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Thailand Real Estate Purchase | Foreign Ownership Issues

▶ Foreign Ownership

Due to the 1997 economic crisis, caused by a real estate glut in Bangkok's office, condo, and housing estate markets, the IMF applied pressure to relax laws restricting foreign ownership of property. This was an effort to bring in foreign investment, particularly to the nonperforming real estate investments which were causing the liquidity crisis.

These new regulations would have also helped many powerful Thai individuals who own real estate but were burdened with debts due to not being able to sell it to other Thais after expensively developing it. As of early 2000, the most far reaching reforms regarding foreign ownership of property that were hammered out during the IMF presence were still pending in Parliament, watered down, and still not sure to pass, and those aren't really very far reaching anyway. They were politically unpopular. The main details are discussed a few paragraphs below. The Thai economy picked up and recovered, and it mostly came to naught.

The present situation is likely to continue as a natural state of political affairs as long as foreigners are much richer and have far more buying power than Thais. The argument is that if the property market were opened wide to foreigners, then the prices would skyrocket out of the reach of the vast majority of indigenous Thais, and foreigners would take over too much of Thailand whereby the Thais would lose significant sovereignty and cultural integrity, instead being exploited in colonialist fashion.

Foreigners in the press commonly argue that Thais are free to buy property in the U.S. and other countries, and thus the reverse should be allowed as well, instead of continuing "outdated anti-colonial" and "xenophobic" policies. The same argument could be made regarding travel visas, whereby any poor Thai prostitute could skip going down to the US Embassy for a visa rejection and instead just take a plane flight to the U.S. and get a visa-upon-arrival at the U.S. airport, just like Americans can come to Thailand without a visa. The reality is that the U.S. would soon become about 10% Thai in the form of illegal workers, who would in turn far outnumber immigration officials and police forces after their one month visa-upon-arrival expired. So major relaxation of laws regarding foreign ownership of property will probably occur around the time that Thais are given "fair treatment" as regards travel visas. (I've never seen this counterargument acknowledged when foreigners and their government representatives argue for greater property ownership rights in Thailand, of course.)

In my writings, I must first start with a disclaimer: I am not a lawyer, all Thai law is in the Thai language, I cannot read Thai law, I haven't tried to read Thai law to date, I am not an authorized translator anyway, and I cannot guarantee the accuracy of the following. Use at your own risk.

These are general problems that people run into when dealing in any country whose language they cannot read. (At least the Thai language is phonetic, not hieroglyphic.) Even in one's own country, people usually depend upon their lawyers rather than read the law themself. The problem in Thailand is dealing with the nationalistic laws.

There are some great deals on inexpensive and abandoned luxury houses out here, but you'd better know the laws and procedures.

In short, here is a summary of the current status of foreign real estate property ownership in Thailand, as I've perceived from my research:

  • A foreigner can own a condo as long as less than 50% of the condos or apartments in the building are owned by foreigners. (This is an old law, except it was 40% before, though some buildings differ depending on some exceptions.)
  • A company can own property such as land and a house (and hence the foreigner can buy land and a house via their company) as long as no one foreigner owns more that 39% of the company (recently amended from 33%) and total foreign ownership of the company does not exceed 49%.
  • The Thai wife of a foreigner can own property (a recently changed legal status due to gender equality in the new 1997 constitution revision), in her name only. This is fine as long as you don't have marital problems. (The same, of course, goes for a Thai husband, but the law was changed recently for Thai wives due to the new constitution guaranteeing equal rights.)
  • A foreigner can lease land for 30 years, with an option for another 30 years, according to articles in the press and as confirmed by every lawyer I've asked. (If you live longer than 2x30 years, consider yourself lucky in another regard.) This is referred to as the 2x30 ("two times 30") option.

