Sage Land&House :: Koh Phangan's Real Estate Agency

FACTS & LEGAL ISSUES
Thailand
Thailand (Prathet Thai, meaning "land of the free") is an ancient kingdom with rich cultural heritage and a beautiful and fantastic nature. Thailand, referred to by many as the "Land of Smiles", lies in the heart of Southeast Asia, roughly equidistant between India and China, bordering the Andaman Sea and the Gulf of Thailand, southeast of Burma.

Thailand is a constitutional monarchy with an area of 514,000 sq km. The land boundary is 4,863 km of which 3,219 km is coastline. Thailand attracts 8,651,000.00 visitors each year. Thailand itself has a population of 62,354,402 people. About 95% of its population is Buddhists (Theravada Buddhism) and the second largest religion is Islam, followed by Christianity. A majority of the Muslims are living in the Southern provinces. Thai is the official language, but English is widely spoken in larger cities and tourist areas. The Thais are a very proud people who love their culture, their religion and their monarchy. The country was the only in the region, that was not colonized by the Europeans.

The climate is tropical, warm and often humid. The temperature is normally about 30 degree Celsius in the daytime, but in the Northern parts of the country it can go down to 10 degree C or in exceptional cases 0 degree C in the nighttime. There are three seasons: Hot (Mar-May); Rainy (Jun-Oct); Cool (Nov-Feb). The average annual temperature is 28 degree C (83 degree F).

Thailand has a well-developed infrastructure, a free-enterprise economy, and welcomes foreign investment. Thailand has fully recovered from the 1997-98 Asian Financial Crisis and was one of East Asia's best performers in 2002-04. Increased consumption and investment spending and strong export growth pushed GDP growth up to 6.9% in 2003 and 6.1% in 2004 despite a sluggish global economy.

The Property Market
After years in the doldrums, Thailand’s property market has re-awoken with a vengeance. Property prices on Koh Phangan have increased dramatically in the last three years and the trend is set to continue into the foreseeable future.

The trend for larger hotels and real estate development will be the force behind Koh Phangan’s expansion in the future. Koh Phangan has seen a large increase of new company set-ups that focus primarily on tourist services but also on residential services and amenities.

Currently the island’s focus is on development of the infrastructure. At the time of writing major road and electrical construction is underway that links the two biggest towns on the island together. In 2004 Koh Phangan saw the completion of its international pier in Thong Sala. Thong Sala is the largest town on the island and also home to the local hospital. Koh Phangan boasts good shopping, entertainment, watersports and nightlife. All major banking institutions in Thailand are represented on the island.

Q. Is it possible for me as a foreigner to own land in Thailand?
A. Although Thai law prohibits foreigners from owning land in Thailand, there are various ways in which you can structure your affairs so that you can own land, and still comply with existing Thai laws:

Purchase the land through a Thai-registered limited company. This is the most popular choice among foreigners who wish to purchase land in Thailand. This involves the incorporation of a private limited company of which the foreigner holds 49% of the shares, the remaining 51% of the shares is held by nominee Thai Nationals. With the recommended changes to the Articles of Association, the foreigner can be the sole director of the company with executive powers - effectively giving the minority shareholder complete control over the company.
Buying leasehold land. Foreigners are allowed to lease land in Thailand for a maximum period of 30 years with an option to renew for a further two periods of 30 years each. A lease registered with the Land Office remains in force throughout the term of the lease, regardless of whether the freehold owner sells or otherwise transfers the land. The drawbacks to a lease include the fact that the parties can contractually agree to renewals, but this right cannot be registered and is not effective against a purchaser of the property, and that the lessee cannot (without the lessor's consent) sublease, sell or transfer his or her interest.
Nominee with lease. You can use a Thai nominee to buy the land and then create a lease agreement between yourself and the nominee. The main advantage with using a nominee is that you can write your own clauses into the lease agreement with the nominee.
Nominee with mortgage. Instead of a lease agreement it’s possible to create a “nominee with mortgage” arrangement to provide even greater security. The Thai nominee buys the land and then the land is registered a mortgaged at the Land Office. The property cannot be sold until the mortgage lender signs the title documents declaring the mortgage cleared.
Usufruct interest (Sidhi-kep-kin). A usufruct gives you temporary ownership rights to things on or arising from the land. In practice, a usufruct is limited to a 30-year maximum period; like leases, the agreement can be successively renewed. In contrast to a lease, a usufructury interest can be sold or transferred, although it expires upon the death of the holder of the usufruct and therefore cannot be inherited.

