Investing in Real Estate in Thailand: Where to Invest and How Much Money You Can Make

Thailand has been growing in popularity as a destination for real estate investment. This is a country with a fairly large and reliable economy, a reasonable policy in terms of protecting foreign capital, low taxes, and a year-round tourist flow. The main advantages of investing in local housing include a low threshold to enter the market, high rental yields, and the possibility of receiving a guaranteed income. All that said, to reduce risks before purchasing, you need to be extremely careful in choosing the location, type of property and your investment strategy.

• What Makes Thailand Attractive for Real Estate Investors?
  
• Limitations and Risks
• Factors to Consider When Choosing Property in Thailand
• Investment Strategies
• Deal Closing Procedure
• Taxation

What Makes Thailand Attractive for Real Estate Investors?

Favourable investment environment

The Kingdom of Thailand is one of the largest economies in Southeast Asia with a stable national currency. According to World Bank forecasts, the country's GDP will grow by 4.5% in 2023, which might lead to an increase in demand for real estate. The inflation rate is expected to remain stable at around 1%, which is also a positive signal for the real estate market.

In addition, the government is taking various measures to encourage foreign investment in the real estate sector. These include relaxing property ownership rules, encouraging the creation of real estate investment trusts (REITs), and developing special economic zones.

Tourism

Thailand is one of the most popular tourist destinations in the world, which creates huge demand for holiday properties, rentals, and investments. The industry is quickly recovering from the COVID-19 pandemic. According to the Tourism Authority of Thailand, in 2022, the tourist flow into the country increased 26 times compared to 2021, totalling 11.2 million people. In 2023, authorities expect the figure to increase to 25 million people, which will be more than two thirds of the pre-pandemic tourist flow in 2019. The forecast for 2024 is about 30 to 35 million tourists.

The warm climate and favourable geographical location near China and other densely populated countries of Southeast Asia provide Thailand with a stable flow of tourists throughout the year. This means that well-chosen resort real estate will rarely be empty during the year.

Availability and variety of real estate options

The low entry threshold, especially in comparison to Europe, the USA or Dubai, makes the Thai housing market accessible to a wide range of investors. For instance, even the popular island of Phuket has an entry threshold of about $105,000. You can find a small flat in an apart-hotel or condominium on the island within a budget of $100,000 to $150,000; the price range of villas starts at $350,000.

An abundant selection of properties, including flats, villas, condominiums, and apartments with or without professional management, allows you to find properties that best suit your investment goals and budget. Depending on the location, type of property, and the stage of construction, you’ll find risky options with high potential profit, as well options offering a stable income.

High profitability and growth prospects

Investors in Thailand can earn up to 10% per annum in THB on rentals, while investments in construction can bring up to 30% in two years.

Property prices in Thailand tend to rise, especially in popular tourist areas. Housing prices dropped significantly during the pandemic and are still in recovery now, while demand is growing much faster. Besides that, in some places the amount of available land for high-quality development is limited (for instance, in Phuket). This will also contribute to a further increase in real estate prices.

In general, the country's growing economy and stable tourism sector create favourable conditions for further real estate price growth converting into high returns on investment.

Limitations and Risks

Land legislation

With rare exceptions (such as investments in special investment zones), foreigners cannot own land in Thailand. The law also bans foreigners from owning more than 49% of shares in Thai companies that have land plots. On the other hand, foreign citizens have the right to enter into long-term lease contracts for land (for 30 years with the possibility of extensions). This allows investors to have long-term control over the property.

Peculiarities of private property

In Thailand, there are two forms of real estate ownership: freehold (perpetual ownership) and leasehold (you can purchase lease rights for 30 years and extend them for the same period twice). Foreign investors can own no more than 49% of the total area of a building as full ownership. The remaining share must be owned by Thai citizens or legal entities. With the consent of the owner and the availability of a free quota, foreigners can transfer real estate purchased from leasehold to freehold with an additional payment.

There are different rules for different types of real estate. For example, condominium flats have different cadastral numbers and can be registered individually as either a freehold or a leasehold. The share of a structure foreigners can fully own is still limited to 49% of the total area; foreign citizens have the right to buy the rest of the flat types only under leasehold.

Apartment complexes have only one owner; the units themselves do not have separate cadastral numbers and are transferred to leasehold. When buying a mansion or a villa, foreigners, as a rule, register the building as a freehold, and the land under it as a leasehold. In this case, the only way to register land as freehold would be through a Thai legal entity.

Use of local legal entities

Some foreign investors use Thai legal entities such as limited liability companies (LLCs) or trusts to purchase real estate. This is a rather complicated and risky process that requires consultation with experts in the field of real estate and law.

Currency control

Foreign investors must comply with exchange control rules when transferring funds to purchase real estate or receive rental income.

Political situation

The political situation in Thailand has remained relatively stable in recent years, but since 1932, the country’s history has seen 13 military coups, including two in the 21st century, in 2006 and 2014. The latest one resulted in the government being headed by General Prayut Chan-ocha, who served as Prime Minister until the summer of 2023. In August 2023, former businessman Settha Thavisin (who has mostly liberal and democratic views) took over the ruling position after the general.

