Foreign fractional ownership investments in Thailand
Thailand’s legislation for fractional ownership
The term fractional ownership typically refers to high-value assets like a yacht, an airplane, or real estate which legally belongs to two or more owners. Fractional ownership should not be confused with co-ownership, which means each co-owner owns a percentage in each part of the asset at any time. Co-ownership is just one of several types of fractional ownership. Other variations grant (i) either a particular part in the asset (ii) or ownership for a certain allotment of time, (iii) the Sap-Ing-Sith, (iv) or else. Fractional ownership can exist under the laws, or base on some sort of management, to administer the rules and regulations under which the fraction has been agreed.
The internationally renowned fractional ownership models have in Thailand’s industries a minimal area of applicability. The reason for this is Thailand’s foreigner legislation. 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 of nearly any type of Thai real estate. Even when just one co-owner holds a small fraction (well below 49%) in a condo, such a 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 under such label something pretty different. Typical types of Thai virtual fractional ownership is no ownership as described in the lawbook. Thailand’s regulatory framework for co-ownership is outlined in the article “Seven legal provisions for fractional ownership in Thailand” A “Certificate of Ownership”, printed out on the developer’s office printer, does not change such analysis.
Thailand’s replacement model: Since direct foreign-standard fractional ownership is not possible, the models offered on Thailand’s real estate markets use a certain mixture of trustee and corporate held ownership. This 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. Depending on the individual case, the offered models have a wide variety. Therefore, the investor should review carefully if he gets a valid and valuable asset for his money.
The proper design of investment opportunities in a slice of paradise
The international-standard fractional ownership is agreed upon between the co-owners alone and can be managed by them with low ownership maintenance costs. Deviating from this practice, the investment offerings in Thailand are equipped with additional features and components which might be helpful or costly. These cover (I) rental pools and rental guarantee (see Seven questions: Rental guarantees for condo investments), (ii) special service offers by the developer, (iii) fractional fixed and floating occupancy periods of two to four weeks per year, (iv) an exit strategy to sell the real estate after 6 to 8 years for a substantial profit, and (v) 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.
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 gives the foreign investor the assurance of a long-term sustainable and profitable investment.
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 that 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.
Professional advice: 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.”