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Buying property in Thailand: scams and pitfalls

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Everything you need to know is included in our Thailand Property Pack

Thailand's beautiful landscapes and potential for investment and tourism are drawing more foreign buyers into its real estate market.

Buying property there can be complicated though, especially if you're not a local resident.

Our community of property-buying customers and our local partners have reported several common issues to us. We've listed them all in our Thailand Property Pack.

This article will give you a quick overview of some of the potential pitfalls you could face.

Is it safe or risky to invest in real estate in Thailand?

Thailand, like many places with a booming property market, has seen its share of scams.

These range from developers not completing projects after taking deposits, to land disputes where the ownership isn’t clear due to unclear land title deeds. A notorious case was the property development on the island of Phuket where multiple buyers purchased homes, only to later discover the land was on a protected forest reserve.

The Thai legal system is grounded in principles of justice and fairness, but it can be slow.

Property disputes can take years to resolve. While the laws exist, enforcing them might not always be straightforward, especially if one is unfamiliar with the local procedures.

Furthermore, the concept of legal precedence is not as entrenched in Thailand as it is in Western jurisdictions.

The property buying process in Thailand can be opaque, especially for those unfamiliar with the Thai legal and bureaucratic system.

Compared to countries like Singapore or Australia, where property transactions are relatively transparent, Thailand requires a more careful navigation.

One might need to rely heavily on local experts and legal professionals.

It's imperative for foreign buyers to conduct thorough due diligence. This involves verifying land titles, ensuring no outstanding debts on the property, and making sure that any company set up to buy property is compliant with Thai laws. Engaging a reputable local attorney can't be emphasized enough.

The Thai government regulates the real estate market primarily through the Land Department and various zoning laws.

While there are efforts to stimulate foreign investments, the primary interest has always been to safeguard the rights and interests of the Thai people. This dynamic can impact foreign buyers, especially if there's a change in policies or regulations.

Besides the above-mentioned ownership restrictions, foreigners might face issues like navigating the language barrier, understanding cultural nuances when negotiating, or even managing the property, especially if they are not residing in Thailand.

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Potential real estate buying mistakes in Thailand

The "Chanote" land title system

When buying residential property in Thailand, a common and unique pitfall you should be aware of involves the "Chanote" land title system.

This system is specific to Thailand and is essential for understanding property ownership rights.

The "Chanote" is the highest level of land title deed in Thailand, granting the holder full rights over the land. However, there are other types of land titles like "Nor Sor 3 Gor" or "Nor Sor 3", which are less secure.

These titles might not have accurately surveyed boundaries, leading to potential disputes over land boundaries later.

You should always ensure that the property you're interested in has a Chanote title.

Properties with other title types may seem cheaper or more attractive but could lead to legal complications in the future.

This mistake is not uncommon, especially among foreigners who may not be familiar with the nuances of Thai land titles. Overlooking the type of land title can lead to significant legal issues and potential loss of investment.

Therefore, you should always verify the title type and seek legal advice before proceeding with any property purchase in Thailand.

The concept of the Thai Condominium Act

Another specific pitfall to be aware of when buying residential property in Thailand is the restriction on foreign ownership under the Thai Condominium Act.

This law is unique to Thailand and has specific implications for foreign buyers.

Under the Thai Condominium Act, foreigners can own condominium units in Thailand, but only up to 49% of the total space of all units in a condominium building. This means that if a condo project has already sold 49% of its units to foreigners, you cannot purchase a unit in that building.

You should always check the current foreign ownership ratio in the condominium building where you are considering a purchase.

This information is crucial because even if you have the financial means and everything seems in order, you might be legally barred from making the purchase if the 49% foreign quota is already filled.

This restriction is unique to Thailand and can be a surprise to many foreign buyers. It's a frequent issue, particularly in popular areas with a high density of foreign residents.

Always verify the foreign ownership quota before proceeding with any purchase in a Thai condominium to avoid this pitfall.

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The risks related to the Thai nominee

Another less known but significant pitfall when buying property in Thailand as a foreigner involves the use of a Thai nominee to circumvent the restrictions on land ownership.

In Thailand, foreign nationals are generally not allowed to own land outright.