Factors to Consider When Choosing Property in Thailand

Location and property type

There are three zones (based on location and economics) that are most suitable for real estate investment in Thailand. The first zone is the developed tourist locations, including Phuket and Pattaya. It is worth noting that while the tourist flow to Phuket has almost completely recovered after the COVID-related restrictions, in Pattaya, due to various circumstances (for instance, due to the lack of a local airport), this process is taking a bit longer.

Phuket is considered the most popular Thai resort: the island has highly-developed infrastructure, and high-quality real estate is being constructed there. The best beaches are concentrated on the west coast; this means that the most prestigious hotels, apartment complexes, and villas are built here. Experts consider Bang Tao, Nai Thon, Kamala, Rawai, Kata, Karon, and Patong the most popular areas for purchasing real estate in Phuket.

Property prices in Pattaya are on average lower, as well as the quality of the flats and villas constructed there. Where the demand is less stable, this is a risk factor that may lead to problems with liquidity: poorly located or low-quality properties will be extremely difficult to both rent out and sell. Compared to Phuket, Pattaya is more focused on domestic and Asian tourism. A significant share of new constructions here are high-rise complexes with small flats.

The second zone of interest to investors consists of developing tourist destinations. This includes the cities of Chiang Mai, Hua Hin, coastal areas, and islands in the provinces of Krabi and Phang Nga, and Koh Samui. Such markets require a high level of investor expertise. As a rule, they do not provide a quick return on funds and are designed for long-term investments (between five to seven years). Prices there are significantly lower than in developed locations, leasing properties will not have high margins and such investments are more vulnerable during various crises. However, in developing areas there is a much higher probability of finding a high-quality and well-located property at an affordable price.

The third zone is the country's capital, Bangkok, along with the surrounding provinces. The real estate market of the capital agglomeration is characterised as developed, with a high level of demand and competition. The main investment properties in Bangkok are condominium flats. Housing, especially in central areas, provides high rental yields and has great potential for price growth. The price range is quite wide due to the significant difference in the class and quality of property for sale.

The basic strategy for generating income in the capital is to buy a flat in a condominium at an early stage of construction and sell it after the building is finished or rent it out for the long term.

Despite a number of problems of the growing megacity (i.e., environment and transportation), high-quality properties are sold out at the pre-sales stage, so if you want a successful sale, you should consider hiring an experienced broker. You also need to pay particular attention to the reputation of the developer, the quality of the project, and the development prospects of the area.

Type of property

Most foreign investors in Thailand choose leasehold since the cost of such real estate is lower on average by 5% to 10%. This form of ownership allows you to save on sales registration and taxes (real estate is not declared and is not subject to annual tax, there is no tax on the transfer of ownership). The downside is that you need to constantly keep in touch with the owner for the sale or renewal of the contract.

Area and layouts

A small studio in a large-scale property unit can generate good rental income, but it will be difficult to resell it later. If you plan to sell the property in the near future, a more promising option would be to purchase two or three studios that can be combined and sold as a two- or three-room flat.

General recommendations

Naturally, we must not forget about the criteria that are important for real estate investors around the world. These include, among others, the reliability of the developer, the quality of construction, a good view, the property price corresponding to the current market conditions, and the likelihood of competitors appearing in the neighbourhood. In resorts, the greatest increase in prices is ensured for properties that are in close proximity to the water and in business city centres — for housing in areas with rich infrastructure and development prospects.

Investment Strategies

The two main ways to generate income from real estate are to resell and rent out.

The former mainly refers to properties in the initial stages of construction. So-called flipping (renovating secondary flats or houses and selling them at a premium) is unlikely to bring significant profits.

According to experts, in Bangkok and popular tourist areas of Thailand, buying real estate at an early stage of construction and selling after completion allows you to receive an income of 25% to 35% within two to three years. In successful projects in Phuket, profits can be even greater since local developers barely use bank loans to finance construction. The average increase in value during construction on the island is estimated at 10%.

Such price-gouging deals promise the highest profits, but bear in mind that they are also the riskiest. It is extremely important here to avoid making a mistake when choosing a project and to join it at the earliest stage possible. 

In terms of rental income, in Thailand's developed tourism markets, short-term rentals are likely to be more profitable than long-term ones; flats and apartments are preferable to villas. For the most successful private owners in Phuket, short-term rental housing can bring up to 10% per annum, the average is 5% to 6%.

The most popular choice among foreign investors in Phuket are serviced flats in condominiums, hotel rooms, or villas in special complexes with organised rentals. As experts note, this format provides the best balance between risks and profitability; such properties have good occupancy and high-quality management.

Until the mid-2010s, most apartment complexes on the island were operated by small companies and private owners with a scattered pool of properties. After that, however, international chains such as Sheraton, Best Western, Wyndham Group, Banyan Tree, and others began to enter the market. Large players take a portion of the profits from investors, but at the same time, they take on many risks and make it possible to ensure a high occupancy rate for the properties.

With the arrival of hoteliers, guaranteed income programmes became available to investors. One of them, for instance, offers a fixed passive income from a management company in the amount of 3% to 8% for a certain number of years; and the investor will receive such an income regardless of the property occupancy. All additional profits go to the hotel.

