Freehold and Leasehold in Thailand: Which Form of Property Ownership Is Right for You

Buying property in Thailand for foreign citizens requires careful study of local rules and legal nuances. The choice between freehold (perpetual ownership) and leasehold (long-term rent) becomes a key issue, since each of these forms has its own characteristics, advantages and limitations.

In this article, we will examine in detail what freehold and leasehold are, including protected leasehold, and also conduct a comparative analysis of these forms of ownership. This will help you make an informed choice depending on your investment goals and personal circumstances, taking into account possible changes in legislation.

Freehold - perpetual private ownership

Freehold is a form of ownership whereby the buyer, including foreigners, obtains full and permanent ownership of the property. When the transaction is completed, the property is registered with the Land Department and the buyer is issued a Chanote. This document describes the property in detail – its location, area, layout, date of registration and history of ownership, which serves as reliable legal proof of ownership.

In Thailand, freehold is available primarily when purchasing apartments in condominiums. The law allows foreigners to own freehold rights to real estate, but the total foreign ownership in a condominium cannot exceed 49% of the total area (more on this below). This restriction is aimed at maintaining a balance between foreign and local investors, so it is important to take this quota into account when choosing a property.

Advantages of Freehold

• Perpetual Ownership: Freehold provides ownership rights for an unlimited period of time, ensuring stability and long-term investment security.
• Full disposal: The owner can freely make decisions regarding the property: sell, donate, rent or pass on as an inheritance without additional restrictions.
• Legal security: A coat of arms certificate issued by the Land Department provides reliable legal proof of ownership and minimizes the risk of litigation.
• Investment attractiveness: Freehold properties are often in high demand on the secondary market, which contributes to the potential growth of their value over time.

Disadvantages of Freehold

• Restrictions for foreigners: Foreigners are only allowed to freehold apartments in condominiums, and even here there are restrictions on the share - no more than 49% of the total area of the complex.
• Higher registration costs: When purchasing a freehold property, there are higher taxes and fees to consider, including a registration fee of 2% of the assessed value, stamp duty and other fees.
• No Land Rights: Foreigners are prohibited from directly owning land, so freehold only applies to the apartment or premises, not the land, which may limit the possibilities for further development or redevelopment of the property.
• Complexities of the legal procedure: The process of formalizing the transaction requires careful verification of documents and consultations with experienced lawyers, which can increase time and financial costs.

Features of the 49% quota for condominiums

According to Thai law, foreign nationals can only freehold up to 49% of the total living area of a condominium. This means that in each residential complex, 49% of the area can be registered as full foreign ownership, and the remaining 51% can only be leasehold. This restriction is aimed at ensuring a balance between foreign and local investors and maintaining stability in the real estate market. When choosing a property, foreigners should carefully study the ownership structure and available quotas to avoid misunderstandings and optimally plan the investment.

Real estate and residence permit in Thailand

Purchasing real estate in Thailand does not automatically grant the right to obtain a residence permit. Foreign nationals who plan to stay in the country for a long time should consider special visa programs, such as a long-term residence visa or an investor visa. Participation in these programs requires meeting a number of criteria, including minimum investment amounts in real estate or setting up a business. Therefore, when planning to purchase real estate, especially in the budget housing segment, it is important to study the requirements and conditions associated with obtaining a residence permit in advance.

Purchase of real estate for a legal entity

Purchasing real estate through a legal entity is a popular way to invest in Thailand, allowing you to bypass some of the restrictions associated with direct foreign land ownership. There are two main ways to register real estate in a company:

Establishing a new company

When registering a new company, a foreign investor is required by law to own no more than 49% of the shares. This means that in order to form a full-fledged shareholder group, it is necessary to attract local partners. The following scheme is usually used:

• Distribution of shares: The foreign investor receives a controlling stake in the voting shares, although the foreigner's share cannot exceed 49%.
• Minimizing the influence of local shareholders: Thai citizens with less “weight” are attracted, which allows the foreigner to retain decisive control over the company.

Acquisition of an existing company

The second option is to buy an existing company that already has real estate on its balance sheet. In this case, the composition of shareholders changes, and the property is transferred to the new owner. However, it is important to remember:

1. Due Diligence: Before purchasing, a thorough audit of the company should be conducted to ensure that there are no debts, liens or other legal risks.
2. Legal purity of the transaction: The transaction to change shareholders must be drawn up correctly to avoid problems in the future.

