Buying a Property in Thailand

Why Thailand?

On one hand, Thailand is the epitome of paradise – boasting white-sand beaches, a vibrant capital city and a unique culture. A popular tourist destination for years, the country is in the process of successfully transforming itself from a backpackers dream to a luxury holiday location. Five-star hotels, golf resorts and gated communities are popping up all over the country, providing a stylish alternative to the budget travelling scene. As a result, the property market has sprung up out of nowhere, with a range of houses and apartments now captivating the attention of overseas buyers.

Great weather, good food and affordable prices are attracted second-home buyers, retirees and émigrés, while a good exchange rate and promising capital growth brought in the investors. A low cost of living adds to the package, and a wide choice of direct flights seems to make up for the distance. All in all, Thailand is a country that seemed to tick all of the right boxes – no matter what your reason for buying.

However, recently reality has struck what was once one of the overseas property hotspots attracting buyers from across the globe. Difficult global economic conditions have hit Thailand hard, and capital growth has stalled. Added to this has been a period of internal political strife which has prompted the UK Foreign Office to advise travellers to exercise caution at all times in Thailand, and avoid the southern provinces of the country for all but essential travel.

As property investors begin to look elsewhere for higher returns, there remains a loyal following of people who love the country and still see their future as regular visitors or settlers there. With this core of support for the tourist and property market in Thailand, hopes remain high of a recovery of fortunes when there is a more stable political situation in the country.

Popular buying locations

Foreigners looking to get a foot on the Thai property ladder tend to look in either the bustling city of Bangkok or the southern beach resorts. Despite Bangkok’s somewhat seedy reputation, the capital has plenty to offer the business traveller, resulting in a range of possible short-term letting opportunities. The country’s second city of Chaing Mai, known as the “gateway to China”, is also tipped to become more popular thanks to the construction of a new highway that will connect the city to Kunming, the capital of southwest China’s Yunnan Province.

The islands are more geared up towards the holiday-maker, and have been developed accordingly. These resorts are trying to attract a more up-market clientele, and property prices are duly reflected. Therefore, if you are on a budget, try to avoid the ever-popular areas such as Phuket and Pattaya. Thanks to The Beach, the island of Koh Samui is still popular, and the property market there is almost on a par with the original hotspot of Phuket.

The buying process

When buying a property in Thailand, it is unusual for an offer to be made until your solicitor has carried out all of the relevant searches. If you do put in an offer before you have commissioned any legal help, do not hand over a deposit or sign anything – only do this when your lawyer gives you the go-ahead.

When you are given the legal green light, ensure that the name in which you purchase the property is exactly the same as that on your passport in order to avoid any unnecessary confusion. Generally you will be required to pay a ten per cent deposit until the purchase agreement is executed, but this is refundable if the purchase doesn’t go through – provided that it is not your fault.

A final contract is signed on the date stated in the preliminary contract, when you will be required to pay the outstanding balance, as well as any relevant taxes. The deeds are then registered with the Land Department, making the purchase complete.

Legal issues

In regard to freehold title, foreigners can own buildings in Thailand – but not land. As a result, apartments are the more common choice for people buying in the country. If, however, you have your heart set on a villa, there are a couple of ways which you can gain the freehold of the land. The first way is to set up a Thai limited company. If you decide to go down this route, be aware that you are still only able to hold 39 per cent of the shares – the rest must be owned by Thai nationals who sign over all of their rights in the company to you. It costs around 30,000 baht (around £570) for the initial set up of the company, and you will have to pay 20,000 (around £380) a year in associated costs.

The second option is to lease the land that you have bought. This lease lasts for a maximum of 30 years, but you do have the right to automatically renew twice – so in essence it is a 90-year lease. The last option is rather more unusual – if a foreign man marries a Thai woman (unfortunately this simply isn’t relevant if the sexes are the other way around) then he is entitled to own freehold land. Perhaps a rather extreme route to follow, but one that is there nonetheless.

The second option is to lease the land that you have bought. This lease lasts for a maximum of 30 years, but you do have the right to automatically renew twice – so in essence it is a 90-year lease. The last option is rather more unusual – if a foreign man marries a Thai woman (unfortunately this simply isn’t relevant if the sexes are the other way around) then he is entitled to own freehold land. Perhaps a rather extreme route to follow, but one that is there nonetheless.

Finance

Recently the Bangkok Bank has opened up a branch in Singapore, and as a result it is more open to lending to foreign property purchasers. It now offers finance on a 70 per cent loan-to-value basis – although in some instances it will only offer 50 per cent. The average life of a Thai mortgage tends to be ten years, and the logistics of arranging one are still difficult.

Therefore, many British buyers tend to raise the finance at home and then transfer it into a Thai bank account. This is also a safe bet if you are still working in the UK, as no exchange rate fluctuations will alter your monthly mortgage payment if you are earning pounds and repaying the loan in pounds.

If, however, you are hoping to cover the mortgage outgoings with your Thai rental income it may be better to have a mortgage in Thai baht. HSBC also offer mortgages in Thailand, but these tend to be on an 80 per cent loan-to-value basis, and are capped at 35 million baht (£493,000). The HSBC mortgages in Thailand are also only open to those with Thai residency or foreign males married to Thai women (in accordance with the rules regarding buying freehold property in Thailand)

Fees and taxes

In general, estate agents fees come to around three per cent of the purchase price. You also need to budget for a two per cent transfer fee, solicitors costs of about one per cent and stamp duty of 0.5 per cent. The good news is that there is no capital gains tax in Thailand, but if you decide to sell your property within five years of the date of purchase you will be liable for income tax. This ranges between one and three per cent depending on how many years you have actually owned it.

