What is the difference between freehold and leasehold when buying property in Thailand?
It may seem like technical legal language, but there are few things more important about your home than whether it is freehold or leasehold. It’s the difference between owning a place outright or having to lease the land and renewing it every 30 years. To help you better understand the choices you have when buying property in this beautiful country, we have created this blog:
WHAT IS LEASEHOLD?
According to the 1979 Thai Condominium Act, non-Thai Citizens can’t own more than 49% of the sellable square meter space in a condominium in Thailand. For example, let’s say there is a condominium building with 100 equally sized units; 49 of those units can be sold to non-Thai citizens while 51 of those units have to be owned by a Thai Person or Thai company. This is the choice that some foreigners take if they want to buy a house/villa or if they want to buy an apartment in an already 49% freehold owned building.
What is Freehold property in Thailand?
The most common property-purchasing method for foreigners in Thailand is to sign a condo freehold agreement. While buying a condo may not be as appealing as a house to some (to others, buying a condo is ideal!), it is still often the direction foreigners take because it allows them the option of eventually reselling. This makes buying a condo more of a long-term investment strategy for foreigners who want to select condos that will appreciate due to their up-and-coming location or surroundings. Being able to re-sell the property also gives the buyer a lower risk of capital loss.
It is true that Foreign Freehold units are more desirable in the resale market so there is an opportunity for the purchase premium to be recouped. Furthermore, in Thailand, the overall property tax burden is low over the lifetime of owning a property especially in comparison to foreign countries. For example, there is no capital gains tax in Thailand and the yearly property tax paid to the local government is very small indeed.
To help you better understand here is a list of Pro and Cons:
- Foreigners can own just 49% of the condiminum in a development freehold. So if you want to buy a condo in a development, where the 49% foreign ownership has been reached, then through leasehold you still have the possibility to buy/lease it.
- It cost less to register the lease at the Land Department, then transferring the ownership title.
- You have no voting right at general meetings.
- The often pre-agreed renewals, suggesting a longer-term than 30 years are not enforceable by legal action under Thai law. It is possible to include such terms but having it in writing says nothing about the future enforceability of such terms.
- Every year you have to pay the rental tax at a rate of 12.5% over the yearly lease price.
- You own it in your name!
- Voting right at general meetings.
- It cost more to transfer the ownership title (fees and taxes) at the Land Department.
- Some developers charge more for units when they sell them freehold.
It really depends on what you’re looking for. Foreigners can own a condo freehold. As for villas, they can own the villa property/building freehold but must lease the land. Generally, people prefer freehold because it gives them peace of mind to know they hold the ownership deed/title. With leasehold property, foreigners can secure a 30-year lease, renewable twice, for up to 90 years of “leased ownership”. For many people, this is more than enough and can help the investor avoid freehold premium fees.