Freehold vs Leasehold Ownership in Thailand

Freehold and Leasehold Property Ownership in Thailand

Legal Framework

Thailand’s property laws are designed to regulate and control foreign ownership while protecting local interests. Foreigners can legally own buildings and condominium units, but land ownership is predominantly restricted to Thai nationals. This distinction is important to understand the functionality of freehold and leasehold properties within the Thai market.

Foreign ownership of condominium units is allowed under the condition that the total foreign ownership in the building does not exceed 49% of the total unit space. This regulation ensures a balance between local and foreign ownership and maintains a level of control over foreign investment in the property market.

In Thailand, the two primary types of property ownership are freehold and leasehold.

What Does Freehold Mean?

Freehold ownership in Thailand provides the owner with absolute and indefinite rights over the property. This type of ownership is often considered the most secure and desirable form of property investment, especially for those seeking long-term stability and control.

Freehold: Definition and Characteristics

Freehold ownership means that the owner has full ownership of the property and, if applicable, the land it is situated on. This type of ownership is not limited by time and can be transferred, sold, or bequeathed to heirs without any restrictions. Freehold properties are often seen as more valuable because they offer permanent ownership.

Freehold: Eligibility and Restrictions

In Thailand, freehold ownership for foreigners is primarily facilitated through “The Condominium Act.” Buying a property in freehold terms means that you are granted full ownership rights of the property for an unlimited period of time. Your name appears on the title deed (chanote) as the sole and full owner of the property, duly registered at the Land Department.

Foreigners can legally own freehold condominium units under their name, provided that the total foreign ownership in a condominium building does not exceed 49% of the total property surface. This regulation ensures a balance between local and foreign ownership, maintaining control over foreign investment in the property market.

Foreigners are generally prohibited from owning land outright. However, freehold ownership is sometimes available through specific investment offers from hospitality groups, which include freehold terms but require an additional condominium license on top of a hotel license. Freehold ownership is often found in mixed-use residences, where different property types coexist within a single development.

Purchasing a condominium in freehold terms comes with higher transfer and registration taxes payable at the Land Department, amounting to 6.3% of the property value, which includes various administrative and transfer costs.

 Advantages of Freehold Ownership

Disadvantages of Freehold Ownership

What Does Leasehold Mean?

Leasehold ownership in Thailand offers an alternative for foreigners who are restricted from owning land outright. This form of property ownership allows foreigners to lease a property for a specified period, providing them with the right to use and occupy the property without owning it outright.

Leasehold: Definition and Characteristics

Leasehold ownership permits foreigners to lease a property in Thailand for a standard period of 30 years, with the possibility of renewing the lease up to two additional times. This structure is a long-term lease that acts as a substitute for outright ownership, enabling foreigners to enjoy the benefits of property use and occupancy within the legal constraints.

Leasehold: Eligibility and Restrictions

Leasehold terms in Thailand are common among foreigners when outright ownership is not possible by law. Buying a property in leasehold terms means that you are granted a long-term lease, usually a maximum of 30 years, with the possibility of renewal. In this arrangement, you are the lessee in the leasehold contract, while the full owner of the property is the lessor. Technically, you do not own the property, but you benefit from the rights and use of the property for the duration of the lease. Additionally, you can resell the property anytime by transferring your lease to another buyer.

Lease agreements must be registered at the Land Department, providing an added layer of security compared to unregistered agreements. The total registration fees for leasehold properties are significantly lower than those for freehold properties, amounting to only 1.1% of the property value, making leasehold ownership a cost-effective solution.

International hospitality groups such as Wyndham, Radisson, Hilton, Intercontinental, Accor, Melia and others offer leasehold ownership options in their hotels. These arrangements allow individuals to invest in properties managed by these groups, providing returns on investment and other privileges.

When buying a house or a condominium under leasehold terms, it is recommended that the lessor is contractually a limited company and not an individual to ensure greater security and stability in the lease agreement.

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Advantages of Leasehold Ownership

Disadvantages of Leasehold Ownership

How Important is the Length of a Lease?

The length of a lease is a crucial factor when considering leasehold property ownership in Thailand. It significantly impacts the security, financial planning, and long-term value of the investment.

Impact on Security and Stability

The standard lease term in Thailand is 30 years, with the possibility of renewing the lease up to two additional times. While this offers a substantial period for property use, it does not provide the same level of security as freehold ownership. The finite nature of a lease term means that, once the lease expires, the rights to the property revert to the lessor unless the lease is renewed. This can create uncertainty for long-term planning and investment.

Financial Considerations

• Initial Investment: Leasehold properties typically require a lower initial investment compared to freehold properties. However, the shorter the lease term, the lower the overall value of the property, which can affect resale potential.
• Renewal Costs: Renewing a lease may involve additional costs, negotiations, and legal processes. It’s essential to factor these potential expenses into your financial planning.
• Depreciation: As the lease term progresses, the value of the leasehold property may depreciate more rapidly compared to freehold properties, especially as the end of the lease term approaches.

Marketability and Resale Value

• Demand: Properties with longer lease terms are generally more attractive to buyers because they offer more extended periods of use and stability. Conversely, properties with shorter remaining lease terms may be less appealing and harder to sell.
• Transferability: One of the advantages of leasehold ownership is the ability to transfer the lease to another buyer. However, the length of the remaining lease term will significantly influence the property’s marketability and resale value.