If you have bought through a Thai company then you will also have to pay business tax of 3.3 per cent. Also, if you do own the land that your property is on, you will have to pay a local development tax. If you are buying on a large resort, from a reputable firm, you may be able to negotiate for the developer to pay for half of these outgoings.

Visas, residency and work permits

British nationals do not need a visa to enter Thailand unless they are planning on staying for longer than 30 days. 60-day tourist visas are available for around £10 from the Thai embassy in the UK, and are issued there and then. Once in Thailand, this visa can be extended for another 30 days, provided that you apply before the original expiry date.

If you wish to stay for longer still there are a range of visa options available to you. The Thai government is pretty lenient on those buyers who have a well-stocked bank account. Retirement visas are available to foreigners over the age of 55 who can prove that they have sufficient funds to survive. The Thai Immigration Department currently cites 40,000 baht (£760) as the minimum monthly income needed, and you will need to have 200,000 baht (£3,810) in your bank account at all times.

If you want a Thai work permit be prepared to navigate a lot of red tape. You will have to have an offer from a company that meets certain criteria, and who can prove that a Thai national can’t do the job in question. The whole process will require around 15 forms, 10,000 baht (£190) in fees and at least three months of waiting.

New-build versus resale

Due to the relative infancy of the Thai property market, there aren’t a great deal of resale homes available unless you are looking in the urban centres. Having said that, like in any investor-savvy market, there is the opportunity to buy a home from an investor who is hoping to “flip” a new-build property before their completion date. Given the downward trend in the property market in Thailand and the unstable political climate, there may be an opportunity to get hold of a ‘flipped’ property at a low price from an investor looking for an exit. While this is technically a resale, it will be a brand new home when you receive the keys.

The widest choice of property however is in the new-build market. Many developments consist of apartments and villas, usually sold on a leasehold basis, which are sold off-plan. There is also the possibility of buying a plot of land (see legal restrictions), and building your own home. This can be quite an affordable option thanks to the low cost of labour.

Investment potential

While tourism in Thailand has tended to remain strong despite natural disasters and terrorist attacks, the economic growth that has accompanied the growth of the overseas property market appears to have stalled significantly. Tough trading conditions combined with political and social unrest have seriously dented the progress made in recent years, and a solution needs to be found soon in order to prevent a severe backward step for Thailand.

Prices rose to bring them close to the levels of more established destinations, but the possibility of being able to rent your property out is still good thanks to the tourism trade. Buyers who bought early and are renting their property out are still seeing rental returns of up to seven per cent a year in parts of the country.

Health and education

Thailand has become somewhat of a “medi-tourism” destination, with many westerners travelling to the country for cheaper healthcare, ranging from dentistry to plastic surgery. Despite this low cost of treatment, it is advised that anyone travelling to Thailand takes out comprehensive health insurance. This will provide you with a greater choice of healthcare, with English being more widely spoken in private hospitals. It is also recommended that you are vaccinated for Polio, Typhoid, Tetanus and Hepatitis A before you enter the country.

It is compulsory for Thai children to attend six years of education, from the ages of six to twelve – although the government is currently discussing raising this to nine years. Almost ninety per cent of primary school children attend either public schools or those run by Buddhist monasteries. Attendance at secondary schools drops to just over fifty per cent however, so it may be worth considering sending your child to either a private or an international school.

Transport

In Bangkok “tuk-tuks” are a major form of public transport, offering a cheap and quick alternative to metered taxis. Also in the capital, the Skytrain is a good option if you are hoping to beat the horrendous traffic, as is the Metro and the Chao Phraya Express Boat. It’s not advisable to attempt to drive in Bangkok, due to the previously mentioned traffic problems and poor sign posting.

Thai motorways now reach every corner of the country, and bus seems to be the most popular form of long-distance travel. Once at a beach destination, it is much easier to navigate the roads yourself, and many people opt to hire a motorbike or scooter in order to get around the islands. Be warned, however, that many rental agencies don’t provide any insurance, and so if any damage is caused to your motorbike you will be liable for the full cost of repairs. A 500 baht (£7) fine will be applied if you are caught without a helmet.

And finally…

Thailand has plenty to offer the overseas buyer, but there are some factors to contemplate before you take the property plunge. The tsunami of 2004 caused a lot of damage, and while the resilient Thais bounced quickly back, there is always the risk of another natural disaster.

Currently however, perhaps the biggest concern for potential property buyers is the political situation following the peaceful coup d’etat that took place late in 2006. Although not a shot was fired in anger during the overthrow of the Shinawatra regime, the political situation remains tense, with sporadic attacks on politicians and almost daily incidents in the southern provinces. This underlines the fact that Thailand is still not what we would consider a stable democracy. As with any investment in an emerging market anywhere in the world, it is essential to have some form of exit strategy in place should you need it in the future.

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All circumstances vary. BuyAssociation provides general advice for guidance purposes only. It is strongly recommended that you seek professional advice before making any purchase.