Advance Blog

June 7, 2024

Navigating Phuket’s Property Boom: A Brief Guide for Foreign Buyers

In recent years, Phuket has surged in popularity as a prime investment destination for foreign real estate buyers. This growth is driven by several factors, including the robust recovery of tourism, substantial infrastructure developments, and government policies designed to attract wealthy individuals through visa options like the Elite Visa and Investment Visa.

Significant improvements in roads, entertainment venues, accommodation, healthcare facilities, and high-end dining have further boosted Phuket’s appeal. The property market has not only rebounded but surpassed pre-pandemic levels, with the villa market growing by 126.3% from 2022, particularly in areas like Bang Tao and Cherng Talay, driven by Russian, Chinese, and European buyers. This influx of international capital is poised to further strengthen the market, continuing the trend of rising property values and increasing investor interest in this idyllic island.

While taking a slice of Phuket’s growing property market presents an exciting opportunity, it also comes with a unique set of legal, regulatory, and tax considerations that foreign buyers need to understand. In this article, we will provide essential insights into foreign ownership laws, requirements for acquiring real estate, and other important considerations to ensure compliance with Thai laws.

Foreign Ownership Laws in Thailand

According to Thailand’s Land Code Act of 1954, foreigners are explicitly banned from owning land in Thailand. However, there are several avenues available for foreigners to invest in property. One option is leasehold agreements, which allow foreigners to lease land for up to 30 years, with the possibility of renewal for another 30 years. These agreements grant lessees the right to use the land for construction purposes and must be registered with the Land Department for legal enforceability. Leasehold rights are often transferable, enabling property sales, transfers, or inheritance, though the cost of leasing land varies depending on factors like location and size, typically requiring upfront payment for the lease term.

Alternatively, foreigners can own condominium units outright, provided that foreign ownership does not exceed 49% of the total floor area of all units in the complex. This has made condominiums a popular choice for property investment among foreigners, with funds required to be transferred into Thailand as foreign currency via a Thai bank. Another option is establishing a Thai Company to purchase land, though Thai nationals must own at least 51% of the company’s shares. While companies promoted by the Office of the Board of Investment (BOI) may be fully foreign-owned in certain cases, this route entails high costs, strict requirements, and is limited to specific BOI-promoted activities.

Lastly, foreigners married to Thai nationals can purchase property in their spouse’s name, with the foreign spouse declaring the funds as the Thai spouse’s separate property.

Due Diligence in Property Transactions

Due diligence is a crucial step when acquiring property. Property buyers are strongly advised to rigorously verify property documents to confirm that the seller has a clear and legal title to the land or property. Buyers must also ensure that there are no disputes or limitations on the property that could complicate the transfer process.

A key aspect of this is the verification of title deeds, which confirm the legal ownership and boundaries of the property. In Thailand, the most definitive proof of land ownership is the Chanote, a title deed that grants the holder full rights to the land. This title deed indicates that the land has been officially surveyed and marked by the Land Department, ensuring the accuracy of its boundaries. Another important title is the Nor Sor 3 Gor, which, while slightly less definitive than the Chanote, still provides substantial legal assurance regarding the property’s boundaries and ownership.

Beyond title verification, due diligence should also include a thorough review of land use and environmental regulations. For example, Phuket has stringent land use policies and environmental laws that may require special permissions. Another key consideration is establishing a right of way for properties not connected to a public road. This typically involves negotiating with neighboring landowners and agreeing to terms of access by contract. This agreement should specify the width and allowed uses of the path, such as whether it will accommodate pedestrian or vehicular traffic, as well as maintenance responsibilities.

Taxes and Fees Involved in Property Transactions

When buying or selling property in Thailand, there are several fees and tax obligations that must be accounted for:

Fee TypeRateConditionsPayable by
Transfer Fee2% of the appraised property value. Buyer or shared
Personal Income Tax or Corporate Income TaxPersonal Income Taxes are determined using a progressive rate.   Corporate Income Taxes consist of either a 1% withholding tax on the sales price or 1% of the assessed value. Seller
Specific Business Tax3.3% of the higher of the sale value or appraised property value.Comprised of a 3% tax on the higher of the value of the property or the appraised value plus a 10% municipal tax on the 3%, totalling 3.3%   Business tax doesn’t have to be paid if the seller is an individual and: The seller possessed the property for over five years and their name appeared on the tabien baan less than one year after the acquisition; The property is transferred to a legal heir; Property is transferred to a legitimate child; orSeller transfers the property to a government agency or a religious organization without consideration.Seller
Stamp Duty0.5% of the higher of the sale value or appraised property value.Exempt if business tax is paid.Seller
Withholding Tax1% of the higher of the sale value or appraised value if seller is a company.   Variable rate, based on the appraised value of the property if the seller is an individual. Seller

Negotiations over who pays these taxes and fees are typical and can significantly affect the final cost of a transaction. Consulting a Treasury Department official valuation may be an important step as it would help determine the appraised value used to calculate these fees.

Legal Considerations in Property Contracts

Drafting property contracts and agreements with developers requires careful attention to detail. These documents should include several key elements to ensure clarity and protect the interests of all parties involved.

Firstly, the terms of sale must be clearly defined. This includes specifying the price, payment schedule, and any required deposit. Detailed specifications of the property should also be included, such as descriptions of the location, size, and boundaries, to prevent misunderstandings or disputes.

Additionally, the contract should outline any warranties or guarantees provided by the developer. It is crucial to include penalties for late completion or non-compliance with the agreed terms. The conditions under which deposits and payments can be forfeited should also be clearly stated to avoid potential conflicts.

All terms must be clear, as the contract will be legally binding, with protective clauses in place to safeguard both parties’ interests. Ensuring that property transfers are conducted with a proper contract will help avoid potential disputes and ensure transparency throughout the transaction process.

Concluding comments

Investing in Phuket’s property market comes with its own set of complexities that require careful navigation. Understanding the intricacies of foreign ownership laws, such as leasehold agreements and condominium ownership limits, is crucial. Additionally, conducting thorough due diligence ensures that property titles are clear and that any potential land use or environmental regulations are addressed.

Tax considerations, including transfer fees, business taxes, and withholding taxes, must also be factored into the overall investment strategy to avoid unexpected costs. Crafting detailed and legally sound property contracts helps protect all parties involved, minimizing the risk of disputes and ensuring transparency throughout the transaction.

Addressing these legal, regulatory, and financial aspects will ensure investments made by foreign investors are safeguarded.

The information we share in this article is only for general knowledge and learning purposes. We’re doing our best to keep it accurate and current, but there’s a chance some details might be outdated or not entirely on the mark. What you find here shouldn’t be treated as legal advice or the go-to for making major decisions, be it in business or law. Consulting a qualified legal professional is always recommended.For personalised advice tailored to your situation as a foreign property investor, please contact us at [email protected] or by using the form provided on our website.

Dr. Maria Schlueter
Silk Legal Co., Ltd.

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