Buying Bargain Real Estate in Phuket

Leasehold or Freehold: Which is Best For You? In the current real estate market, a by-product of Covid-19, Phuket buyers are finding some bargains. This article aims to provide a clear explanation of the choices you face between buying a condo, house or villa in Phuket, and whether a freehold or leasehold legal ownership structure is the best option for you.

Rawai

Most foreigners are aware that the law allows them to own a freehold condominium in perpetuity, and that the title deed may be registered in their own name at the Phuket Land Department.

The Condominium Act states that every condominium project may sell 49% of its unit area as freehold to foreigners. The remaining 51% must be owned by Thai nationals, but some foreigners choose to buy a 30-year leasehold on these units.

Whether freehold or leasehold, west coast condo market in Phuket is driven predominantly by foreigners, who must decide which option represents the soundest investment for their own circumstances.

Most buyers are looking for an asset that they can sell at a profit in a few years’ time, and for these buyers leasehold units make no sense. A leasehold is a temporary form of occupancy with certain options for a renewal (or perhaps in some circumstances possibly changing it to a freehold), and because of this the condo could depreciate in value during the term of the lease. The choice between a depreciating asset and an appreciating one should be a no-brainer.

There is also the question of whether the promise of a lease renewal will ever be honoured. Any renewal arrangement with an individual owner is not legally binding on their descendants, and even companies which make these promises may have a limited lifespan. They may just decide to close down, may go bankrupt, titles may be frozen by Revenue Department or other court orders may force them to cease business. It is possible that a change in ownership and/or shareholders (or even a change of heart) can mean an eagerly anticipated lease renewal never materializes.

However, this does not mean leasehold properties are always a bad idea for the buyer – quite the contrary. For example, someone in their 70s looking for a home for the next 20 years might find an excellently priced leasehold with 20 or 25 years remaining. This could be ideal, especially if the equivalent freehold property is significantly more expensive. Right now, with some bargains to be found, finding a leasehold condo which matches the buyer’s needs and their budget would make perfect sense.

The choices become a little more complicated, however, when we consider the bargains currently available for buying villas, houses, bungalows or town homes. We all know that foreigners cannot purchase landed property in Thailand, so they must decide on the means of legal ownership or control with which they are most comfortable.

A Thai Company may be used to satisfy local ownership requirements, but any new buyer today must ensure their company can stand up to thorough legal scrutiny. It is possible to form a fully compliant Thai company, but please note it may not be cost efficient to set up and operate a company. Should you establish that it is worthwhile, then it is vital you use an experienced and competent lawyer to ensure the company adheres to all the corporate laws of Thailand.

It is important to understand that it is the Thai Company – not the foreign individual – who owns the property or land.

It is important to understand that it is the Thai Company – not the foreign individual – who owns the property or land.
The main advantage of this ownership structure is that your property may be easily sold to either a Thai national or another foreigner. Thai buyers (including foreigners married to Thai spouses) comprise an increasing percentage of properties sold, making this choice far superior to other legal ownership structures if the main concern is ease of selling in the future.

Leasehold villas also remain popular with some buyers. Whereas a Thai Company allows absolute ownership with proprietary rights, a leasehold villa, by contrast, is more akin to a long-term rental. While not ownership in the traditional sense of the word, the lessee enjoys exclusive possession and the exclusive right to use the property.

Developers will generally offer a new buyer an additional 30-year lease after expiration of the first one and/or offer to convert the leasehold land to a freehold at any time, and most fully intend to honour that promise. But as with a leasehold condominium, this is never cast in stone. A developer may go bankrupt or sell their company; key people may pass away and leave decisions to their beneficiaries. As circumstances change, the “guaranteed” renewal becomes more and more tenuous.

And it stands to reason that any changing circumstances which result in the guarantees not being fulfilled will significantly reduce the resale value of the leasehold, or even make it virtually impossible to sell in the future.

The risks associated with such unforeseen events can be at least partially mitigated by the foreigner ensuring that they are given ownership of the home itself, i.e. the bricks and mortar. While this still does not guarantee a renewal or a future freehold conversion, it does offer the foreigner a certain level of protection. Irrespective of changes in the land owner, the foreigner will still own the physical building in which he lives.

There are other measures which can be used to protect foreign buyers, blending the concepts of freehold and leasehold. Using a legitimate Thai Company Limited (meaning it has proper Thai shareholders, is run a like a business, generates revenue, submits accounts and pays taxes), the foreigner can then lease the land from the company, while also owning the building structure themselves for added security and protection.

It is important to remember, getting a bargain in the current economic climate means far more than buying the property at (or below) its fair value. It also means ensuring that you have chosen the right legal ownership structure for your personal circumstances. A bargain can soon become a “lemon” without proper understanding of the laws in Thailand.

by Thai Residential Phuket Property Guide
This article is from the Thai Residential Phuket Property Guide.
To download the 2019/2020 Guide visit ThaiResidential.com