When you begin looking for your new condo, you’d certainly come across the terms “freehold” and “leasehold”. Most first-time buyers are not aware that their condo purchase can be influenced by these two types of tenure. So what’s the difference between these legal terms then? Is it better to purchase a freehold or leasehold condo in Bangkok?
Buying a condo on freehold means that your purchase comes with full ownership of the property. Legally speaking, you have a permanent ownership of the apartment. A part of your responsibility is to shoulder the cost of repairs and upkeep of the unit. These duties are bound to you unless you decide to transfer the unit on your own volition.
On the other hand, buying a condo in Bangkok on leasehold limits your length of ownership of the property based on the stipulations in the contract. In Europe, most leases are granted on a 999-year arrangement (yes, that’s how long they allow accommodating generations of occupants for the same property) but in Thailand, most real estate properties have only a 30-year contract.
Also listed in the agreement is the party responsible for repairs and maintenance of the unit. The buyer will likewise have the right to extend the lease depending on the contract. Also, take note that a leasehold condo or any property for this matter is considered a fixed asset so it cannot be freely sold by the leaseholder anytime.
What the Thai law says about buying a condo
Thailand has very specific guidelines regarding foreigners buying Thai real estate such as condos, as well as specific guidelines regarding the differences between apartments and condos. In fact, Thailand definition for “condo” is different from many other parts of the world. While the terms condominiums and apartments are used interchangeably in some countries, they are not in Thailand. Thailand defines an apartment as a residential building that is owned by one person and it has only one title or deed. With a condo, there is ownership of each individual unit and each owner has his or her own title deed.
Foreign ownership, according to the Thai Code, refers to property that is purchased or owned by a foreign individual or foreign country. Foreigners interested in obtaining Thai real estate can complete their transaction through leasehold, freehold through a condo title and freehold through acquisition by Thailand country. According to Thai law, foreigners can have up to 49% ownership in a condo, and at least 51% of the condo must be owned by Thai nationals.
The 49/51% law refers to 49% of the total floor areas of all the units in the condominium. In certain circumstances, foreigners may obtain commercial property freehold. Of confusion to many potential property owners is the difference between leasehold and freehold. Read below to learn more about this topic and decide which choose is better for you or your family.
Let’s further compare freehold and leasehold terms of the following categories
Privileges of Ownership
Exclusivity of possession is granted on freehold. No doubt about it. The buyer retains his claims on the property perpetually. Also, there’s no pressure on the owner as to when he’d undertake repairs for his property. This is advantageous for owners who have limited financing for the maintenance of their Bangkok condo.
It used to be that Thai properties with a freehold title can only be purchased with a Company. However, for a condo today, there’s no need to form such entity for non-Thais. All you need is a passport and a foreign exchange certificate called Thor Tor 3 document. It pertains to the written evidence that you have procured foreign currency from a bank outside Thailand and brought it to the country for the purpose of your condo purchase.
Leasehold owners are limited in ownership based on a set period of time. This is good for buyers who prefer not owning the property but only the right to live in it. While the lease contract may state that the property is to be leased within 30 years only, the leaseholder actually has the option to renew the contract to two 30-year leases only if the first contract term has ended. Therefore, the leasehold can actually be obtained for a total of 90 years. If there is a breach of contract or death of the leaseholder however, then the contract is automatically terminated.
In terms of short-term costs, purchasing a Bangkok condo on leasehold is definitely a cheaper alternative than freehold since you’ll be paying only for the rent. Freehold condos constitute a large sum from the buyer especially if the condo building is near the BTS Skytrain.
This doesn’t mean that leasehold ownership is absolutely cheap. One has to pay 12.5 percent worth of the per annum rental fee as part of rental tax aside from a 1.1 percent lease registration fee, and other annual costs.
A foreigner in Thailand can buy a condo in Bangkok on freehold but this only means that he has rights over the building but not on the land itself. Remember too that only 49 percent of the total units in a condominium building can be owned by non-Thais on freehold. Once this quota is reached for foreigners, only then a leasehold purchase shall be offered.
