How to Own a Property in Phuket

The world can expect some tough financial times ahead. There will certainly be a marked slowdown in the Phuket property market. Still there are enough people out there planning to buy property in Phuket that it is worth considering the property ownership options for foreigners in Thailand.

There is one major problem for foreigners when buying property in Thailand -- it is illegal for foreigners to own land in Thailand. Successive Thai governments have refused to open up the Thai land market to foreign ownership. They fear that rich foreign investors will buy great swathes of Thai land and that locals will be priced out of the market. Their fears are not totally unfounded. Many multi-nationals and private investors would love to buy large amounts of land in Thailand.

It does seem like Thailand could amend the regulations to allow small private investors to own their own home. Thailand is a big country and there is plenty enough room to allow thousands of foreigners to own a home without hurting local investors. This simple and minor loosening of the regulations would bring an influx of foreign currency, boost the property market in the tourist areas and encourage wealthy retirees to come to Thailand.

Such a loosening of the regulations is not in the pipeline for the foreseeable future and it is not the purpose of this article to discuss the rights and wrongs of Thai property law. We want to consider the property ownership options for foreigners under the current legislation.

It is illegal for foreigners to own land in Thailand but there are other ways to own property.

Condos

This is the simplest option for a foreigner to own a property in Thailand. Thai law allows foreigners to own condos outright. This is the main reason why they are building so many condominium blocks in Phuket. Total foreign ownership must not exceed 49% of the block. That means at least 51% of the block will either be sold to Thai investors or will be kept as rental units.

30-Year Lease

Thai law allows foreigners to take a lease of up to 30-years on land. These leases can also include the option for two 30-year extensions. That is theoretically a 90-year lease. However, the 30-year extensions are only enforceable if the original land owner continues to own the land. If he sells the land then the 30-year extension clauses are not encumbent on the new land owner. Therefore, it would be foolish to think there is a guarantee for anything beyond the initial 30-year period.

You should try to include a clause in the lease contract that states that if the land law in Thailand changes and allows a freehold option, then you may convert the title from leasehold to freehold.

One other interesting factor to consider is that although a foreigner cannot own land, they can own the property on the land. Therefore, if you took a 30-year lease on an empty plot of land, you could build a house and actually own the house. This may be a mute point after 30-years when you can no longer stay on the land but theoretically, you could take the house with you.

Set up a Thai Company

This has been a common 'get-around' method to allow foreigners to purchase houses and land. Foreigners cannot own land but they can set up a Thai company to own the land. Thai law stipulates that only Thai companies can buy land in Thailand. It further stipulates that foreigners can own no more than 49% of shares in a Thai company. However, these holding companies are set up in such a way that although the foreigner only owns 49% of the shares, nominee Thai shareholders who have no voting rights own the other 51% of the shares.

It all sounds a little dubious and in fact, it is bending the intentions of Thai company law. However, it has become a widely used method to circumvent the restriction on foreign land ownership. Setting up a company does have the extra benefits that you may be able to use it for business purposes or for obtaining a visa.

There are two disadvantages to this method. The first is that it is really bending the intentions of Thai company law and there is no guarantee the Thai authorities will not eventually clampdown on this loophole. Only recently, Thai company law was changed so that Thai companies must initially be formed with 100% Thai ownership and that foreigners can only become shareholders after 6-months.

The other disadvantage is that the company must be active. That means it must file annual returns and make a nominal tax payment.

Register the Property under a Thai Name

This method is most commonly used by foreigners with Thai spouses. The foreigner provides the money but they register the property in the name of a trusted Thai person, e.g. a spouse or very good friend.

This method has the obvious problem that the property actually belongs to the Thai person and they can claim it for themselves whenever they want. To avoid this risk, the foreigner may also take a 30-year lease to guarantee their right to occupy the property.

If the Thai purchaser is a wife of a foreigner then she must sign a document to confirm she is purchasing the property with her own money and it did not come from abroad. They do this to void the husband's claim to the property. However, recent divorce settlements have shown that husbands may still be able to claim 50% of marital assets.

Related Articles:

Phuket Property Market - With a worldwide recession looming, we take a look at the possible effects on Phuket's property market.

How to Buy Property in Phuket - We look at the various methods you can use to find and buy property in Phuket.

How to Rent Property in Phuket - We take a look at the long-term property rental market in Phuket.