The 2x30 option has been mentioned in "this is how I did it" circles, but you are advised to check with a lawyer, and ask about what proposed laws were actually passed in Parliament over the past few years. After the 1997 economic crisis and IMF intervention, plans were written up to amend the property laws so that a foreigner could lease in their individual name up to 1 rai of land for up to 30 years (1 rai = 1600 square meters or about a 40 meter x 40 meter plot, or 1 acre = 2.5 rai), on which the foreigner could build a residential property. Before the foreigner could do this, the foreigner must deposit 10 million baht of hard currency from overseas into a bank in Thailand. This amendment to the property law had been pending in parliament for a long time, but I didn't keep up with it. Lawyers say it was passed, but I didn't read that myself in the newspapers, not that I never miss a day.

Many foreigners have "secured" land and houses in Thailand, in addition to condominiums, in various ways and I haven't heard of any horror stories to date from those who followed the procedures mentioned here. The only horror stories I have heard are those where the foreigner put everything into their wife's name with no lease or any other contract, and were subsequently kicked out. I've heard lots of those horror stories.

Notably, when the registered Thai wife of a foreigner buys property, she must state that the money is hers, not her husband's. For example, one farang guy said that the provincial official asked his wife this, and when she said it was her husband's money, he shook his head and informed her that she could not purchase and register the property under the law, in an explanatory way. Then he asked her again, in which case she changed her mind and said it was her money, and everyone then smiled and the transaction was allowed to go forward to completion.

I should note that I've seen illegal property transactions on the books for years, which continued to be honored simply because nobody challenged the transaction. Thai society has been easygoing to date, in general, with local officials usually deciding what's OK or fair or whatever. I've seen some tricks pulled by lawyers and real estate agents which other lawyers have said are illegal, usually in regard to matrimonial arrangements other than those mentioned here (i.e., not a simple and clear lease).

However, I've occasionally seen some transactions challenged years afterwards by someone on a mission, nearly all these unpleasant challenges based on matrimonial technicalities in the pre-1997-constitution era. Since I'm not a lawyer and haven't seen the legal text in Thai myself (with my limited Thai reading abilities) regarding foreigners owning property, I can only recommend that you find a good Thai lawyer. I can recommend some Thai lawyers to rely on if you don't have any good referrals. You can read the text yourself and interpret it yourself, all of it, back to the Constitution. Otherwise, you can believe the lawyers, the market, and how quiet it is as regards property invalidations.

▶ Buying Property through a Company

It is a commonly advised tactic to set up a company for the sole purpose of buying property, e.g., a majority Thai-owned company with "nominee" directors, whereby some of the directors are strangers unaware of what their name is on (to prevent a conspiracy) and/or provide signed documents selling their shares which are held by the farang as security (again, against a conspiracy of shareholders).

You should be aware, however, that bogus companies for the sole purpose of property ownership and nominee directors are not legal. They exist insofar as they are not being prosecuted. People will point out that they are rarely prosecuted, but prosecution is possible. If you can live with that risk on your investment, that's up to you.

The way this is often pitched is as follows:

"Put a few hundred dollars worth of baht in your pocket. Get all the forms for shareholders in your company. Go onto the street and find some strangers. Pay them some tens of dollars to sign a shareholder document, sign another document selling their shares (leaving the date blank), and go photocopy their ID card. These are your six Thai shareholders. They don't even know what company they are shareholders in. Even if you get a big problem and someone traces down these shareholders based on their ID card, you already have their signed document selling their shares so that you can immediately backdate and transfer these shares to a trusted person."

Another way this is pitched is by lawyers who say "Leave it up to us, we will handle all of the above".

The option, of course, is to find trusted shareholders who know exactly what they own (say, 61% of your company split among 6 shareholders). These shareholders may be a combination of employees, relatives, friends, other associates, shareholders of other companies you are involved in, whatever, whereby you are fairly sure of their ethics, and/or these people are of very different walks of life and unlikely to all come together as part of any conspiracy, and/or it is against their greater interests to form a conspiracy for reasons of reputation or other interests of theirs which could be affected (some lawyers even set up collateral arrangements). This is not a sham company, but it's a company you must set up carefully and manage.