Important points and risks

• Increased government scrutiny: The state is monitoring so-called "sleeping" companies that are not actively operating but own real estate. Loopholes for freeholding land through a passive legal entity with nominee Thai directors are gradually being closed. Violations can lead to fines and even criminal liability for nominee shareholders.
• Additional Costs: In addition to the cost of real estate, you need to consider the costs of registering a company (approximately $2,000-$3,000) and annual bookkeeping (approximately $1,000). These costs are an integral part of doing business through a legal entity.

Leasehold – long-term rent with the right to dispose of real estate

Leasehold is a form of ownership whereby the buyer obtains the right to use the property for a long term through a long-term lease. In Thailand, the standard leasehold term is 30 years, with the option to extend it twice for 30 years, which provides for ownership of the property for up to 90 years. The transaction is formalized by registering a long-term lease agreement with the Land Department, and along with it, a contract is signed that provides for mandatory renewal of the lease. The developer usually attaches letters confirming the possibility of renewal, which is guaranteed by the state. In some cases, developers offer options with a longer lease term - up to 120 years or even perpetual ownership with the right of constant renewal.

Leasehold can be considered as a long-term lease with rights similar to private property: you have the ability to sell, give away, rent out or pass on the property by inheritance. However, when carrying out such transactions, it is necessary to conclude an additional agreement with the landlord - the owner of the property, who must formalize the transfer of rights to the new person.

Benefits of Leasehold

• Cost: The price of real estate in leasehold is usually lower by about 10% compared to freehold.
• Fast payback: Lower cost of the property helps to reduce the payback period of the investment.
• Low registration fees: The registration fee is 1.1% of the property value, which is significantly more favorable compared to freehold.
• Tax advantages: Leasehold properties are not subject to taxation and are not subject to mandatory declaration.

Disadvantages of Leasehold

• Renewal required: Every 30 years, the lease must be renewed at the Land Department, which involves additional administrative procedures.
• Restrictions on transactions: When reselling, donating or transferring by inheritance, it is necessary to sign additional documents with the landlord.
• Limited Tenure: At the end of the lease term, the rights to use the property revert to the landlord unless the lease is renewed.

Leasehold is a popular choice for overseas buyers, especially where legislation does not allow direct purchase of land. Before entering into a transaction, it is recommended to carefully review the terms of the agreement and consult with qualified professionals to ensure that the chosen option meets your investment goals and long-term plans.

Protected Leasehold – Ownership Scheme and Investment Protection

Protected leasehold is a special scheme that combines a long-term lease of real estate with the buyer's participation in the capital of a Thai company that holds free ownership (chanot) of the property. Thus, the buyer not only receives the right to use the property, but also becomes a co-owner of the company, which allows him to independently control the issues of contract extension and asset management.

How does the secured leasehold scheme work:

1. Acquisition of a long-term leasehold:
   The buyer enters into a standard leasehold agreement, which provides the right to use the property for 30 years with the possibility of two subsequent extensions of 30 years (up to 90 years in total). This ensures a long period of ownership, but without additional measures, the risks of changing the terms or refusing to extend remain relevant.

2. Equity participation in a Thai company:
   Along with the execution of a leasehold, the buyer acquires a share in a Thai company that legally owns the property (chanot). Thanks to this shareholding, the investor gains the ability to influence the company's decisions regarding lease extensions, changes to the contract, and other key issues.

3. Control over renewal terms:
   As a shareholder, the buyer has a say in decisions on extending the lease term. This means that changes to the terms of the agreement are only possible with the consent of all participants, which minimizes the risk of unilateral decisions by the developer or previous owner.

4. Structuring through offshore companies:
   In some protected leasehold structures, the Thai company in which the buyer owns may be linked to an offshore company (such as one registered in the British Virgin Islands or Jersey) that jointly owns the property. This structure adds an additional layer of protection, providing transparency and stability in the management of the asset.

Benefits for the investor:

• Long-term security: Thanks to the renewal mechanism of the agreement, the leasehold can be renewed indefinitely, which is practically equivalent to owning the property in perpetuity.
• Inheritance and Transfer of Rights: Participation in the capital of a company allows for easier transfer of rights by inheritance or resale, since control over the renewal of the contract remains with the shareholders.
• Risk reduction: A secured leasehold eliminates the risk of unilateral changes to the lease terms or early termination of the agreement, which can happen in a regular leasehold.

