Any provision in the contract that is contrary to the developer’s obligations under the standard contract shall be deemed unwritten. Particular care should be taken in drafting the contract of sale to ensure that the purchaser’s rights are properly protected.
All property transfers and leases over 3 years must be registered with the Land Department. If a property is purchased prior to completion, the transfer of ownership occurs after the property is completed. If the property has already been purchased, the transfer takes place only after the installment payments have been made according to the signed contract. The balance of the purchase price is usually paid at the time of transfer to the land department.
All real estate rights must be registered with the land department. Ownership of land or real estate and other forms of land rights, such as leases of more than three years, mortgages, easement rights, habitation, superficies and usufruct, must be registered with the land department of the region in which the land is located. Once the registration is completed, the information regarding the transfer of ownership of the land or property will be registered with the relevant land department. The registration of the new owner is accompanied by the payment of the taxes related to the transfer of ownership.
Sometimes circumstances prevent you from transferring property in person. In this case, you can appoint your attorney to represent you in the transaction by means of a formal power of attorney. However, this document follows stricter rules than the more common general power of attorney, as the former is explicitly used to transfer property with land department officials. For the registration of rights or transfer of ownership of real estate by someone other than the owner of the land, provincial and local land department offices in Thailand only accept the “power of attorney” (PoA) in Thai characters, the official standard of the land department (the tor dor 21). The land offices do not accept any other form of power of attorney. Therefore, if you cannot come to Thailand to register your property and transfer it, you must give an official power of attorney to a law firm, for example.
Real estate investment can be made by purchasing an apartment or buy property or land. However, there are different rules regarding real estate ownership depending on the nature of the property invested. Any foreigner can freely buy a condominium. On the other hand, foreigners are not allowed to own land or property, except in exceptional cases.
In Thailand, it is possible to acquire real estate ownership for foreigners in apartment buildings with the “Condominium” license and the “Foreign Quota“.
In the case of land, houses or apartment buildings that do not have a condominium license, a foreigner cannot hold the title in his or her name. It is not possible to register a foreigner’s name as a landowner with the Land Department. However, foreigners may have other rights to the property. They may have a right of use in the form of a very long lease of 30 years renewable, registered with the Land Department.
In principle, a foreigner cannot fully own land in Thailand. Only Thai nationals can hold a title of “change” to land. However, there are exceptions for some foreign nationals with necessary investment amounts and rather restrictive procedures.
A first possibility for the latter to own the land is to register on the Chanote the name of his Thai spouse. In this case, the foreigner gives up any right of ownership on the land. He will not be able to own the land in case of divorce or death of his spouse. He will have to sell the land within one year.
A second possibility is the creation or acquisition of a Thai limited liability company allowing the acquisition of the land by a Thai legal person. However, it should be noted that the foreign shareholder must be a minority shareholder and can only hold a maximum of 49% of the share capital. A foreigner can legally be a minority shareholder and a director of a company that can own the land. While this may be a solution for people with real economic activity, the creation of an ad hoc company to buy land (with fictitious Thai shareholders or “nominees”) is an officially illegal practice.
A third possibility, which does not allow ownership but rather a right to use a property, is the “leasehold” contract, also known as a lease agreement.
It is therefore possible for a foreigner to lease land for 30 years with a right registered with the Land Department (name of the lessee written on the back of the title deed) and which cannot be cancelled without the agreement of both parties. This right is legally renewable. Other contractual rights may be entered into between the landowner and the tenant, allowing, among other things, the resale or transfer of the rights to the lease and its renewals.
In the case of buy property as a house, a foreigner may own the walls through the building permit if it is issued in his name, which constitutes an additional guarantee. A building can be the subject of a deed of sale registered with the land department.
The restrictions on the property rights of foreigners in Thailand are only on the land, not on the buildings that might be built on that land. Thus, another option for foreigners is to own the building itself but lease the land on which it sits from the owner. Since land ownership restrictions do not apply to building ownership, some foreigners enter into a 30-year lease on the land and then build their property on that land. Thus, a foreigner wishing to build a house in Thailand may lease the land under a long-term lease and, on the other hand, own the house in his or her name.
Buildings, with the exception of condominiums, are not titled. The procedure for obtaining ownership of a house built on a lot is as follows:
|➤ In case the purchase is made from a real estate developer, the purchase of the house excluding the land can be done by a long-term lease for the land and a sales contract on the building, registered with the competent authority, or a long-term lease for the land and a construction contract with a building permit drawn up in the name of the buyer
|➤ In case an individual wants to build on a plot of land, the building permit should be issued in the name of the person who leases the land, so that the building permit confirms the ownership of the building
|➤ A third possibility is the transfer of ownership of the existing building separately from the land by means of a contract of sale complying with the advertising formalities
The seller of a house must have a building permit issued by the local government called Or Bor Tor. The building permit is proof that he owns the house and has received permission to build it. If the seller is unable to provide a building permit, care should be taken as this could mean that the house was built illegally or in violation of local regulations. In the event of non-compliance, the authorities may stop the work or request a rectification to ensure that the construction complies with the building permit. The authorities also have the power to order the demolition of any building built illegally.
Buy property is not tax free. Once the property is registered with the Land Department, it is also necessary to pay the fees associated with the buy property. Likewise, the ownership of a property is also an annual charge to be taken into account and imposed by the Revenue Department.
Except for the transfer fee, which is generally shared between the buyer and seller at a rate of 1% each, the payment of all taxes and fees related to the sale of real estate in Thailand is the seller’s responsibility.