Q. What are the different land titles in Thailand?
A. Chanote, Nor Sor 3 Gor & Nor Sor 3 are the only land titles where registered right of ownership or lease can exist, therefore any land titles lower than these are not recommended for foreigners.

Chanote - Nor Sor 4 Jor is the only document that can be described as a land title deed, because it alone confirms ownership of land. The land is accurately surveyed and plotted in relation to a national survey grid. Unique numbered marker posts set in the ground mark its boundaries. It is possible to partition (divide) the land into smaller plots.
Nor Sor 3 Gor signifies the land occupier’s right to possess the land, but without conferring actual possession. The land is in general accurately surveyed and each plot is cross-referenced to a master survey of the area and a corresponding aerial photograph. Unique numbered marker posts set in the ground mark its boundaries. It is possible to partition (divide) the land into smaller plots.
Nor Sor 3 has the same legal basis as Nor Sor 3 Gor. The boundaries are recorded in relation to the neighboring plots. There are no marker posts set in the ground to mark the boundaries of the land. This may cause problems in verifying the land area. A 30 days public notice is necessary before any change of status over the land can be registered.
Sor Por Gor 4-01 is properly surveyed and registered, but the land cannot be bought or sold. It confers the right to occupy only and can be transferred only by inheritance.
Tor Bor Tor 5 & Tor Bor Tor 6 - is evidence that the occupier of a piece of land has been issued a tax number and has paid tax for using the benefit of the land. This confers no rights at all but was formerly used to establish that the holder was occupying a piece of land and could apply for a Sor Kor 1.
Sor Kor 1 - entitles the holder to occupy and farm the land. The land must not be sold - it may only be transferred by inheritance. Depending on the land’s location, this document may be upgraded to Nor Sor 3 or Chanote.

Q. How is land measured in Thailand?
A. Thailand has a very unique way of measuring land. Land is measured by Talang Met, Wah, Ngan, Rai and sometimes Acre. The table below displays the details.

Q. Are there property taxes in Thailand?
A. There are no property taxes as such in Thailand that are exactly equivalent to the property taxes in the west; however, the most comparable taxes on properties in Thailand are the Land Tax and the Structures Usage Tax. The Land Tax levied on land is so miniscule, that in practice the body charged to collect it, rarely bothers to do so, and if they do, they usually wait several years until the amount accumulates. The second tax, the Structures Usage Tax, relates to buildings, is collected by the municipal office or district office, and is only applied to properties used for commercial purpose. Structures Usage Tax is applicable at a rate of 12.5% on the assessed gross rental value of the property. Lessees are not subject to this tax but may be required to pay an “annual ground rent” instead.

Q. What taxes and costs are applicable to purchasing property in Thailand?
A. All purchase/sale of property in Thailand shall be subject to the following costs and taxes:

Stamp Duty of 0.5% of the actual purchase price or the appraised value of the Land Department, whichever is the higher.
Transfer Fee of 2% of the appraised value of property by the Land Department.
Business Tax of 3.3% of the appraised value or the actual purchase price, whichever is the higher, levied against an owner who has been in registered possession of the property less than 5 years.
Income Tax. There is no Capital Gains Tax in Thailand, unlike many countries, and Income Tax (usually between 1.0 - 3.0%) on property is the comparable replacement. There are no set rules on who pays the Income Tax, and it is just another part of the bargaining process, as with all the other costs of the transfer of ownership.

Update March 2009: Specific business tax and government registration fees on property, land sales and mortgages have been reduced for a period of one year, commencing March 29, 2009 and ending on March 28, 2010. The Transfer Fee has been reduced to 0.01% and the Business Tax has been reduced to 0.11%.

Property stimulus measures extended

The cabinet has agreed to extend tax incentive measures to stimulate the property development sector, which will end on March 28, for another two months, Prime Minister Abhisit Vejjajiva said on Tuesday afternoon.

"The decision was made on ground that about 10,000 people who had bought their homes might not be able to transfer their property right before the expiry date of the tax incentive measures", Mr Abhisit stated.

After the expiration of the measures, the rate of special business tax would return to 3.3 per cent from the current 0.11 per cent. The property right transfer fee would be 2 per cent from 0.01 per cent.

Previously, the cabinet had decided not to extend the tax incentive measures because it was proven that the property developers' profit had substantially increased, and that even if there was no extension of the stimulus measures, the property sector would still improve in line with the recovering economy.