Things to Be Considered Before Buying Condo in Phuket, Thailand
One of the hot real estate investments in Thailand for foreigners is to Buy a Condo in Phuket. Both Leasehold and Freehold. Firstly, freehold in this article means foreigner freehold. It is 100% legal investment for foreigner investors. However, investment is investment which always comes with a risk. This article gives you 5 steps and 3 common mistakes to manage and prevent your risk. In case you are looking for a clear idea about buying land or a condo in Phuket, we highly recommend reading the article 5 steps to understand when buying real estate in Phuket.
Step 1: Choose between Buying Leasehold and Freehold
Which one meets your investment strategy and goal? Before you can choose, you may need to understand what is the difference between them. We give a wide picture about the difference between Leasehold and Freehold in Thai law. In addition, there is a difference in the ownership ratio of condo for foreigners, it will be limited to 49% of the area of the condo (Section 19 second of Condominium Act B.E. 2551 ‘CA’). While buying the leasehold condo will not be limited, it can be leased to foreigners in any proportion.
Step 2: Chose the Condo Project to Buy
To protect your investment, the completed project is the first choice to buy. The completed project clearly shows you what your unit looks like. As well as common property, land and all properties for the benefit of the owner includes CJP office, for instance. It is your co-ownership (section 13, 14 and 15 of CA). Also, the Condo Juristic Person ‘CJP’ composition, community and how another owner makes a return.
The project which is in pre-construction period or which is in construction period. It should be considered to buy one when the developer has already completed the Condo Registration. It means the developer must provide all important details of the Condo to the government agency i.e. land title, master plan, ratio of each owner and common property, also the draft of the regulations of CJP etc. (section 7 to 11 of CA).
The developer who has a strong financial status and a good reputation in the real estate business can be a good point but not an absolute protection. Keep this fact in mind, Phuket is one of the cities who gets a mine of the real estate developer and broker. You have so many choices to choose from.
Step 3: Condo Due Diligence in Phuket
After you choose one, it doesn’t mean you can buy a condo in Phuket immediately. You might have seen the news that the Supreme Administrative Court has an order to cancel the Land title of the condo project in Phuket. This order affects the relevant license i.e. building permit, condo license.
Condo Due diligence is one of the most important steps to buy Condo in Phuket. When buying a condo in Phuket you need to certify;
(1) Condo Building Permit and Environmental Impact Assessment report (EIA);
This makes sure you are going to buy a condo, not a building which will never be able to give you freehold rights.
(2) Registration of the Condo Ownership and Establishment of the CJP;
This makes condos different from apartments and enables ownership rights of individual units.
(3) Building Safety Laws;
Such as fire protection systems, ventilation systems, shortening of the building, providing a wastewater treatment system before releasing it into the public drainage etc. Also the Construction Safety requirements in determining the distance of the building. A condominium project with a height of more than 23 meters or a building area in total of 10,000 square meters must have a distance of more than 6 meters from other people’s land. etc. and a lot more things of due diligence to do.
Step 4: Make a Freehold or Leasehold Condo Sale and Purchase Contract
In practice, there will be 2 relevant agreements
(1) a Reservation Agreement;
You will be bound by essential provisions. Such as purchase price, sinking fund and next processes of the purchasing, a time frame for your due diligence etc. You will need to pay a deposit fee which shall be refundable if the due diligence is not passed and has a serious impact to your leasehold or freehold right. For example, if the land title history is not enough to say the land title is legal, incorrect building permit, the condo building not satisfied with the Building safety laws, for instance.
(2) a Condo Sell and Purchase Contract (S&P);
You will be bound by all general provisions of the purchase contract. Such as, purchasing price, payment, leasehold or freehold right transfer, closing date, registration date, default and penalty also dispute solution etc. you may be interested to understand how to make a contract under Thai law and an idea for making a Freehold Sale and Purchase Contract. It is also useful for leaseholds.
On top of this, it is important to know that the brochure and all marketing advertising is a past of S&P (section 6/1 paragraph 3 of CA and supreme judgment no. 3274/2553).
Step 5: Registration and Handover
Both when buying freehold and leasehold Condo in Phuket. It needs to be registered at the land department. It is a condition of validity under Thai law. The leasehold condo (more than 3 years lease period) must be registered with the competent land department under the section 538 of the Civil and Commercial Code (CCC). The freehold condo (purchasing an immovable property) must be registered with the competent land department under the section 456 and 1299 of the CCC.
This registration system aimed at the recording of your rights to the public document. Your name will be shown at the title deed to declare your right to the public.
In addition to Registration when buying Condo in Phuket
The Required documents for the registration. It would be a basic document to identify a person like your passport, ID card. In case you are a legal spouse, the consent letter from your husband/wife will be requested. You will also need to provide a bank credit note or bank advice to prove that you have transferred the fund from overseas to purchase the unit.
The said documents must clearly describe the object of the fund transfer. For example ‘to purchase condominium ABC unit 123’. Or you need a Thai bank certificate which clearly describes the object. That is the same that you have withdrawn the Thai Baht from the bank to purchase a condo name unit number. In complement of the previous, more details shall be provided as requested by Land department regulations.
The registration fees are different between buying a freehold and leasehold condo. Transfer fee and Taxes for the leasehold in total is about 1.1% of the registration purchase price. The freehold in total is about 6% of the registration purchase price. Depending on many criterias as land department value, declared price, the seller is a juristic or natural person.
New Enact for for the Condo registration
Land Departments always enact new regulations in relevance to documentation and fees. The best is to update from time to time before the registration. Civil and Commercial code and Rules and regulations at the /land department may wonder some people. But you have to follow it to not see your registration fail.
Company Holding Condo in Phuket
In some cases, there will be an option to avoid condominium registration, taxes and fees. That is by taking over a Thai company or BVI company who gets the Leasehold or freehold condo. In this case Company due diligence will be another important part of the purchasing.
On top of the company holding, you may be interested to know how to take full control of a Thai company. BVI company structure is not complicated like a Thai company. a BVI company can combine with only one shareholder and director. The Seller needs to provide you a good standing certificate and incumbency certificate. Also, BVI registered agent contact details for future company maintenance.
3 Common Mistake When Buying a Condo in Phuket;
1-Not following the Land Department Regulations Relevant to oversea fund transfer documentation;
For instance, not clearly describing the subjection of the transfer. Use bank certificates like a wire bank which is not acceptable by the land department. The issue is your registration failed.
2-Declaring Not The True Price;
Sometimes both parties agree to declare the register price as less as possible. The risk is to pay big income tax when resale. Sometimes it has a bad effect on overseas refunds in which the transaction and documentation will be reviewed and approved by the Bank of Thailand. Not the land department.
3-Not Doing the Condo Due Diligence;
Most of the cases happened when buying the condo before the developer had done the Registration of the Condominium Ownership and Establishment of the CJP. In this case, some headache of litigation procedure against the developer can occur. Notably it is not only receiving the lease registration without the right to vote at the meeting. But also to be able to be nominated at the CJP. Of course easier marketing when resale.
In conclusion, buying a Condo in Phuket at the right time could make a good return on investment. Understanding and knowing the relevant legal process is something to protect your investment. To manage and prevent your risk, all 5 steps should take place, and 3 common mistakes should not arise when you buy a condo in Phuket. Don’t hesitate to contact us, an experienced law firm in Phuket with our Real Estate Lawyers to assist you in all these matters.
Frederic Retif, Master in Business law
& Nuansnit Chantawong, Master in Law
Department of Lands