What is Freehold and Leasehold Property Ownership in Thailand?

July 29, 2021

Breathtaking beaches, gorgeous weather all-year-round, rich culture, and hospitable people (it is, after all, “The Land of Smiles”)… There’s a lengthy list of reasons why Thailand attracts plenty of tourists year after year. With all of these, it’s not surprising that every year, tens of thousands of foreign nationals express interest in buying a property in this country.

For foreigners who want to buy a property in Thailand, here’s a crucial fact to consider: Thailand’s Land Code does not allow foreigners to own land.

With that said, however, the Condominium Act permits foreigners to own freehold units in condominium projects, and there’s no law that prevents foreigners from renting property in the country. Through this process, foreign nationals may acquire land through a leasehold tenure and are allowed to own any building or structure that lies above that land.

At present, there are two legal ways in which foreign nationals can own properties in Thailand: Foreign Freehold and Leasehold Ownership. Each of these two options comes with its unique set of advantages and disadvantages. Let’s examine what those are.

Freehold and Leasehold Ownership Tenures

Investors in Europe (including countries like the United Kingdom) are often familiar with the concept of freehold and leasehold property. Even so, foreign nationals who plan to invest in a property in Thailand will find that these tenure types are different in Thailand compared to other countries.

For example, unlike in the UK and most other countries in Europe, buying a freehold apartment in Thailand provides foreign investors security of tenure and full rights of ownership over the property.

In addition, Thailand is generally considered more open to foreign investors compared to other Asian countries, but there are still limitations. For instance, villas are extremely challenging (if not impossible) to purchase through the full foreign freehold arrangement since there are strong political objections to foreigners owning land in the country. However, as we will discuss in a bit, owning a condo property in Thailand is not as troublesome and is often quite a straightforward process.

What is Freehold Ownership in Thailand?

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Freehold in Thailand gives you absolute ownership of real property so you'll own it indefinitely. There are two routes of freehold ownership in Thailand: freehold through a condo title and freehold through acquisition by a Thai company.

Thai Freehold

If you're a foreigner, you can indirectly own properties in Thailand by using a Thai Limited Company. Companies are legally allowed to own the land in the country, but you can control the company. You will have a 'chanote' or 'chanod', the legal title deed to a freehold property. This is exactly the same land title that Thai nationals can own, and it comes with the maximum ownership rights granted under Thai law.

A lawyer or bookkeeper will have to set up a Thai company with at least three shareholders, with you as the majority shareholder and managing director of the said company. Remember that foreigners can own up to 49% of a company, but the remaining 51% of the company must be shared by at least 2 Thai nationals. You can have majority ownership and act as the managing director or sole signatory of the company, which provides you control over it.

In addition, a mandatory 'threshold of 75% vote approval' can be added in your company's 'articles of association' to ensure that the majority shareholder has control. Other steps can also be taken, such as the Thai shareholders 'signing back' their rights to the foreign company director using a share-transfer document.

The Foreign Business Act (FBA) is the chief law that regulates foreign business activities in Thailand, and while there have been proposals to amend it in order to tackle nominee shareholders and foreigners using preferred voting rights to direct Thai companies, such amendments have still not been enacted. Thus, it's best to take advantage of this option while it's still available.

Most foreigners prefer this company ownership route, as it gives actual ownership rights and seems to grant better protection compared to a land lease. With that said, however, keep in mind that your company will be required to file annual taxes and maintain a balance sheet. Thus, you need to keep a trusted accountant or bookkeeper, which will cost you anywhere from 12,000-20,000 THB every year. Make allowances for this cost as you plan your investment and before you decide between getting a freehold or leasehold ownership.

Foreign Freehold

The Thai Condominium Act dictates that foreigners may own a condo unit as long as it’s within the quota of foreign freehold ownership. Specifically, foreign nationals may own up to 49% of the total unit floor area in a condominium on a freehold basis — but the remaining 51% of the condominium must be owned by a Thai national or nationals.

As soon as the 49% quota for foreign freehold ownership is reached, developers often give foreign nationals the opportunity to purchase leasehold in the Thai ownership (held by either a Thai person or Thai company) part of the building. A foreign national can buy a condominium unit from that Thai side of the ownership quota through a lease, but the Chanote of that leasehold unit will remain owned by that Thai person or company.

Pros of Freehold Ownership in Thailand

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There are a number of advantages in freehold ownership, such as the following:

• Indefinite/perpetual ownership of the property

• Greater protection of your investment compared to a lease

• Foreigners may own condominium units in Thailand that are in their own names

• Foreign freehold units command better resale price in the market

• Foreign owners may sell, mortgage, or bequeath their condominium unit to their heirs

• Foreign owners get a voting right in the property’s general meetings

• The overall property tax dues in Thailand are cheaper over the lifetime of owning a property when compared to most other countries

Cons of Foreign Freehold in Thailand

However, foreign freehold also comes with its own burdens and limitations, such as the following:

• Higher cost to purchase (Some property developers in Thailand set higher prices for freehold units)

• More expensive transfer fees and higher taxes at the Land Office compared to a property on leasehold

What is Leasehold in Thailand?

On the other hand, leasehold ownership is a means of property tenure in which a foreign national gets the right to occupy a specific building or land for a set period of time. This means that the landlord of the building or land hands over temporary possession and occupation of the property to the leaseholder, who pays either a fixed amount or pays in installments.

With this option, foreign buyers of properties in Thailand will be given a 30-year lease when buying a leasehold property at the Land Department. This lease grants foreign nationals rights to the property during the entire lease period. This is acknowledged by Thailand’s Land Department as a guaranteed right. What this means, essentially, is that the lessor will not be able to negate, cancel, or otherwise interfere in your rightful occupation of that property during the entire lease period of 30 years. You, as the land lessee, will be considered the rightful occupier of the property, and cannot be denied access nor occupation rights during that initial guaranteed term.