A hybrid option is that the latter company owns the property and issues a 2x30 lease to you. The same applies to the Thai wife -- she owns the property but leases it to you.

To many, the main benefit of company ownership of property is that a company can own or lease a lot more property than can an individual without getting into questions of where the wife's money came from in case it comes up again, and even if the money for the company is clearly due to the foreigner, it's not as clear cut a legal issue.

Of course, you should be careful to have in your personal will that your shares will go to somebody else, so that there is not incentive by your shareholders to see you pass away. There are a lot of evil people in this world, and Thailand is not any exception.

▶ Land Lease

A foreigner can lease land for 30 years, according to the laws of Thailand.

If your spouse is Thai, then you may want to buy the land in your spouse's name and then lease it from your spouse. This way, even if your marriage becomes rocky, you can't get kicked out of the house, especially if you're paid for the entire 30 years and have a formal receipt tucked away in a safe place. Your spouse inherits it after the 30 years.

All leases longer than 3 years must be registered. The good news is that it helps verify the legitimacy of your lease. Also, a registered lease doesn't die with ever the lessor or the lessee. (Don't make your wife's family want to kill you!) The bad news is that you pay more in taxes.

If you are leasing land, then you must pay taxes on the lease amount. One source states that, for example, if you lease land for 30 years and pay for the entire period in advance in order to get a receipt, then you must also pay 1.5% of the total value of that lease for the entire 30 years ... in advance.

Taxes have varied widely from time to time in the past 10 years, as the government has tried to sometimes stimulate and sometimes cool off the property sector, or just be populist for voters.

▶ Scams

Some real estate agents run advertisements saying that you, the farang, can now own "property" in Thailand, and that "the laws have changed". This is often just a ploy to get you thru their door first, before you get hooked by any competing real estate agent, as if they are more on the ball and know something their competitors do not. Yes, some foreigners can own property in some very exceptional situations, just like you could 10+ years ago, and yes, the laws have changed ... a little bit ... but there have been no major changes in the laws and the signs are misleading.

There are scams out there. Make sure that the land coordinates on the deed of the property you buy are accurate, and that you're not signing to buy a swamp in another location than the one they've been touring you in and around and negotiating a price on. This is a scam that is simple to protect yourself against, but it's happened, and not just once. The land title deed is a public document available from the Land Registry, so it's straightforward to verify, for those of us who can read Thai.

If you are considering buying a condominium, rather than renting, then you should be careful about great deals on high rise condos that are sparsely populated. There are many stories of condos which have not been kept up because the building owner and management company are out of money or have decided not to put any more money into the property at the moment. Stories include things like lifts (elevators) not being repaired, amenities like swimming pools being neglected, security disappearing, overgrown lawns, etc. You're left to deal with these matters on your own together with the other tenants, and it's probably less expensive and more productive to deal with the physical problems directly (and quickly) than to pay lawyers to deal with the owner and management company via the court system while you live for time without an elevator. Because labor is cheap here, this should not be as big a problem as in wealthy countries.

Likewise, if you are buying land with a house on it, there should be paperwork and deeds on both the land and the house. Sometimes, there is only for the land, not the house. Why is a mystery, but may have to do with taxes.

Make sure you get the full scoop on taxes before you buy.

▶ Taxes

You have to pay taxes on real estate purchases. You should make sure that you know in advance what the total taxes will be, both at the time of the transaction, and what you will receive in the mail from the government later.

If your company is buying a house, instead of your wife buying it, then the taxes may be higher because corporate taxes are higher than personal taxes in Thailand. Check with your accountant.

If you are leasing land, then you must pay taxes on the lease amount. One source states that, for example, if you lease land for 30 years, then you must pay 1.5% of the total value of that lease for the entire 30 years ... in advance.

Wednesday, October 16, 2019