The transfer fee is calculated based on the valuation of the property as held by the Land Department. The valuation is always lower than the market valuation.
If a property is owned by a corporation or for less than 5 years by an individual, a specific business tax is levied at a rate of 3.3% of the declared sale price. If an individual has held the property for more than 5 years, a stamp duty of 0.5% is applied. A withholding tax at the rate of 1% of the property’s assessed value by the Land Department is also applied.
Effective January 2020, all land owners, villas and condominiums must pay the new Land and Building Tax. The old tax imposed a majority of the annual rental income at a rate of 12.5%.
In contrast, the new law requires the taxation of the property’s value and not the rental income. The tax rate will differ depending on the property’s use and the official value of the property. The law distinguishes four possible services: agricultural, residential, commercial, or vacant.
When an investor buys a condominium unit, he or she has two options: buying a ready-to-move-in unit or buying off-plan (before or during construction). Buying off-plan is the purchase of a property that is not yet built. The majority of new homes, whether apartments or houses, are sold while they are not built, or while the construction is not completed. This means that you are buying a new property where construction is not yet complete. In some cases, construction will begin several months after the property is purchased.
The first step in the purchase process is the Condominium Quote or Reservation Form issued by the developer. Once received by the purchaser, the reservation must be made for a specific fee. Once the developer has received the reservation fee, an official receipt will be issued to the buyer to guarantee the money. Therefore, the developer will issue the sales contract to the buyer.
Pre-construction property acquisition is the practice of purchasing properties very early in the construction process. Developers sell these potential properties to clients to finance the development itself. On the other hand, clients are banking on the appreciation of the property once the land has been subdivided and all the infrastructure and amenities have been put in place. The advantages of buy property during the pre-construction phase include a relatively low price, selection of a more attractive parcel within the project, or other additional incentives offered by the developer to first-time buyers.
One of the main differences between buying a pre-construction apartment and buying a resale apartment is the financing. In the case of a resale, you can only pay 5% of the purchase price. On the other hand, in the case of a pre-construction condominium, you are often required to pay a down payment of at least 20%. This may seem like a lot of money, but the total payment is divided into several installments. Therefore, developers usually require a 20% deposit to guarantee your commitment to the project. It will be tied up for the duration of construction. Payments are usually made directly to the developer’s bank account and not to a third party escrow account.
A contract of sale for a property under construction must meet specific minimum requirements to minimize your exposure to risk. The following terms and conditions must be included in the contract:
|➤ With respect to timing, there should be a schedule agreement that clearly states the construction start date and the completion date. Particular attention should be paid to extension clauses which usually give the developer a few extra months to complete the building without incurring penalties
|➤ With respect to price, there should be an agreement on price, payment terms and method of payment. Ideally, in a construction contract, this should be stated in the form of a schedule
|➤ Regarding payment penalties, it should be checked that they are not too burdensome for the buyer
|➤ Regarding the developer's failure to meet its obligations, it is essential to provide and verify that there is a full refund clause in the event that the developer does not complete the construction. And in the event of late completion, late penalties for the developer should be provided for and deducted from the final payment due upon completion
|➤ With respect to construction, the contract must include a complete list of all materials used in construction, including their quality, quantity and purpose
|➤ Care should also be taken to ensure that the contract specifies that the developer is the rightful owner of the land in question
The Consumer Protection Act of 1979 protects the “consumer” against the “trader” under certain conditions and limits and prevents unfair and unjust competition. Consumers, as well as foreigners, have the option of using this strong Thai legislation as a more economical alternative to litigation in the Thai civil courts.
Thai consumer protection legislation applies not only to commercial transactions, but also to residential construction and condominium purchases.
A consumer within the meaning of the Act is any person who purchases or obtains services from a merchant, a person who has been offered or invited by a merchant to purchase goods or obtain services, or a person who properly uses goods or receives assistance from a merchant, even if the person is not the person who pays the fee.
Under consumer protection legislation, a merchant is a seller, manufacturer or importer of goods for sale, a buyer of goods for resale, a person who provides services and a person who engages in advertising.
The consumer rights protected by this law are as follows:
|➤ The right to receive correct and sufficient information and description of the quality of goods or services
|➤ The right to enjoy freedom in the choice of goods or services
|➤ The right to expect safety in the use of goods or services
|➤ The right to a fair contract
|➤ The right to have the harm investigated and compensated in accordance with the laws and provisions of the Consumer Protection Act
|➤ Care should also be taken to ensure that the contract specifies that the developer is the rightful owner of the land in question
In any business involving the sale of goods or the rendering of services, if the law or tradition requires that the contract for sale or service be in writing, the Board of Contracts has the authority to declare that business to be a “controlled contract business.” This is a business whose business contracts must be controlled.
Therefore, the contract between a professional, and his or her consumers who are part of a controlled business, must meet the following conditions:
|➤ It must contain the necessary contractual terms without which consumers would be unreasonably disadvantaged
|➤ It must not contain contract terms that are unfair to consumers
|➤ And the contracts committee may require a trader to prepare a contract in the form prescribed by its rules
As of 2017, residential construction for consumers is a “contract controlled business.” Residential construction contracts must contain specific terms and conditions. The rules also include a list of clauses that cannot be included in the construction contract.
The legal rules regarding real estate investment are numerous and sometimes complex. Any foreigner wishing to buy property in Thailand must be informed of his rights and possibilities. The law strictly regulates the prospects of real estate investment by a foreigner. Themis Partner informs you about the possibilities and your alternatives. Do not hesitate to contact us if you have any questions on this subject.