Freehold and leasehold in Phuket
Phuket’s real estate is booming.
The key drivers of the market are the real estate investors looking for a profit from property they own.
But can foreigners own land in Phuket?How can foreigners profit from the passive earning opportunities in one of the biggest real estate havens in the world?
Lets start with one of the biggest impediments you face-
The Thailand Land Code
The Thailand Land code forbids a foreign national from acquiring ownership of land in the country. Even if you are married to a Thai spouse you need the land to be registered with the spouse.
The solution to this is The Condominium Act, which allows foreign nationals to lease out and own Thai/Phuket condominium projects. This way, even foreigners can lease land and own the property on the land. Freehold and lease ownership are the two most important ways in which foreign nationals can profit from Phuket real estate. Now let us explore the two in greater depth.
Freehold
With the Condominium Act, foreign nationals can hold upto 49% of property on a freehold basis but no more. Atleast 51% of the property must come under Thai ownership. As soon as the percentage of foreign freehold ownership is completed, you will need to switch to lease ownership of the Thai percentage of the property.
The advantages of the foreign freehold scenario is that you can actually own condominiums under your own name. With no time limits on the ownership, you can bide your time, wait for the market to mature and sell the property when the price is right. The tax you need to pay is much lesser in Thailand compared to so many countries. And unlike other countries, a foreigner owning Phuket property has voting rights in general meetings. If you do not wish to sell the property you can even name an heir and pass it on to them.
However, the cost of acquiring a freehold comes with 1 or 2 disadvantages. And that’s where leasehold ownership makes a difference.
Leasehold ownership is where a foreign national can acquire a land or property for a specific period of time. When you pay the sum in a single deposit or installments, the actual owner will allow you temporary occupation and possession of the premises. In a leasehold, you pay lesser transfer fees and taxes at the land office when compared with freehold. The overall cost is also approximately 15% lesser than buying via freehold. For foreigners, a leasehold contract can go up to 30 years with an option to extend for a couple of terms further. However, these 2 lease term extensions are not really sanctioned by the Land Office and are purely dependent on the agreements made in the lease contract between the leasehold buyer and owner.
With a leasehold, one massive advantage you get is versatility- you can choose from a wide array of property such as villas, standalone houses, townhouses. In addition, not only is the leasehold option cheaper: it is also more forgiving: after the lease period is over, you can choose to not renew it and pursue other options. With a freehold option, you’re stuck with that one building forever.
While the leasehold option seems like a dream come true, there are certain negatives associated, one of which is that you are obligated to pay 12.5% of the property’s cost as rental tax every year as well as 1% of it as a registration fee. Moreover unlike the freehold agreement, you don’t get a voting right at meetings.
To circumvent some of the drawbacks of leasehold contracts, many developers offer foreign nationals the option of protected leasing. This means the Thai company renews the leasing for the 2 extra lease terms. Protected leasing stops the landlord from abusing the leeway in the laws which states that contracts can be terminated for a critical reason. This also helps create an easier and more comfortable transition of the leasehold agreement between heirs and the landlord.
Conclusion
Truth is, the transfer of ownership no matter which method you use is not a straightforward process. Foreign nationals can benefit greatly from hiring an end-to-end solution for Phuket real estate investment- such as IbgProperty. We help you choose from highly profitable Phuket seaside property options which guarantee steady returns. We also handle formal procedures for you so you never need to be burdened with complications. Hop on to IbgProperty.com to learn more about how we can help you gain passive income from Phuket real estate!