Freehold purchase is also possible if a foreigner is allowed to reside in Thailand under the Immigration Act B.E. 2522 of 1979 or if he qualifies to do businesses in the country provided that he invests around US$1 million with the approval of the Board of Investments as mandated in the amended Investment Promotion Act B.E. 2534 of 1991.
Issues regarding the ownership of condos in Thailand are governed by the Condominium Act B.E. 2522 that was revised in 2008. This act only covers registered apartments or those legally recognized by the government of Thailand. As such, owners receive title deeds with their freehold ownership of registered condos.
In contrast, unregistered condos offer only leasehold ownership since they’re not recognized by the Condominium Act in the first place. The tenants are also compelled to follow the rules set in the contract by the owner of the condo building.
Control over the Building
Freehold condo owners have voting rights on the management and control over the building. Such democratic practice provides them with the opportunity to decide upon matters related to the property’s management and other issues.
On the other hand, leasehold owners do not have the privilege to do so. The management and control over the building are accorded to the developer or owner of the property.
A freehold condo owner can pass on the ownership of the property according to his decision. Thai laws permit the owner to do so through inheritance. This is however not allowed for leasehold condos. Upon the death of the leaseholder, the contract is terminated but the ownership has yet to be settled in the court even if the contract bears a succession clause.
Buying and Selling
A freehold condo allows owners to sell the unit anytime they want to whereas a leasehold condo requires only the owner to decide upon such matter. The tenant obviously cannot sell it in the open market nor assign the condo in any period during the lease. The owner of the building can only sell the property under his own terms and conditions.
Now that you know the differences between freehold and leasehold, you can better weigh your options on what type of condo to buy in Bangkok.
What Are The Benefits of Buying a Freehold Condominium
Many benefits come with buying a freehold condominium, with ownership being the main benefit
- Decision regarding repairs – Because the individual is the owner of the property, they can choose when they want to make repairs to the condo. This is very beneficial if the individual or family has limited income.
- Voting Rights – As an owner, the individual also has voting rights regarding the control and management of the building. Those in leasehold agreements do not have as many rights as to what is done with the property.
- Transfer of property – The property can also be passed onto others when you’re a freehold owner. having something to leave to loved ones is often the major reason people purchase condos or other property. With leaseholds, survivors get nothing when their loved one passes.
- Buying/selling – As a freehold condo owner, the individual has the choice to sell the condo and can set the conditions of the sale.
- Ownership is forever – Unlike a leasehold that is only good for a certain number of years, freehold purchases last until the owner no longer wants the property.
- Fewer fees – Freehold buyers aren’t obligated to pay the many maintenance and membership fees required of those in leasehold agreements.
When the Leasehold Should Be the Best Option
We often hear about the many benefits of ownership as opposed to leasing or renting. One of the main benefits has always been because the individual actually owns the property and has the rights to sell it; give it to family members; or do whatever he or she sees fit. However, despite these obvious ownership benefits, there are still circumstances when it might be beneficial for the individual to sign a leasehold property agreement and where it may just be the best option for the individual and his or her family.
With the increased values in many of the Thai properties, leasers can get some good returns back on their investments, particularly if they’re well managed. In a good quality leasehold agreement, the lease has some leeway and abilities to make some decisions regarding the property. The lease holder can also enter into long-term contracts with managers or hotel groups, which can offers some excellent income returns for years to come.
High-quality leasehold condos continue to be in demand and are increasing in value and worth each year. In fact, one might even say that high-quality leasehold condos are even more in demand than freehold condos, despite how ownership has seemed to be the preferred choice for so many years. It’s been stated that a well-managed lease property can outperform and out-price a freehold property and is often preferred to freehold ownership. In Bangkok, in particular, leasehold condominium projects are in stiff competition with freehold properties.
Another area where leasehold properties are a better option is when the property and the included services and amenities are as good as or better than those offered with freehold properties.