Foreign property investments in Koh Phangan

The conference on legal and tax aspects of real estate investments

The conference on Land & Property Law in Thailand provided an update and analytical views on the latest government stimulus measures for the real estate industry, including tax incentives and release of capital control, recent legal developments and changes, such as Foreign Business Act, Escrow Business Act, Environmental Impact Assessment, Condominium Act, Building Inspection Act. <Brochure>.

As chairman to the conference, the Managing Director of PUGNATORIUS Ltd. guided through the event and moderated the presentations. Thailand’s real estate legislation is widely misunderstood, and property investment structures are notorious for their lightweight design. Protected structures are widely avoided for all the wrong reasons. PUGNATORIUS Ltd. discussed the requirements of real estate investment structures that are legally valid, in compliance with Thailand’s foreigner legislation and which sustainably protect foreign investors.

Koh Phangan as high risk and high reward investment location

“Hippie-at-heart” Koh Phangan (aka. Ko Pha Ngan), a part of the Samui Archipelago in Surat Thani Province, is renowned for its monthly wild Full Moon Party and its high-risk property investments.

Koh Phangan airport disaster: Even the experienced developer for the commercial airport trusted the unlawfully issued land title deeds till government officials discovered that a substantial section of the airport infringed on Than Sadet National Park. An abrupt end to the party.

Investors in Koh Phangan property can rely on the legal assistance of a local law office, deeply embedded into the island’s industry and business environment. Alternatively, they can assign an experienced Bangkok law firm with an independent view on property developments and the minimum legal protection a foreigner should expect.

1. The investment structure – easy or solid

Koh Phangan is notorious for its unsecured and high risky property investment structures. Offered as a “leasehold purchase”, foreigners are requested to pay the full purchase price just to obtain an unsecured and highly limited tenant agreement.

Corporate structures to own property through a Thai Co., Ltd. are a much better deal. However, in Koh Phangan, they pretty always come without protection mechanism against the Thai participants. Such nominee-structure is not only incompliant with Thailand’s foreigner legislation but lets the investor defenseless and unprotected. Easy to get and easy to lose.

Alleged villa ownership is typically not achieved. The villa can be left out of the company’s balance sheet, but this does not mean that the foreigner owns it. Not the only promise to the foreigner that is not kept.

2. Due Diligence – concealing the crucial issues of the property transaction

The due diligence examination in Koh Phangan typically does not take into consideration that local title deeds (Chanote) are frequently wrong, and the acquisition of fake-Chanotes does not provide the buyer with legal ownership, but just a worthless sheet of paper. More than half the island is designated as national park and the mountainous interior is generally inaccessible – although the faked land title deed will show something different.

The second source of errors is the wrong assumption that a previous land transfer is valid if it is registered on the title deed. No one guarantees this, neither the seller nor the land office nor any other authorities. Therefore, the investor requires more than a title report which is just a simple translation of the Thai documents.

Subdivisions of land plots are often illegal and could be revoked at any time, dispossessing the Ko Phangan property buyer of his rights and investment.

Local zoning laws and property regulations restrict building and other improvements of the land. New environmental regulations were enacted in 2014. They are widely ignored by local people and even by ill-advised foreign buyers. Whether this strategy provides a reliable long-term solution, the investor has to decide by himself.

It is not unfair to qualify it as a scam if the naive foreigner is requested to invest some million Baht, based on a fake due diligence report. If the foreigner accepts the argument “That’s the Way We Do Things Around Here” he should not expect sympathy by the government when seizing his asset or at a Thai court when trying to enforce his claims.

3. Contracts and supporting documents – underestimated elements

Reservation agreements, made before the due diligence examination has been accomplished, should have a clear get-out clause clarifying the conditions under which the deposit amount is refunded. Sales and purchase agreements typically fall short to give the investor adequate buyer’s protection. The whole process is made artificially intransparent to outsmart the foreigner. The local standards are foreigner-hostile as worse as it gets in Thailand.

4. Signing, closing, payment, transfer, registration, hangover

A valid signing and closing of land transfer documents are not the rule in Ko Pha Ngan. Invalid agreements result in long-term damages for foreign investors. Registration of the property acquisition or lease agreement with an undervalued amount put the whole investment at risk. But the hangover follows the party mood after the foreigner wakes up with his headache.

Koh Phangan property has an attractive price tag, as long as the scams and irregularities degrade this one-trick island. After the full moon party is over, the airport is built and the backpackers left the place, the full potential of this astonish piece of tropical paradise will be visible for everyone. Therefore, it is a sophisticated investment strategy to buy the land now by avoiding the pitfalls and weaknesses.

Professional service offer from Bangkok for Koh Phangan and other exotic locations

Assignments on real estate investments are one of the core business activities with a particular competence, long-standing experience, and unique market reputation of the law firm. PUGNATORIUS Ltd. typically provides these seven services:

  • Investment structures for foreign property acquisitions
  • Property due diligence examination
  • 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.”

Disclaimer:A little knowledge is a dangerous thing. This low-resolution high-level outlook constitutes neither legal advice nor an attorney-client relationship.  Secure your investment in Koh Phangan.

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