To navigate this restriction, some foreigners resort to setting up a company with majority Thai ownership or using a Thai individual (a nominee) to hold the title to the land on their behalf.

However, this practice is risky and can lead to serious legal issues.

The Thai government has been increasingly vigilant in cracking down on such arrangements, which are often seen as a way to circumvent the legal restrictions on foreign land ownership. If it's found that a Thai national is holding property as a nominee for a foreigner without legitimate involvement, both parties can face legal consequences.

You should be extremely cautious about entering into any agreement that involves a Thai nominee for the purpose of owning land.

This method is not only legally dubious but can also result in the loss of your investment and potential legal action against you.

This issue is particularly relevant in Thailand due to its strict land ownership laws for foreigners. It's a pitfall that some foreign investors overlook, drawn by the allure of owning land in Thailand, only to find themselves in legal difficulties later.

Always seek reliable legal advice and adhere strictly to Thai property laws when considering property investments in the country.

The issues of the "Usufruct" agreement

A specific pitfall in buying residential property in Thailand, particularly for a foreign buyer, is overlooking the importance of the "Usufruct" agreement, a concept that is quite unique in Thai property law.

A usufruct agreement grants you the right to use and derive income from a property that you do not own. This is often used by foreigners as a means to live in a house on land they cannot legally own.

The pitfall arises when the usufruct is not properly understood or legally established.

A usufruct must be registered with the Land Department and is subject to certain conditions. If not properly set up, the agreement can be voided, leading to potential loss of rights to use the property.

This is especially crucial if the property owner (the Thai national) decides to sell the property or passes away, as the usufruct can be challenged or invalidated in such cases.

You must ensure that the usufruct agreement is legally sound and registered. This involves understanding the specific terms, duration (which can be for life or a fixed period), and conditions under which the usufruct can be terminated.

This is a common oversight among foreigners who might not be familiar with Thai property law nuances.

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"Sin Sod" or dowry

A unique and often overlooked pitfall for foreigners buying residential property in Thailand is related to the concept of "Sin Sod" or dowry, which can indirectly affect property purchases, especially for those marrying a Thai national.

In Thai culture, Sin Sod is a dowry that is typically expected when marrying a Thai woman.

This cultural practice can have financial implications that may impact your property buying decisions. For instance, if you are marrying into a Thai family, part of your financial commitment or investment may be expected to go towards the Sin Sod, which can be substantial depending on the family's social and economic status.

The mistake here is not accounting for or misunderstanding the financial implications of Sin Sod when budgeting for property investments.

If you're planning to marry a Thai national and buy property, it’s important to have a clear understanding of the Sin Sod expectations and how this might impact your overall financial planning for property investment.

While Sin Sod is a cultural practice and not a legal requirement, it's deeply ingrained in Thai society and can have significant financial implications.

The issue of "Land Leases"

Another specific and often overlooked pitfall for foreigners buying property in Thailand is the issue of "Land Leases."

While foreigners cannot own land outright in Thailand, many opt for long-term land leases as a way to secure property. However, there are specific nuances and risks associated with these leases that are unique to Thailand.

In Thailand, the maximum lease term for land is generally 30 years, and while leases can sometimes be renewed, this is not automatic and is not guaranteed by law. Some property sellers may offer "90-year leases," which are essentially three consecutive 30-year leases.

However, the enforceability of the second and third 30-year terms is not always clear under Thai law.

As a foreigner, you should be cautious about entering into long-term lease agreements, especially those promising terms beyond the initial 30 years. It's crucial to understand that the legal framework for enforcing the second and third terms of a 90-year lease is not as robust as the first 30 years.

When considering a land lease, you must ensure that the lease agreement is meticulously drafted, clearly outlining terms, renewal options, and conditions under which the lease can be terminated.

It is advisable to consult with a reputable legal advisor with experience in Thai property law to navigate these complexities and to understand the specific risks and limitations of land leases in Thailand.

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"Building Permits" and "Land Zoning Regulations"

A unique and often overlooked pitfall for foreigners buying property in Thailand involves the complexities surrounding "Building Permits" and "Land Zoning Regulations."

