LEASEHOLD vs FREEHOLD
In Thailand, leasehold property ownership is a commonly asked question by clients. Although Thai law is straightforward, it can be complicated for those unfamiliar with the regulations. This article aims to clarify all aspects of Leasehold property ownership in Phuket and Thailand, but if there are any further questions, please do not hesitate to contact us for assistance.
According to the 1979 Thai Condominium Act, non-Thai citizens are restricted to owning 49% of the sellable square meter space in a condominium in Thailand. In a 100-unit condominium, for example, only 49 units can be sold to non-Thai citizens, while the remaining 51 units must be owned by a Thai person or company. This limit can be bypassed through foreign ownership quotas, known as “Foreign Freehold” land titles. It is worth noting that a Chanote, which is the same land title that Thais can own, is issued for these units.
In condominium developments, the developer, usually a Thai company, typically holds the Chanote, and non-Thai purchasers of units are issued a lease for a maximum of 30 years, with the possibility of renewal for two subsequent periods of 30 years each, totaling 90 years. While the 30-year lease period is legally protected under Thai law, problems can arise during the lease renewal process. It is therefore recommended that the Sales and Purchase Agreement for a Leasehold purchase should involve a Thai company as the lessor and be executed under the supervision of a lawyer with the extension and termination clauses properly stated.
Protected Leasehold, on the other hand, means that the leaseholders are also shareholders of the Thai limited company that owns the Freehold (Chanote) of the property, which allows them to control the renewal and issuing of leases themselves. This ownership security is similar to that of Freehold Ownership in Thailand.
Leasehold property in Thailand is generally cheaper than Freehold ownership due to the limited number of foreign ownership quotas available, which results in the Thai quota units taking longer to sell. In addition, the total transfer fees and taxes are 6.8% of the value for Freehold ownership compared to 1.1% of the value in the case of a lease.
Finally, it is worth considering the key facts when deciding whether it is worth paying more for Freehold ownership. While Foreign Freehold units are more desirable in the resale market, Thailand’s overall property tax burden is low over the lifetime of owning a property.
For further information, please do not hesitate to contact us directly. We are happy to provide free consultations and guide our clients through the purchasing process.