Nowadays, most new short-term rental properties are launched with a professional management agreement. In such cases, developers can offer a guaranteed return of 5% to 7% for the initial post-completion period of the property (three to five years).

The rental pool programme is also popular. It starts once the guaranteed payment period runs out. The management company determines the total annual cash flow from a pool of similar apartments and distributes the income between itself and the owners (usually the ratio is 70/30 or 60/40). The share of each owner depends on their property, so before completing the deal, make sure you study the terms of the agreement carefully. If things go well, investors can earn 10% to 15% of the property’s price annually.

Two other available options are cashback and buyback. In the former case, the investor begins to receive an annual return of 7% immediately after paying the entire sum of the deal, regardless of the construction stage of the building. As a result, the final income can increase by 15% to 20%. In the latter case, when signing a contract, the developer guarantees that after a certain time they will buy the apartment for a set amount (for instance, they agree to buy it for 110% to 115% of the purchase price after 10 years). This option cannot be called profitable, but is rather safe: in practice, in most cases, the price increase significantly exceeds 15%.

Deal Closing Procedure

The process of registering housing for foreigners in Thailand depends on the type of real estate, the construction stage, the type of property, and the purpose of investment. Here is a general overview.

Booking. After selecting a suitable property unit, the parties enter into a reservation agreement, which specifies information about the property being purchased, its finish date and penalties for not meeting the deadline (for buildings under construction), the sale amount, the reservation fee, the payment schedule, and the buyer and seller’s personal data.

Legal check. After signing a reservation agreement, the investor, with the help of a lawyer, studies the proposed contract. The expert will examine the technical documentation and the ownership papers provided by the developer, confirm the absence of encumbrances on the property and related litigation, check the estimated value of the flat, and the project’s compliance with foreign ownership quotas.

Prepayment and document preparation. Once the seller receives the deposit, they begin to prepare the main contract. In turn, the investor collects a set of documents necessary to complete the deal. This includes passport, marriage certificate, income statements, and other documents that may be required by Thai law.

Signing the contract. The parties sign a contract, after which the seller issues an invoice for the entire remaining amount or for the downpayment according to the payment schedule.

Paying taxes and registering a deal. After depositing funds, the parties pay all necessary taxes, fees, and commissions. The deal is then registered with the Land Department of Thailand.

Obtaining ownership. Depending on the type of deal, the investor receives a document of ownership of the property or one certifying their right of long-term ownership.

Currently, all stages of the deal can be carried out remotely.

Taxation

Thailand has fairly low taxes for buyers and property owners. Tax rates and registration fees depend on the type of property ownership, the tax status of the owner, and the duration of ownership of the property.

The buyer of real estate is essentially charged only one tax. In the case of a freehold, this is a transfer fee tax in the amount of 2% of the cadastral value of the property. If it is a leasehold, a lease registration fee is charged in the amount of 1% of the contract amount for the entire 90 years. As a rule, these expenses are to be shared equally by the buyer (tenant) and the seller (lessor) or to be agreed upon.

Several other taxes may be collected from real estate sellers:

• Specific Business Tax in the amount of 3.3% of the cadastral value or the actual sale amount (whichever is higher) is applied to companies and citizens when selling real estate that has been owned for less than five years. Private individuals registered in the property for at least one year are exempt from tax.
• Stamp Duty in the amount of 0.5% of the cadastral value or the actual sale amount (whichever is higher) is charged only in the cases where the specific business tax is not charged. When transferring a leased property, the fee is 0.1% of the remaining rental price.
• Withholding tax is an income tax withheld from the payer of the income (in other words, it is a payment by the buyer on behalf of the seller as part of the funds for the purchase of the property). The rate ranges from 1% to 35% and depends on the price of the property and the owner’s tax status.

Homeowners are charged an annual municipal property tax (Land and Building Tax). The rate depends mainly on the cadastral price of the property and varies from 0.02% to 0.1%. Owners of villas worth up to 50,000,000 THB (about $1,383,000) or flats cheaper than 10,000,000 THB (about $276,600) are exempt from the tax, provided that this is the owner’s only housing and they are registered in it.

When renting out real estate in Thailand, foreign investors must pay tax on the income received (Rental Income Tax). In most cases, the rate is 15%, but by filing a series of returns and receiving tax deductions you can reduce it to 5%.

In a Nutshell

Thailand offers real estate investors a range of exciting opportunities, from the highly competitive Bangkok market to finding promising real estate in developing resorts. Is it profitable to buy property in Thailand? Yes, if you choose the right strategy and the right property to invest in. Residential condominium complexes and flats with professional management in popular tourist locations (mainly in Phuket) which provide a fairly high and stable income are in great demand. The island also has fixed income programmes from developers and hotel chains. The threshold for entering the market still remains at a low level, while the rapid recovery of tourist flows after the COVID pandemic creates a great base for a rise in prices as well as for the overall development of the real estate segment in the country.

Cover photo: Ao Nang, Thailand. Sara Dubler (Unsplash)