Foreign fractional ownership investments in Thailand
Thailand’s legislation for fractional ownership
The term fractional ownership (aka. co-ownership) refers to high-value assets like a yacht, an airplane or real estate which legally belongs to two or more owners. Thailand’s laws provide a detailed framework for co-ownership. Further details are explained at “Seven legal provisions for fractional ownership in Thailand”.
However, the internationally renowned fractional ownership models have a very limited area of applicability in Thailand:
- The restrictions under the Land Code and under the Condominium Act do apply without restrictions also to fractional ownership. Therefore, foreigners are not allowed to hold fractional ownership in Thai real estate.
- Even when just one co-owner holds a small fraction (well below 49%) in a condo, such unit falls to 100% under the “foreign quota” restrictions.
- Starting with a certain size, foreigners are not allowed to hold ownership in a yacht or vessel, which makes fractional ownership schemes for this asset class in most cases impossible.
Investors and developers should be aware that the Thai fractional ownership in real estate uses the good name of an internationally recognized and worldwide accepted proptech model, but is delivering something pretty different under that label. That type of virtual fractional ownership is no ownership as described in the lawbook. A “Certificate of Ownership”, printed out on the developer’s office printer, does not change such analysis.
Since direct foreign fractional ownership is not possible, the models offered on Thailand’s real estate markets use a certain mixture of trustee and corporate held ownership. It results in a complex investment structure with various adjusting screws and optional components. The models reflect and mirror just to a certain percentage the well-balanced allocation of benefits, costs, and risks for fractional ownership under Thai laws. Depending on the individual case, the offered models have a wide variety. Therefore, the investor should review carefully if he gets a valid asset for his money.
The proper design of investment opportunities in a slice of paradise
The international-standard fractional ownership is agreed between the co-owners alone and can be managed by them with low ownership maintenance costs. Deviating from this practice, the Thai offers are equipped with additional features and components which might be helpful or costly. These cover
- rental pools and rental guarantee (see Seven questions: Rental guarantees for condo investments),
- special service offers by the developer,
- fractional fixed and floating occupancy periods of two to four weeks per year,
- an exit strategy to sell the real estate after 6 to 8 years for a substantial profit,
- other features as customary in Thailand’s industry
In a well-advised structure, the developer finds the property, secures the investors, manages the reservations and concierge services and then handles the property’s resale at the end of the model term. Investors could be individuals or companies, Thai or foreign.
Rental guarantees, timeshares, and fractional ownership models https://t.co/cHeA8GUPTU
— Bangkok Lawyer (@bangkoklawyer) June 14, 2019
Ill-advised and unbalanced structures ruin the good reputation of a generally great investment opportunity. In that case, it is comparable with deeded timeshares which have a pretty bad market reputation. But this should not be seen as a general rule. A smart structuring can avoid these disadvantages, would not require false marketing statements and give the foreign investor the assurance of a long-term sustainable and profitable investment. Would you like to know more?
Professional services from Bangkok for fractional ownership models
PUGNATORIUS Ltd. offers for foreign investments in fractional ownership projects comprehensive due diligence of the legal, financial and economic aspects. Insights which are not available in the glossy marketing brochures. A solid basis for a well-educated investment decision whether the fractional ownership offer gives solid ownership-like protection.
Also, the law firm offers property developers professional support and assistance to understand the legal implications of a fractional ownership scheme, the options available under the regulatory framework, financing opportunities in compliance with the foreigner legislation, and a fine-adjustment to make the model sustainable and fit for Thailand’s property markets.
Assignments on real estate investments are one of the core business activities with a particular competence, long-standing experience, and unique market reputation of PUGNATORIUS Ltd. The Bangkok-based law firm typically provides these seven services:
- Investment structures for foreign property acquisitions
- Property due diligence examination, including rental guarantees, timeshares, and fractional ownership structures
- Leasing transactions and protected lease schemes
- Industrial estates, resorts, factories
- Hotel and hospitality projects
- Property tax structuring
- Legal opinions and property investment reviews
Details are described at “Legal services and tax planning for real estate acquisitions and property developments.”