These aspects can be quite different in Thailand compared to other countries, and not being aware of them can lead to significant issues.

In Thailand, land is categorized into different zones, each with its specific regulations on what can be built and for what purpose.

For example, some land is zoned specifically for agricultural use, and it's illegal to build a residential property on such land without re-zoning, which can be a complex and uncertain process.

Before purchasing land or a property, you must ensure that the land’s zoning regulations align with your intended use. Additionally, if you plan to build or modify a property, it is crucial to confirm that all necessary building permits have been obtained and are in compliance with local laws.

The mistake often made by foreigners is assuming that purchasing land automatically grants them the right to build as they please.

However, without proper due diligence regarding building permits and land zoning regulations, you might find yourself unable to develop the property as planned or, worse, facing legal action for non-compliance.

This issue is frequent in areas where zoning laws are strictly enforced or in regions popular with foreign investors, where misunderstandings about building regulations are common.

"Power of Attorney" or POA

A specific pitfall for foreigners buying property in Thailand involves the misunderstanding or misuse of "Power of Attorney" (POA) in property transactions.

In Thailand, a Power of Attorney is a legal document that allows another person to act on your behalf in legal or financial matters. This is often used in property transactions, especially when the buyer cannot be present in Thailand to handle the procedures themselves.

The pitfall arises when the Power of Attorney is either too broad or is used without fully understanding the implications.

In some cases, foreigners grant a POA to a Thai partner, friend, or even a lawyer, without clearly defining the scope of the authority. This can lead to situations where the POA is misused, such as unauthorized selling or mortgaging of the property.

When considering granting a Power of Attorney (POA) for property transactions in Thailand, it's crucial to take several steps to protect your interests.

Firstly, ensure that the scope of the POA is clearly defined and limited to specific actions.

It should explicitly outline what the person holding the POA is authorized to do and, just as importantly, what they are not authorized to do. This precision will help prevent any misuse of the POA.

Additionally, it's vital to place your trust in the right individual.

The person you grant the POA to will have significant control over your property, so choosing someone trustworthy is imperative. Lastly, involve a reputable legal professional in drafting the POA. This ensures that the document aligns with Thai law and accurately reflects your intentions.

By taking these steps, you can mitigate the risks associated with using a POA in property dealings in Thailand.

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The concept of the "House and Land Tax" regulations

Another specific and often overlooked pitfall for foreigners buying property in Thailand is related to the "House and Land Tax" regulations.

This is a unique aspect of the Thai property market that can catch foreign buyers unaware.

In Thailand, there's a House and Land Tax, which is applicable to properties that are rented out. If you're buying a property with the intention of leasing it, you need to be aware that you'll be liable for this tax, which is calculated as a percentage of the annual rental value of the property.

The rate can vary, and there are certain conditions and exemptions, but it's a significant consideration for property investors.

The pitfall lies in not accounting for this tax when calculating the return on investment for a rental property. Foreign investors might overlook this tax or be unaware of its implications, leading to unexpected costs that can impact the profitability of their investment.

To avoid this pitfall, ensure you understand the current House and Land Tax regulations and how they apply to your property.

The misuse of the "Environmental Regulations and Protected Areas"

Another unique and often overlooked pitfall for foreigners buying property in Thailand is related to "Environmental Regulations and Protected Areas."

Thailand has specific laws and regulations regarding construction and land use in areas that are environmentally protected or considered of high ecological value.

The pitfall for foreign buyers often lies in investing in properties located near national parks, beaches, forests, or other protected areas without fully understanding the restrictions in place. These areas can have stringent environmental regulations that restrict building, land development, or even land ownership.

For instance, certain beachfront properties may have restrictions on construction to preserve the natural landscape and ecosystem.

As a foreigner, you should conduct thorough due diligence to ensure that the property you are interested in is not within a zone where development is restricted or prohibited due to environmental reasons.

This involves checking the property’s location against national and local environmental protection laws.

Not being aware of these restrictions can lead to significant investment losses, as you may find yourself unable to develop or utilize the property as intended. Moreover, violating environmental regulations can result in legal penalties and forced demolition of any unlawful structures.

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