Choosing Between a Leasehold or a Freehold Ownership of a Condominium
If you are a foreigner, there are two popular options when purchasing a condominium unit. One is the “Foreign Freehold” which is the simplest and usually sold at a premium price, while the other is the “Leasehold”, where you can get the better deals but also requires a greater understanding of its rules. In both cases, you’ll have different advantages and limitations, which suit different kinds of individual’s needs. Depending on the purpose of your purchase, you may prefer Leasehold over Freehold or the other way around. Here we explain the different aspects of each ownership type, so you can make the right decision when you’ve decided to purchase your preferred condominium unit.
What is Foreign Freehold?
While the ownership of property in Thailand is known to be restrictive, the latest law issued to regulate the condominium construction and sales in Thailand (2008 Condominium Act) offers the possibility for foreign owners to purchase the apartments in their own name, as long as the total area of the foreign-owned units does not exceed the proportion of 49% of the area of all the units. This allows for a very straightforward and simple purchase process, which is very easy to understand and therefore has become the preferred ownership type for condominiums. By purchasing the unit as a “Foreign Freehold” you will enjoy full ownership rights over it for an unlimited amount of time.
What is Leasehold?
Since the Thai property laws allow foreign individuals to lease property in their own name, it becomes an interesting option for securing long-term occupation rights on a condominium unit. By officially registering a lease over the condominium unit of your choice, you will enjoy the same occupation rights over the unit, but with the main condition being that the maximum lease term that can be officially registered is 30 years at a time. This period can, however, be renewed with the seller for a further 30 years lease terms (usually two), which are secured in a separate agreement at the time of purchase. It’s worth noting that you will have your name inscribed at the back of the condominium unit title deed, and during the registered lease period your rights become part of the unit, so it can’t be sold, mortgaged or any submitted to any other legal action without your consent. This makes it practically equivalent to the freehold ownership for the registered period, with the difference that it’s limited in time and therefore will require to be renewed in due course, and also that the purchase contract will require more attention to make sure the seller also gives you all the rights related to ownership such as the voting rights in the owners’ meetings as well.
Choosing the Between Leasehold or Freehold
As you can see, although both purchase types result in the same practical occupation of the condominium unit, the legal structure behind each of them is substantially different, and therefore holds both advantages and limitations on both sides. Since the Foreign Freehold is simpler to understand and has no time limitation, it’s the most suitable when you are purchasing the property as a “long-term asset”, that you may keep for your own enjoyment until your retirement, or that you may want to pass on to your heirs. The foreign freehold units also tend to be sold much easier since the new buyers understand it much better. It does however also have its drawbacks such as higher prices and tax rates. On the other hand, the Leasehold purchase is the preferred kind for investors, who wish to cash-in the rental guarantees and programs offering outstanding returns, while taking advantage of much better prices and a very low transfer fee (only 1.1% of the sale price). This makes leasehold property an excellent deal for those who understand its legal structure and can still be re-sold just as easily when the property enjoys a good location and rental revenues.
Keeping your Options Available
Finally, even if you purchase your property on a Leasehold contract, the purchase agreement will usually provide you with the possibility to change it to freehold ownership in the future or allow you to register an even longer lease period if the law allows it later, for a reasonable contract fee paid to the Seller. This makes the leasehold purchase even more interesting, as you are then allowed you to switch ownership types later on if further foreign freehold quota becomes available, or if you have decided to set up a Thai company, or if you have Thai children and want to pass on the property to them.
A good example of a condominium/resort selling either “Leasehold” or “Freehold” units to foreigners is the new Laya Resort in Phuket. Home2go-Thailand is currently selling off-plan and most foreign buyers are opting for “leasehold” while the others are opting for “Freehold”. Noting that this property is more for investment and will not be occupied by the owner on a full-time basis.
Link: The Laya Resort, Phuket. Scheduled completion for 2021 Q1.
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