What is the best legal guarantee when buying a property in Thailand?

Following the recent political upheaval and the legal uncertainties that it caused, the question is: “how can I best protect myself when buying a home in Thailand?”

There is a wide divide among professionals about the solution to this problem.
Most British agents and developers believe exclusively in the twice-renewed 30-year lease. Others, mainly based in Bangkok where this type of property is widely available, want to disregard anything that is not a “condominium”.
Being not only an intermediary but also a player in the industry, my point of view is somewhat different.

Let’s study first the three solutions available to a prospective buyer:

I. Long term lease

Being a lawyer by training, I would like to start with definitions.
We must distinguish here two kinds of rights: ownership and right of use or usufruct ([Latin ususfructus from usus et fructus, literally, use and enjoyment] : the right to the use and enjoyment of another's property and its profits as in the crops of the estate).
(Click here for a definition of usufruct: http://research.lawyers.com/glossary/usufruct.html)

Now are these assets or liabilities?

Ownership is clearly considered as an asset.
Although the usufruct generally means an advantage for its holder, expenses involved in order to keep the property in good condition may offset the advantage.
An added consideration in owning a villa is for example the benefit of securing your title against a loan, should you need to release equity in the future. This is not possible with an usufruct.
Thirty-year leases are not as attractive as freehold titles or longer term leases. They are relatively illiquid because of their short length, so there is a limited secondary market in resale.
This being said, in the current situation, the lease has the advantage of being relatively simple and cheap for those who tolerate its limitations. For example, if you are preparing to retire in Phuket, the lease can suit you perfectly.

II. Purchase of a “freehold condominium”

The “Condominium Act” (http://www.dol.go.th/low_ministry/commandment/condo_no3_2542.htm) gives developers the opportunity to sell 49% of the surface area of their project directly to foreigners in their own name under certain conditions.
But it is not that easy.
A team from the Bangkok administration must come to approve the construction after completion, which makes this kind of property rarer outside of Bangkok. The administration can always refuse to validate the qualification of a condominium although the developer has already promised to transfer the property into the purchaser’s name.
Then, there is, as you noticed, a contradiction in the definition of this faculty.
If sales are allowed to foreigners, the developer will design apartments intended for the foreign market that do not suit the needs of the local market, ie not only because of their price (foreign oriented condos sell for THB 5 to 50 million when Thaïs are looking for THB 1 million) but also because of their features (a 60 m² beach front apartment is perfect for a couple spending 2 weeks holiday but not for a family leaving there all year long).
The problem is then the following: After he has sold 49% of the area of the project of a « freehold » condominium to foreigners, what can the developer do with the remaining 51% if the local market does not absorb it?
Either he sells these units to foreigners through a legal set-up that will probably constitute a transgression of the law, which can cause cancellation of the sales by the authorities.
Or the developer does not sell the remaining half of the units. Then how will the money needed to maintain common areas be collected? One can then fear for the permanence of the building.

These are of course extreme scenarios, which so far have never happened.

III. Company registered in Thailand

The buyers’ favorite mode of ownership is purchase through a juristic person registered in Thailand, generally a “limited company” (Co., Ltd.).
You already know how it works:
(For more details, please see www.phuketimmo.com in its FAQ / property law section: http://www.phuketimmo.com/modules.php?name=faq&myfaq=yes&id_cat=3&categories=Property+Law+in+Thailand)

1. A company registered in Thailand
2. A minimum of 7 partners.
3. There must be more Thai partners than foreign partners.
4. The foreign partners together should not own more than 49% of the company shares (39% when transferring the property at the Land Department).

There is now a controversy about company nominees in Thailand and the preference shares system which allows a minority shareholder to control a company.
It seems that the military junta temporarily in power seems to want to abolish this system.
It should be noted that the representatives of the junta have had to reverse themselves on each one of their proposals and declarations concerning the foreign investment.

In addition, theoretically, if the Thai government decided one day to sink itself by expelling the foreigners which system would it attack first?
With the lease and the condominium, there is no risk, one knows whom one attacks since the property is in the name of the purchaser.
With a limited company, one never knows who is behind a figurehead or a chain of companies. Consider also that the number of companies being used for acquisition of properties by foreigners should not account for more than 10% of the total number of companies recorded in Thailand. While seeking to flush out foreigners the inspector to charge of the investigation is likely to uncover some secrets of certain Thai businessmen. it might not prove to be worth the risk for them.

To conclude, I think that each one of his 3 solutions is completely accurate, the catastrophes which I described being purely academic. However certain solutions are adapted better to certain situations. In my case, I chose the solution of a Thai company in order to purchase the house where I now live.

Comments

[Carl Milton]

Dear Sir/Madam,
I notice from your blog that you post regarding Thailand property. I work for property showrooms and we are currently producing many articles, statistical studies,
International Property News and other resources concerning the property investment industry. We also have over 40,000 overseas property listings from all over the world.

I would like to invite you to use, review or link to any of the
resources you see on our site when composing future blog submissions.

regards

Carl Milton
Propertyshowrooms.com