Investing in Koh Samui: property types and rights

What types of property can you invest in on Koh Samui?

• Condominiums

This is the simplest option for foreign investors, offering freehold ownership with fewer legal restrictions. However, foreigners can only own up to 49% of the total area of a condominium, in accordance with the Condominium Act of 1979. Thai nationals, on the other hand, can own condominiums without any limitations.

• Villas

Villas offer privacy and luxury, but involve higher maintenance costs and legal complexities for foreign buyers. Foreigners can own the structure (villa), but not the land on which it is built. Thai nationals, on the other hand, can own both the land and the villa outright (freehold), giving them full ownership rights.

• Land

Foreigners cannot own land in Thailand, but they can lease it for long-term use under a long leasehold contract. Thai nationals may purchase land on a freehold basis, with full ownership rights and no limitations.

Investing in freehold or leasehold?

• Freehold (full ownership)

Freehold is the most comprehensive form of property ownership in Thailand. It enables local investors to acquire land and buildings without restriction. The Chanote, an official title deed issued by the Land Department, confers full ownership rights over the property, offering maximum legal security.

For foreign investors, however, access to freehold is limited. Under the Condominium Act of 2008, a foreigner can own up to 49% of the total surface area of a condominium. In other words, a foreign investor can fully own an apartment in a condominium as long as the 49% quota held by foreigners in the building is not exceeded.

Advantages of freehold:

• • For local investors: Freehold offers complete freedom of acquisition, enabling them to own land, houses and commercial buildings without restriction. This option is ideal for long-term investments, offering great flexibility.
  • For foreign investors: Although limited to condominiums, freehold offers maximum legal security thanks to indisputable title to the property. It is an attractive option for foreigners wishing to protect their real estate assets in Thailand.

Disadvantages of freehold:

• • For local investors: The high cost of acquisition, particularly in popular areas such as Koh Samui, may deter some local investors.
  • For foreign investors: The 49% quota imposed by law on foreign co-owners in a building may restrict purchasing opportunities, especially when this ceiling has already been reached.

• Leasehold (Emphyteutic lease)

 The leasehold, or emphyteutic lease, is a first alternative for foreigners to circumvent restrictions on land ownership. Although foreigners cannot own land in Koh Samui, as in the rest of Thailand, and have full ownership, they can acquire the house or structure built on it. Foreign investors can take full advantage of the land by means of a 30-year emphyteutic lease, renewable twice up to a maximum of 90 years, without transferring ownership of the land.

The emphyteutic lease must be registered with the Land Department and include specific clauses concerning renewal, succession, cancellation of the lease, or registration of a new lease in the event of resale of the house. Although this provision does not confer the status of full ownership, it does allow extended and secure enjoyment of the property, bringing the investor closer to the status of owner. The investor is not an owner, but a long-term tenant.

For local investors, leasing can also be an attractive option, particularly for temporary acquisitions or short-term real estate projects. It minimizes the initial outlay while offering a degree of management flexibility.

Advantages of leasehold :

• • For local investors: Leaseholding enables you to lower your purchase costs while gaining access to properties in areas with high potential for upgrading. It’s an economical solution for short-term transactions.
  • For foreigners: Leasing gives access to villas that would otherwise be inaccessible due to legal restrictions on land ownership. In addition, acquisition costs are often lower than for full ownership, making this option more affordable.

Disadvantages of leasehold :

• • For local investors: The limited duration of the bzil may require renegotiation at each renewal, introducing uncertainty as to the future of the property and additional costs.
  • For foreign investors: The absence of full ownership of the land limits the long-term value of the property, and the need to renew the lease every 30 years adds a legal uncertainty that can be an obstacle for some investors.

How can foreigners get round the restrictions on land ownership?

• Setting up a Thai Limited Company: This option circumvents the ban on foreigners owning land in Thailand. The company must be at least 51% Thai-owned, with a maximum of 49% held by the foreign investor. This structure allows the company to own the land, while the foreign investor indirectly controls the company. Nevertheless, compliance with Thai company law requires active management of the structure, with no guarantee of long-term viability. You are also strongly advised to consult a specialized lawyer to ensure that this type of arrangement is carried out in strict compliance with Thai legislation. This type of structuring is particularly relevant on Koh Samui, where demand for villas and other luxury properties is growing rapidly.

• Marriage to a Thai citizen: This option offers another gateway to land ownership. However, this option carries legal risks, as the land will be registered in the name of the Thai spouse, and the foreigner will have to relinquish any claim to ownership, which can cause problems in the event of divorce. Sound legal advice is essential to assess the risks involved.

Tax implications of buying property on Koh Samui

The purchase of real estate on Koh Samui, whether freehold or long-term lease, requires investors to take into account a number of taxes and fees.

• Transfer tax

The transfer tax is an unavoidable charge when purchasing property in Thailand. Set at 2% of the registered value of the property, it is generally shared between buyer and seller, although this split can be negotiated at the time of the transaction.

• Registration fees

Registering the title deed with the land registry is a crucial step in securing ownership rights. Registration fees vary according to the nature of the acquisition (full ownership or long lease) and usually range from 1,000 to 2,000 baht. These fees cover the registration of the long lease or the updating of the title deed in the case of full ownership.

Risks associated with investing in Koh Samui

Investing on the island of Koh Samui offers many opportunities, but also entails risks that investors must take into consideration.

• Koh Samui’s volatile real estate market: Koh Samui’s real estate market can be volatile due to the local economy’s dependence on tourism. Sudden global economic crises, or unpredictable events such as a pandemic like Covid-19, can lead to a drop in tourist demand and have a direct impact on property prices.

• Leasehold uncertainty: for properties acquired under emphyteutic leases, the uncertainty surrounding the renewal of the lease at the end of the initial 30-year period can represent a considerable risk for investors. It is therefore essential to negotiate advantageous terms from the outset and choose a trustworthy landowner to minimize these risks.

• High maintenance costs: Koh Samui beachfront properties, although highly prized, require regular maintenance to withstand climatic conditions such as humidity and storms, which can incur considerable costs over the long term.

Conclusion

Investing in Koh Samui can be a wise and profitable decision for both foreign and local investors. However, it is imperative to fully understand the legal and tax implications specific to each type of property. Whether you acquire full ownership of an apartment or an emphyteutic lease for a villa, each option has its own specific advantages and disadvantages. To maximize your chances of success, it’s essential to plan your investment carefully, to surround yourself with qualified professionals such as lawyers specializing in Thai real estate law, and to take into account the risks associated with this booming market.