One of the hot real estate investments in Thailand for foreigners is buying a condo in Phuket. Both leasehold and freehold. Firstly, freehold in this article means foreigner freehold. It is a 100% legal investment for foreign investors. However, investment is an investment, which always comes with a risk. This article gives you five steps and three 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’s 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 the difference between them. We give a wide picture of the difference between Leasehold and Freehold in Thai law. In addition, there is a difference in the ownership ratio of condos for foreigners; it will be limited to 49% of the area of the condo (Section 19(2) 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, including the CJP office, for instance. It is your co-ownership (sections 13, 14, and 15 of CA). Also, the Condo Juristic Person’s (CJP) composition, community, and how another owner makes a return

A project that is in the pre-construction period or that is in the construction period should be considered for purchase 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, the ratio of each owner and common property, as well as the draught of the regulations of CJP, etc. (sections 7 to 11 of CA).

A 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 that gets a lot of attention from real estate developers and brokers. 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 issued an order to cancel the land title of the condo project in Phuket. This order affects the relevant licence, i.e., building permit or condo licence.

Condo Due diligence is one of the most important steps in buying a 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 that 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 for 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, consider the construction safety requirements in determining the distance of the building. A condominium project with a height of more than 23 meters or a total building area of 10,000 square meters must have a distance of more than 6 meters from other people’s land, etc., and there are 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 two relevant agreements.

(1) Reservation Agreement;

You will be bound by essential provisions. Such as the purchase price, sinking fund, next steps in the purchasing process, a time frame for your due diligence, etc. You will need to pay a deposit fee, which will be refundable if the due diligence is not passed and has a serious impact on your leasehold or freehold rights. For example, if the land title history is not enough to say the land title is legal because of an incorrect building permit or because the condo building is not complying with building safety laws,

(2) Condo Sell and Purchase Contract (S&P);

You will be bound by all the general provisions of the purchase contract. Such as purchasing price, payment, leasehold or freehold right transfer, closing date, registration date, default, penalty, dispute solution, etc. You may be interested in learning 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 are past S&P (section 6/1 paragraph 3 of CA and supreme judgement no. 3274/2553).

Step 5: Registration and Handover

Both when buying freehold and leasehold condos in Phuket. It needs to be registered at the land department. It is a condition of validity under Thai law. The leasehold condo (with more than a 3-year lease period) must be registered with the competent land department under 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 sections 456 and 1299 of the CCC.

This registration system is aimed at recording your rights to the public document. Your name will be shown on the title deed to declare your rights to the public.

In addition to Registration when buying Condo in Phuket

Required Documents

The required documents for registration would be a basic document to identify a person, like your passport or ID card. In the event that you are a legal spouse, a consent letter from your husband or wife will be requested. You will also need to provide a bank credit note or bank advice to prove that you have transferred the funds from overseas to purchase the unit.

The 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 that clearly describes the object. That is the same amount that you have withdrawn from the bank to purchase a condo unit number. In addition to the previous, more details shall be provided as requested by land department regulations.

Registration Fees

The registration fees are different between buying a freehold and a leasehold condo. Transfer fees and taxes for the leasehold in total are about 1.1% of the registration purchase price. The freehold in total is about 6% of the registration purchase price. Depending on many criteria, such as land department value and declared price, the seller is a juristic or natural person.

New Enact for the Condo registration

Land departments always enact new regulations in relation to documentation and fees. The best is to update from time to time before the registration. The Civil and Commercial Code and Rules and Regulations at the Land Department may puzzle 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 or BVI company that gets the leasehold or freehold condo. In this case, company due diligence will be another important part of the purchase.

On top of the company holding, you may be interested to know how to take full control of a Thai company. The BVI company structure is not complicated like that of a Thai company. A BVI company can only have one shareholder and one director. The seller needs to provide you with a good-standing certificate and an incumbency certificate. Also, BVI registered agent contact details are needed for future company maintenance.

3 Common Mistakes 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 subject of the transfer Use bank certificates like a wire transfer, which is not acceptable by the land department. The issue is that your registration failed.

2-Not Declaring The True Price;

Sometimes both parties agree to declare the registered price as low as possible. The risk is that you will have to pay a lot of income tax when you resell. Sometimes it has a bad effect on overseas refunds because 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 the buyer bought the condo before the developer had done the registration of condominium ownership and establishment of the CJP. In this case, some headaches from the 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, resale makes for easier marketing.

In conclusion, buying a condo in Phuket at the right time could yield a good return on investment. Understanding and knowing the relevant legal process is something you can do 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.