Practical Advice

• Review Renewal Clauses: Ensure that the lease agreement includes clear and favorable renewal clauses. Understanding the terms and conditions for renewing the lease is critical for long-term planning.
• Legal Consultation: Always seek legal advice when negotiating lease terms and renewals. A professional can help ensure that your rights are protected and that the lease terms are advantageous.
• Lessor’s Stability: Consider the stability and reputation of the lessor. Leasing from a reputable company or limited company rather than an individual can provide more security and reduce the risk of lease termination issues.

Comparing Freehold and Leasehold Ownership

When choosing between freehold and leasehold ownership in Thailand, it’s important to consider various factors such as cost, control, security, and marketability. Here’s a comparative overview:

Criteria	Freehold Ownership	Leasehold Ownership
Ownership Duration	Permanent ownership	Typically 30 years, with potential renewals
Initial Investment	Higher upfront costs	Lower initial costs
Control Over Property	Complete control, including renovation and sale	Limited control, major changes require approval
Security	Higher security, can be inherited	Less long-term security, finite lease term
Legal Complexity	More complex legal processes	Simpler legal processes
Marketability	Easier to sell and transfer	Less marketable due to finite lease term
Registration Fees	Higher (6.3%)	Lower (1.1%)
Eligibility for Foreigners	Limited to condos within 49% foreign quota	Accessible to foreigners, fewer legal restrictions
Inheritance	Can be inherited by heirs	Lease rights may end with the lease term
Ideal For	Long-term investments and permanent residences	Temporary stays, business purposes, cost-effective solutions
Benefits and Rights	Full ownership rights, name on title deed	Benefits and rights over the property for the lease term, can transfer lease
Recommended Contractual Arrangement	N/A	Lessor should be a limited company for stability
Market Demand	Generally higher due to permanent ownership	Often lower due to finite term

Future Regulations in Thailand on Freehold and Leasehold Ownership

Current Regulations

Currently, under Thai law, foreigners can own up to 49% of the total area of a condominium project on a freehold basis and can lease land or property for a standard term of 30 years, with potential renewals, though the maximum lease term is capped at 50 years.

Proposed Changes

The Thai government is considering significant changes to these regulations to stimulate the economy and attract more foreign investment. These proposals include:

Increasing Foreign Ownership Quota in Condominiums:

The government is studying the feasibility of raising the level of foreign ownership allowed in condominiums from 49% to 75% of a building’s usable space. This proposal is part of broader efforts to attract more foreign buyers and investors into the Thai property market.

Local property industry executives support this change, noting that demand from foreign buyers is on the rise, especially in popular destinations such as Phuket and Pattaya, where foreign ownership quotas are often fully occupied.

Extending Leasehold Terms:

The Ministry of Interior has been asked to consider increasing the length of leasehold terms for foreigners from 50 years to 99 years. This change would make leasehold ownership more attractive by providing greater long-term security and stability for foreign investors.

Longer leasehold terms could help stimulate foreign demand in areas less attractive to domestic buyers, thereby boosting local economies.

Freehold versus Leasehold: Which is Right for You?

Deciding between freehold and leasehold ownership in Thailand depends on your individual circumstances, investment goals, and long-term plans.

When Freehold Might Be the Best Option

• Long-term Investment: If you are looking for a stable, long-term investment, freehold ownership is ideal. It offers permanent ownership and the potential for property appreciation over time.
• Permanent Residence: Freehold ownership provides complete control over the property, making it an excellent choice for those planning to live in Thailand permanently.
• Full Ownership Rights: Freehold properties grant you full ownership rights, allowing you to renovate, sell, or pass the property to heirs without restrictions. This is crucial if you value autonomy and long-term security.
• Inheritance Considerations: If you plan to pass the property to your heirs, freehold ownership ensures that your property can be inherited without complications, providing a legacy for your family.

When Leasehold Might Be the Better Option

• Lower Initial Investment: Leasehold properties usually require a lower initial investment, making them more accessible for those with limited capital or those looking to invest without committing large sums of money upfront.
• Flexibility for Short-term Stays: If you are planning to stay in Thailand for a shorter period or need a property for temporary business operations, leasehold ownership offers the flexibility you need without the long-term commitment of freehold ownership.
• Cost-effective Solution: With lower registration fees and ongoing costs, leasehold properties can be a more cost-effective solution, particularly in popular tourist areas where property prices are high.
• Easier Access for Foreigners: Due to fewer legal restrictions, leasehold properties are often more accessible to foreigners, especially in areas where foreign ownership quotas for freehold properties are fully occupied.
• Investment in Hospitality Projects: Leasehold ownership is common in high-end hospitality projects managed by international hotel chains. These investments often come with additional benefits and returns, making them attractive to investors looking for both usage and income.

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Final Thoughts on Thailand Freehold and Leasehold Ownership

Each ownership type offers unique benefits and challenges, and your choice should align with your long-term goals and financial situation.

Freehold ownership provides long-term security and full control, making it ideal for permanent residents and those looking for stable, long-term investments. Leasehold ownership, on the other hand, offers flexibility and lower initial costs, which can be advantageous for shorter stays or those with limited capital.

As the Thai government considers potential regulatory changes, staying informed about these developments will be crucial for optimizing your investment strategy.

At Keller Henson, we are committed to assisting you in navigating the Thai real estate market. Our team of experts can provide personalized advice and help you find the perfect property that meets your needs, whether you’re interested in freehold or leasehold options. Contact us today to explore the wide range of properties available.

Frequently Asked Questions about Freehold vs Leasehold in Thailand