mentioned, foreigners can only own up to 49% of the total area of a condominium building.
  • Land: Direct ownership of land is prohibited. Foreigners can only lease land or own it indirectly through a Thai company.
  • Building ownership: Foreigners can own the structure built on leased land, such as a house or villa.

• Local investors

Thai nationals have fewer restrictions and more flexibility when purchasing property than foreign buyers. They can own land, buildings, and condominiums outright without limitations, in addition to benefiting from favorable financing choices not available to others. However, all investors acquiring property in Thailand, regardless of nationality, remain obligated to adhere to zoning regulations, building codes, and pay requisite taxes.

Process for buying property in Phuket

The process of purchasing property in Phuket involves several key steps, each of which should be followed carefully to ensure compliance with Thai law:

• For Thai nationals:

1. Market Evaluation:

Thai buyers have fewer legal restrictions and can focus on factors like location, type of property (land, condos, villas), and potential rental income. They can purchase land, houses, and condominiums outright.

2. Legal Consultation:

Thai buyers typically engage legal services to confirm due diligence, especially in verifying the property’s title deed and ensuring no existing legal issues. Though the process is simpler, ensuring that the property complies with local zoning laws and regulations is crucial.

3. Title Deed Verification:

Thai nationals can hold freehold title deeds, including Chanote, Nor Sor 3, and Nor Sor 3 Gor. The Chanote is the most secure title, giving full ownership, while Nor Sor 3 and Nor Sor 3 Gor provide less security and are used for certain development restrictions.

4. Sales Agreement:

After selecting a property, Thai nationals sign a sales agreement with the seller. The agreement outlines the purchase price, deposit, and the process for the transfer of ownership. The sales agreement will usually also stipulate that the property is free from encumbrances or debts.

5. Transfer of Ownership:

The transfer is completed at the local land office, where the buyer’s name is registered on the title deed. Thai buyers are required to pay a transfer fee of 2% of the appraised value, as well as any applicable withholding tax and other fees.

• For foreign buyers:

1. Market Evaluation:

Foreign buyers are more restricted. They can own condominiums outright, but can only lease land or property for a maximum of 30 years (with an option to extend for another 30 years). Understanding these limitations is essential before engaging in a property search.

2. Legal Consultation:

For foreigners, hiring a lawyer is essential. The lawyer’s role is more involved, including title deed verification, drafting lease or sales agreements, and ensuring compliance with the Condominium Act or Foreign Business Act, depending on the structure of the deal. Foreigners can also set up Thai companies where they hold a minority stake, but this method requires careful legal oversight to ensure compliance with Thai laws.

3. Title Deed Verification:

Foreign buyers can own condominiums with a Chanote deed, but cannot own land in freehold. Lease agreements for land or houses must be properly registered, and the title deed (if for land) will remain in the name of the Thai national or Thai company.

4. Sales Agreement:

Foreign buyers must transfer funds from abroad in foreign currency for the purchase of a condominium. A Foreign Exchange Transaction Form (FETF) must be obtained from the Thai bank handling the transaction. This form will be presented at the land office when registering the transfer of ownership.

For lease agreements, the lawyer will draft a detailed lease contract outlining the lease term, rental payment conditions, and the rights and obligations of the parties involved.

5. Transfer of Ownership or Lease:

For condominiums, foreigners can register their ownership at the local land office similarly to Thai nationals. The buyer will pay the 2% transfer fee, and any withholding taxes may apply.

For land or buildings, the lease will be registered at the land office. The foreign buyer will not hold the title deed but will receive a registered lease contract.

Advantages and risks of property investment in Phuket

Advantages

• Growing market: Phuket’s real estate market is experiencing growth, driven by increasing demand from both local and international buyers.
• Rental income potential: Properties in tourist-heavy areas, such as Patong and Kamala, offer significant potential for rental income, particularly during high season.
• Long-term capital gains: Properties, particularly land and villas, have shown steady appreciation over time, offering investors the potential for long-term capital gains.

Risks

• Legal restrictions: Foreign investors face numerous legal restrictions, particularly regarding land ownership, which can complicate the investment process.
• Market volatility: The property market in Phuket is tied to the tourism industry, meaning that fluctuations in tourism can impact property values and rental income.
• Hidden costs: Property investment in Phuket may involve additional costs, such as maintenance, taxes, and legal fees, which can add up over time.

Conclusion

Buying property in Phuket can yield lucrative returns, but carefully navigating the complex laws is essential. For foreigners, condos offer the most straightforward possession, whereas land and structures require rental agreements or companies. Locals benefit from more flexibility and fewer bounds. Regardless of the type of property, engaging a qualified attorney is crucial to ensure compliance with Thai legislation and to safeguard your investment. Comprehending the lawful framework and prudently evaluating the risks and advantages will help guarantee a successful property purchase in Phuket.