Should I buy freehold apartment in Phuket or leasehold condo? Part 2.
Now let’s match the terms of freehold and leasehold under these criteria:
Freehold guarantees sole right of ownership. Do not doubt it. The buyer will retain his right of ownership indefinitely. Furthermore, he is under no pressure about the terms of conduction of renovation in his house. This benefits the owners, who have limited finances for maintaining a condo in Phuket.
In Thailand formerly real estate could solely be bought by citizens, who registered a Thai company by establishing a legal person. Nowadays all these formalities are no more, today all that is required is an identity card and a foreign currency certificate, called Thor Tor 3. This is a written proof of the fact, that you have bought foreign currency in a bank outside the boundaries of Thailand and brought it into the country with a purpose of buying your condo.
An owner with a rental right (leaseholder) is limited in his ownership right for an agreed upon amount of time. This benefits the customers, who prefer not to own real estate, but rather have a right to live in it. As the rental contract can set the term of rental only up to 30 years, the tenant has an option to renew the contract two times for 30 year each time, when the first term is over. Thus one can have a rental for 90 years all in all. Nevertheless, the contract is automatically terminated in case the tenant dies or the terms of contract are violated.
Taking short-term expenses into account, leasehold condo buying in Phuket is certainly a cheaper solution, than a freehold, as you pay rent only. Freehold condo buying demands a larger amount of money from the buyer, and even more so if the condo is located not far from the skytrain station (in case you buy an apartment in Bangkok, for example).
But this doesn’t mean leasehold is very cheap, especially considering the incidental expenses like registration fee, tax, application fee and other annual payments (you have to pay 12.5% fee from annual rental value – an accommodation tax rate, as well as 1.1% rental registration fee and other annual payments).
Freeholder can sell the accommodation at any time, while in case of the rented condo only the owner has such right. On the other hand, the tenant cannot either sell the condo at the open market, nor buy it out, nor rewrite it to someone at will. Only the owner can sell the property at his own terms.
Now that you are familiar with the difference between freehold and leasehold, you can make a more thoughtful decision on which form of real estate to buy in Phuket.
Issues, referring to the condo ownership in Thailand, are governed by the Condominium Act B. E. 2522 as amended in 2008. This Act applies to the apartments registered or legally acknowledged by the Thai government. Thus the owners get the ownership certificates with a freeholder title for the registered condos.
In comparison, the unregistered condos are offered only for leasehold, as they are not acknowledged by the Condominium Act initially. Tenants must also abide to the rules, specified in the contract by the owners of the building, where the condo is located.
Condo owners with a full right of ownership (freeholders) have a right to vote for managing and controlling the building. This democratic procedure gives them an option of solving questions related to property management etc.
Then again, owners with a rental right (leaseholders) do not have privileges for these actions. Management and control over the building belong to the developer or real estate owner.
A freeholder can pass the right of ownership as he pleases. Thai law allows the owner to take such actions on inheritance rights. But this is forbidden, when the condo is rented. The contract is terminated in case the owner dies, but the right of ownership must be determined by court, even if the contract contains the condition of inheritance.
In Thailand a foreigner can buy condo on freehold, but that means he has a right of ownership for the apartment, but not for the land. Keep in mind, that only 49% of the total amount of condo units in the house could be owned by a person, who is not a citizen of Thailand. When this quota expires, only leasehold buying is available.
Such relationship is regulated by the immigration law dated 1979, which says, that freehold buying is available to a foreign citizen only if he has an approved residence permit in Thailand. Later, in 1991 an amendment was introduced, extending this opportunity at the persons, who have a legal business in the country and ensuring investment in economy at the level of $ 1000000 under the permission of Board of Investment.
Advantages of freehold condominium buying
There are many advantages of freehold condo buying, where the main is a full ownership right.
Decisions regarding repairs – as many people are owners, they can determine when they want to start repairs in condo. This is an advantage, when the owner or his family has limited revenue.
Right to vote – as the owner the tenant also has the right to vote for management and control over the building. Those living under the rental contract do not have such right, nor do they have the right to decide what to do with the property.
Transfer of ownership right – the property can be given to other people if you are a freeholder. The main reason people buy condo or other property is to leave something to their loved ones behind them. In case with leasehold the heirs would receive nothing, if their loved one has passed away.
Selling – as a freeholder the owner can decide whether to sell the condo and can specify his terms of sale.
Infinite ownership right – in contrast to leasehold, where the ownership right is retained for only a certain period of time, freehold buying grants ownership right until the owner himself ceases to want it.
Less tax – freeholders are not obliged to pay many of the fees and membership dues that leaseholders must pay under the terms of the rental contract.
When leasehold is the best choice
We frequently hear about many advantages of having a full ownership right compared to leasing or rental. There has always been the advantage that the owner has the full right to own and sell property, as well as the right of passing the real estate to the members of his family or doing whatever he pleases to. However, in spite of these evident advantages, there are situations, in which it is more advantageous to sign a rental contract and it would be the best choice for the owner and his family.
As real estate prices rise in many districts of Thailand, the tenants can return a good portion of their investment, especially when it has been managed properly. A properly outlined rental contract grants certain freedom of actions and an opportunity of making certain decisions regarding the property. Leaseholder can also sign contracts with management companies and hotel groups that can provide good revenue for many years.
Leasehold condominiums at good terms remain in demand and their cost and value raises each year. Actually one might say, that leasehold condo at good terms is of much higher demand than freehold condo, despite the fact, that the preference has been given to full ownership right for many years now. It has been identified, that properly managed rental property can exceed freehold property in quality and cost and is becoming more preferred by customers frequently. In Phuket specifically leasehold condominium projects provide a great competition for freehold property.
Another situation, in which the leasehold is the best choice, is when property and included services and facilities are the same or even better, than are provided by freehold property buying.
Of course, each prospective buyer should approach the choice of from of ownership thoughtfully and carefully, “trying” on himself his current condition and plans for the future taking all the aforementioned arguments into account. Only thus one can be certain that he has made a right and thoughtful decision.