Comparison of Freehold and Leasehold in Thailand

When choosing between freehold and leasehold ownership, it is important to consider several key aspects. Below is a comparative overview of the main criteria, with an emphasis on the difference in cost at the initial and subsequent stages, as well as tax issues.

When to Choose Freehold or Leasehold

• Freehold is more suitable for investors and those who plan long-term residence, stable investment of funds and transfer of property by inheritance. If full legal protection and the ability to freely dispose of real estate are important to you, freehold is the optimal choice.
• Leasehold can be a great option if you are on a budget or are looking at a property for temporary use, commercial purposes or as a start-up investment. Low initial costs, lower registration fees and flexibility for short-term ownership make leasehold attractive to overseas buyers with a variety of investment objectives.

Possible changes in legislation

Current rules

• Under current legislation, foreigners can own freehold rights to condominiums, but the total foreign ownership must not exceed 49% of the total area of the project.
• Foreigners are allowed to enter into leasehold agreements for a period of 30 years with the possibility of extension, however the maximum rental period is limited.

Proposed changes

• Increasing the foreign ownership quota:
  The proposal is being considered to increase the permissible foreign ownership in condominiums from 49% to 75% of the building's usable floor area. The proposal is aimed at attracting more foreign investors, especially in popular destinations such as Phuket and Pattaya, where existing quotas are often fully occupied.

• Extension of leasehold terms:
  The government is studying the possibility of increasing the maximum leasehold term for foreigners from the current 50 years to 99 years. Such a change would provide greater long-term stability and attractiveness to leasehold ownership, contributing to the growth of demand for real estate, especially in segments that are less attractive to domestic buyers.

The proposed changes are part of broader efforts to stimulate the economy and make Thailand's property market more attractive to international investors.

Frequently asked questions

What is the main difference between freehold and leasehold ownership?

Freehold provides full and perpetual ownership of the property with the ability to dispose of it freely, including sale, gift and inheritance. Leasehold is a long-term lease (usually 30 years with two extensions up to 90 years) that allows use of the property but does not provide full ownership.

What are the benefits of freehold ownership?

• Long-term security and stability of investments.
• Complete control over the property: the ability to freely carry out repairs, redevelopment, rent out and pass on by inheritance.
• Ideal for permanent residence and long-term investment.

What are the benefits of leasehold ownership?

• Lower initial costs – the cost of the property is approximately 10-15% lower, since the land is not included in the price.
• Flexibility for short term stays or business purposes.
• Available to foreigners with fewer legal restrictions and significantly lower registration fees.

What are the current rules for foreign ownership in freehold condominiums?

Under current legislation, foreigners can freehold condominiums as long as the total foreign ownership does not exceed 49% of the project area. However, the government is considering increasing this quota to 75% to attract more investors.

What should you consider when choosing between freehold and leasehold ownership?

When choosing, it is important to evaluate your long-term goals, financial capabilities and the required level of control over the property. Freehold is suitable for those who seek full legal protection and stable ownership, while leasehold is a more affordable option with lower costs and flexible terms, albeit with a limited term of use.

How safe are leasehold agreements in Thailand?

Leasehold agreements registered with the Land Department provide a sufficient level of security. It is recommended to conclude agreements with reliable companies or through limited legal entities, which minimizes risks and guarantees the possibility of extending the lease.

Which is better: buying freehold or leasehold real estate?

The choice depends on your personal circumstances and goals. If you are looking for long-term stability, full ownership and inheritance, then freehold is the best option. However, if you are on a budget, prefer flexibility and do not plan to own long-term, leasehold may be a better solution. Keep in mind that leasehold may have additional fees, such as rent or maintenance costs.

Is it possible to buy freehold property in Thailand?

Yes, foreigners can buy freehold properties, mostly in condominiums where the law allows 49% of the area to be available for foreign ownership.

Is it possible to sell real estate registered under a leasehold scheme?

The sale of leasehold properties is possible, but it involves additional formalities – the consent of the lessor and the execution of relevant documents are required, since the leasehold is not considered a full-fledged asset.

Do leasehold properties lose their value?

Yes, as the leasehold term approaches, the value of the property may decrease, making it more difficult to sell. Therefore, when investing, it is important to consider the possibility of extending the contract, since its absence can significantly reduce the value of the property.

Is it more difficult to sell a leasehold property compared to a freehold property?

Selling a leasehold property is usually more complicated due to the limited term of the lease and the need to comply with additional conditions when transferring the title. However, with an experienced agent and a qualified lawyer, the process can be greatly simplified.