This setup also welcomes the possibility of maintaining a contractual agreement for two subsequent renewals (i.e., 30 years + renewal for 30 years + another renewal for 30 years, totalling a 90-year lease for the buyer). Even so, please note that the two additional 30-year lease terms are contractual obligations in a legal contract that both parties should agree upon. The Thai government does not ensure the right of foreign nationals to those two extra lease terms.

Pros of Leasehold in Thailand

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There are multiple advantages when foreigners choose the leasehold arrangement to possess a property in Thailand, including the following:

• Lower investment cost compared to buying a freehold (i.e., it’s around 10-15% cheaper compared to acquiring a foreign freehold unit)

• Lower registration costs at the Land Office compared to transferring a freehold ownership

• A much wider variety of properties to invest in (standalone houses, townhouses, villas, and so on)

• Minimal responsibility over the property’s maintenance, since the foreign national is merely a temporary possessor of the property

• An option for you as the leaseholder to not renew the previous arrangement after the expiration of the leasehold contract should you wish to try a different arrangement to get better benefits

Cons of Leasehold in Thailand

In spite of those benefits, here are some disadvantages to going the leasehold ownership path in Thailand:

• Limited timeframe for the lease of a property (currently limited to just 30 years)

• High recurring costs (i.e., foreign leaseholders usually have to pay 12.5% of the condominium cost every year as rental tax, as well as a 1% registration fee and other smaller yearly payments)

• The leaseholder is given no right to vote in the property’s general meetings

A Note About Leasehold Tenures in Thailand

If you’re considering leasehold ownership over freehold tenure, you would be pleased to know that the 30-year lease period is legally protected under Thai law; hence, this ownership term cannot be disrupted.

However, there is some risk when it comes to the lease renewal: How can you be assured that the lessor will renew your next 30-year lease?

After all, there have been cases wherein foreign nationals bought property using a leasehold tenure directly from a Thai person (rather than a company), and when that person passed away, the heirs refused to extend the lease.

Because of this, many property experts in Thailand recommend getting a leasehold purchase from a Thai company (rather than a person). They also recommend executing the Sales and Purchase Agreement through the guidance of a competent lawyer and with clear extension and termination clauses set out in the contract.

Choosing Between Thailand Freehold and Leasehold

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In spite of both tenures having their own set of pros and cons, freehold ownership is naturally a more attractive option to foreign buyers who want to protect their investment. While there is a higher premium for freehold ownership, note that foreign freehold units are more attractive in the resale market, so you can actually recoup that purchase premium later on if you sell your property.

In addition to that, the overall property tax burden in Thailand is cheaper over the lifetime of owning a property when compared to most countries (even those that are also in Asia). You would be happy to know that there is actually no capital gains tax in Thailand. Also, the yearly property tax that is due to the local government is quite cheap.

It’s likewise important to take note of other important factors, particularly the local market itself. For instance, in cities where there are a large number of high-rise condominium developments that are available for sale (for example, Bangkok and Pattaya), most advisors recommend freehold ownership. This boils down to the idea that there might always be foreign freehold properties available in the market, which makes owning a property on leasehold basis more challenging to sell if you need to do so.

On the other hand, the situation is a bit different in islands and local areas like Phuket and Koh Samui. These places are quite popular among foreign investors not just because of their scenic beaches but also the restrictions of their low-rise buildings. In these areas, most condo developments are much smaller in size, such as having only 20 to 50 units.

Because of this, leasehold ownership is more typical in those areas since it is unlikely for there to be a large supply in the market at any single time that can lead to negative effects to property investments.

On top of all of those, here’s another thing to consider: In case of the death of the condo’s owner, the next of kin can inherit the property owned on a freehold. On the other hand, if the property is leased on a leasehold, the contract is simply terminated. Thus, no one can inherit a condo that’s acquired through a leasehold, unless a specific and clear inheritance clause is underwritten in the contract.

Final Tips in Comparing Freehold and Leasehold

If you’re a foreign national planning to buy a condo in Thailand, it is extremely important for you to take sufficient time to compare all of the pros and cons of freehold versus leasehold ownership.

Keep in mind that leasehold tenure is usually the ideal choice if your main objective is to rent out the property and just collect rent payments. Because leasehold ownership is typically cheaper compared to freehold ownership — both in terms of the actual property value and the fees that are involved with this setup— your return on investment will naturally be higher if you choose a leasehold.

On the other hand, investing in a property in Thailand using the freehold ownership path provides you with benefits such as higher liquidity on the property. This means you can more easily sell your investment if needed (compared to if it’s in a leasehold arrangement). You will also have much greater freedom under the freehold tenure in using your property as you desire.

Buy a Property in Thailand Today

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We hope that the differences between the legal ways for foreign nationals to purchase a property in Thailand — Thai Freehold, Foreign Freehold, and Leasehold Ownership — are clear. While each of them have their own advantages (and disadvantages), for most foreign property investors in Thailand, it’s ideal to purchase through Thai Freehold because it offers more benefits than the other two options.

Always remember that while deciding to invest in a property in this beautiful country may be easy, choosing the way to do so may be more challenging and require a lot more time and thinking. It’s best to do ample research, consult experts when needed, and evaluate your own circumstances and investment objectives before deciding on which path to take.

Ready to look for your property investment in Thailand? Visit the website of Conrad Properties to see Thailand’s gorgeous assets that are available for sale to foreign nationals! This is a great time to acquire a property in the country because real estate prices are at a bargain.