PROPERTY OWNERSHIP IN THAILAND
The 'legal' process and structure for purchasing property in Thailand is different, and more complex than in most other countries, mainly due to the fact that it is not legal for a foreigner to own land in Thailand. However, there are numerous strategies, depending on the property type, that one may deploy to secure their investment! At Samui Law Firm, we provide fully legal ownership structures that protect both the foreign buyer as well any/all Thai people involved (persons and/or shareholders)!
As always, a potential buyer must determine their own 'risk versus reward' model when considering any property investment and, although there may be significant advantages to be gained by purchasing property in Samui, it's absolutely paramount that the buyer chooses the right property, through the right channels (the agent and/or the seller) and, ensure it's legality (via a lawyer) prior to purchase. Now let's explore the property purchase process below:
1. Legal Engagement
Remember that you are spending a portion of your life savings to acquire this property in a foreign country so, you should carefully plan and understand the steps in the process before engaging an agent. You need to understand the correct legal process and structures for a foreigner to acquire property in Thailand and, before you sign a 'Reservation Agreement' (with an agent) or a 'Sale & Purchase Agreement' (with the seller and/or developer), you should discuss the legal process with a lawyer to get absolute clarity on what you can and cannot do in Thailand, as well as understand how the structure for your chosen property type, provides legal protection for both a) you and b) within the eyes of the legal system here in Thailand!
2. Selecting an Agent
Once the buyer understands property purchase structures via their lawyer, the buyer should seek local expertise in order to search for a preferred property style, budget and location. A good agent should know how to communicate with the locals (foreign and Thai) and, should also be very familiar with the area in which the buyer would like to purchase. The right agent will save valuable time in selecting and showing only those properties that meet the buyer's specific requirements.
Purchasing directly from the seller does not necessarily save money as compared to buying it from the agent. Any quality property for sale in Thailand is generally offered at a fixed price by the seller and/or developer anyway so, the benefits of engaging a property agent is that they can provide a conduit, as both liaison and mediator (if needed), between you and the seller and/or developer. They should also obtain the best possible price for the buyer, particularly given that 5-8% of the purchase price will be paid to the agent (as commission) from the seller, to represent your best interests throughout the entire process. As touched on above, agents in Koh Samui tend to receive higher than average commissions than most western countries so, ensure you get the best value possible from them both; a) upon engagement and b) throughout the entire sale/purchase process.
Once the buyer has selected an agent and the property desired then, In Koh Samui and it's surrounding islands, it would be standard practice, at this point, to engage with that agent, via a 'Reservation Agreement'. This is a simple (normally one page) agreement stating that the seller shall remove the property off the market for 30 days in exchange for a small holding deposit, normally 100,000 - 200,000 THB, whilst the buyer's lawyer conducts due diligence on the buyer's behalf. The 'Reservation Fee' should be kept in a lawyer's escrow account and be fully refundable upon a) 'Due Diligence' failure, for any reason, b) review of the contractual agreement and/or c) viewing of the property.
3. Due Diligence (Property Investigation)
After you have signed the 'Reservation Agreement' and paid a holding deposit ('Reservation Fee") over the property you are interested in purchasing, it's highly recommended that the buyer now engages their lawyer to conduct 'Due Diligence' on the selected property. All to often, in "the land of smiles', people choose to believe what others in a restaurant, bar, the agent, the seller and/or the developer say about the property, and decide to bypass this part of the process when, it is the single most important step in the property purchase process in any country, but even more so in Thailand.
What is due diligence? Put simply... It's a comprehensive examination (health check) on the property including:
title legitimacy - whether the title deed is legal
title ownership and type - whether the proposed owner is in fact the legal owner of the property
building permit - confirm the building regulations in relation to the building permit issued and any building(s)
zoning regulations - zoning requirements, zone color, zone number, size restrictions, elevation and slope
company health checks - if the seller is selling the Thai company as part of the property purchase
land chronology - the history of the land and how it became the current title type and size
house book - the "blue book" issued for any building constructed in accordance with the building permit
private road registration - ensure that you have clear legal access to the property
liens/encumbrances - confirm there's no outstanding loans against the property or the company (if included)
outstanding taxes - check with the revenue department to see if any taxes are outstanding
A thorough investigation usually takes between 2-3 weeks to complete and most of it will be conducted using resources and documents available from the land and building departments in Koh Samui. Your lawyer needs to verify that the Seller (and the property), meets all of the above legal requirements prior to engaging in any formal contractual agreement.
4. Sale & Purchase Agreement (Contract) and Deposit (upon Signing Contracts)
Once the buyer, and their lawyer, are satisfied that the property is healthy for sale/purchase, either the buyer's or the seller's lawyer will draw up a 'Sale & Purchase Agreement' for both parties review and comment. Providing the contract meets with both parties requirements then, both parties shall sign the 'Sale & Purchase Agreement' (the contract). Once the contract is signed by both parties, there would usually be an obligation (specified within the contract of course), on the buyer, to pay a deposit of up to 30% of the total purchase price to the developer, if a new house was being constructed as part of the contract however, if the buyer is purchasing an existing property then, this deposit could be bypassed and payment may be made in full (100% minus the Reservation Fee and subject to the agreement of both parties) upon transfer of the property from the seller to the buyer.
5. Progress Payments (for Construction) or Freehold Transfer (for an Existing Property)
In the event that the seller/developer is constructing a house for the buyer as part of the contract then, there would normally be 'Progress Payments' required, preferably in arrears, upon each and every (contract specified) stage of construction. The buyer maintains the right (specified time-frame) to inspect the building (construction) progress) prior to making such payments. It would be both common and beneficial for the buyer to have funds parked in their lawyer's escrow account awaiting such stage payments. The benefits of using Samui Law Firm's escrow account is three fold (repatriation, better exchange rates and complete transparency) and you can find more information about this on the Escrow / Exchange page of our website.
In the event that the buyer is purchasing an existing property then, there may not be any 'Progress Payments' required and upon signing contracts and instead the buyer's lawyer begins facilitating funds transfer (from the buyer) to the lawyer's escrow account, whilst coordinating an appropriate time-frame with the seller's lawyer to execute the 'Freehold Transfer'.
6. Legal Methods Of Ownership
In Thailand, a foreigner may own a condominium in his/her own name. If the foreigner wishes to acquire land and build a house, he/she can obtain a long term lease on the land (for a period not exceeding 30 years - with an option to renew).
A foreigner can apply for a construction permit to build the house in their own name or have this permit transferred from the seller/builder/developer once construction is complete and handed over to the buyer. This way the foreigner owns the house and has a secured long term lease over the land.
The lease may be written with an option to reassign to a third party (if you sell or pass away), with the ability to sublease and, with a purchase option, should the law change in the future, allowing freehold ownership over land by a foreigner. Therefore, a lease is the most common legal method for the foreigner to acquire land in Thailand. For further information on ownership structures please Contact Us.