Wherever you invest in property around the world, it’s always wise to carefully consider your exit strategy, especially if you don’t intend to own the property indefinitely. In this article, we’ll discuss general considerations for exit strategies in any property market, followed by a closer look at key considerations specific to Thailand.
Planning your exit strategy in advance not only influences the type of property you choose but also how you structure ownership. A well-considered plan won’t guarantee a quick sale, but it will certainly increase the likelihood of selling in a tax-efficient manner and within the timeframe you desire.
General Considerations:
Choice of Location
Location is one of the most important factors in determining how liquid your property will be. A property in a high-demand area, especially one with limited supply, will generally be more appealing to potential buyers. This appeal can be based on factors like proximity to amenities, scenic views, or the property’s general reputation. A home in a popular region or city with strong economic growth will likely sell faster compared to properties in less developed or remote areas.
Price Point
While there’s no universal rule, higher-priced properties tend to appeal to a smaller, more specific buyer pool. That said, the luxury market can be more resilient, particularly during economic downturns, as high-net-worth individuals often continue investing in premium real estate regardless of broader market conditions. If a quicker resale is your goal, mid-market or affordable luxury properties may give you access to a broader audience, making the property easier to sell.
Style of Property
When purchasing a property, it’s crucial to consider the tastes and preferences of potential future buyers, not just your own. While you may prefer a traditional villa with rustic charm, the market may lean toward more modern, contemporary designs. You need to consider prospective buyers rather than yourself when formulating your exit strategy. Analysing local trends and understanding the aesthetic preferences of buyers in the region will ensure you have a wider resale market when it comes time to sell.
Ownership Structure
The structure through which you hold the property will significantly impact your ability to sell it. For instance, if you’ve purchased the property with other investors, reaching a consensus on when and how to sell can complicate the process. Likewise, certain ownership models, such as leaseholds or properties held via companies, may involve additional steps or legal hurdles when transferring ownership to a buyer.
Market Conditions
Broader economic conditions also affect how easily you can sell your property. Are you buying in a market that’s experiencing growth, or is it undergoing a downturn? Tracking both local and global market trends and adjusting your exit strategy accordingly will put you in a better position when the time comes to sell.
Regulatory Environment and Tax Implications
Understanding the local laws and tax policies is vital when planning your exit strategy. Some countries have restrictions on foreign ownership, which can limit your pool of buyers. Additionally, capital gains taxes, exit taxes, or transfer fees may impact your profits. It’s important to know how these regulations will affect your bottom line so you can plan for them in advance.
Maintenance and Property Condition
Regular maintenance of your property is key to preserving its value. Buyers will be more attracted to a property that’s been well looked after and is in good condition. Ensuring your property remains move-in ready can help you secure a better price when it’s time to sell.
Currency Risk
For investors purchasing property abroad, exchange rates between your home currency and the local currency can impact your returns. Currency fluctuations could erode profits or, conversely, enhance them. So, you may wish to consider the volatility of the currency of the country in which you are considering investing—highly volatile currencies will make it hard to anticipate future capital gains.
Time to Sell
Different property markets have varying average selling times. In emerging markets, properties may take longer to sell due to a smaller buyer pool. Understanding the liquidity of the market will help set realistic expectations for how long it might take to sell your property. Broadening your marketing efforts to include both local and international buyers can also help.
Exit Strategy Flexibility
Having a flexible exit strategy is an advantage. For example, offering financing options or being open to leasing the property can broaden your pool of potential buyers. By exploring different avenues for exiting the investment, you’ll have more options when it’s time to sell.
Considerations Specific to Thailand
When considering exit strategies in Thailand, the key factors are closely tied to the ownership structure of the property. To understand the exit strategies specific to Thailand, it’s important to grasp the country’s regulations concerning foreign ownership and the different holding structures available.
Foreign Ownership of Land and Houses/Villas
Thai law prohibits foreigners from owning land outright. Foreign investors can only lease the land, with a maximum lease term of 30 years. This lease can be registered in the foreign buyer’s name, but they cannot hold the freehold title to the land directly in their own name. For landed properties like houses or villas built on land, foreigners can own the structure itself and register it in their name but not the freehold of the land.
Many villas and houses in Thailand are marketed to foreigners with renewable 30-year lease agreements. Typically, these leases are structured with the option to renew for additional 30-year terms, often built into the initial contract. While these agreements may be paid for upfront at the time of purchase, there is some risk involved. For instance, if the land is sold, the new owner may not honour the lease renewal. This uncertainty stems from a lack of clear legal precedents in Thai law regarding the enforceability of lease renewals.
To circumvent these foreign ownership restrictions, some investors establish Thai companies to hold the freehold land title. In these setups, the foreign investor typically acts as the controlling director, although Thai law mandates that the foreign shareholding cannot exceed 49% and the company must have at least two Thai shareholders. However, using a Thai company as a mere holding vehicle for land is against Thai law and could face legal challenges. A Thai company that operates as a legitimate business, generating income and paying dividends to its shareholders, who are not merely nominees, is permissible under the law.
Foreign Ownership of Freehold Condominiums and Apartments
In Thailand, “condominium” and “apartment” are often used interchangeably, but they have distinct ownership structures for foreign buyers. Freehold condominiums provide the option for foreign buyers to own units outright in perpetuity, whereas apartments do not.
Freehold Condominiums:
Condominium developments with a special license allow developers to sell up to 49% of the total floor area to foreigners on a freehold basis. A foreign buyer purchasing within this quota can register the freehold in their name and hold it indefinitely. Once the 49% foreign freehold quota is reached, foreign buyers of the remaining units can only secure ownership via a 30-year lease or by holding the freehold through a Thai company.
Additionally, buying a condominium in Thailand typically grants the owner co-ownership of the development’s common areas, such as parking, pools, gyms, and gardens. This is another factor that can make freehold condominiums more attractive to potential foreign buyers.
Apartments:
In developments without a condominium license, foreign buyers cannot purchase units on a freehold basis. Ownership is secured through a 30-year lease or via shares in a company that holds the land’s freehold. These limitations often make leasehold apartments less attractive to overseas buyers compared to freehold condominiums.
Key Points for Selling Property in Thailand
Freehold Condominiums:
Freehold condominiums are generally easier to sell to foreign buyers because they can transfer ownership directly and hold it in perpetuity. Unlike leasehold properties, there’s no concern about the remaining term on a lease. This ease of transfer makes freehold condominiums more desirable for those seeking a straightforward exit.
Leasehold Properties:
In contrast, leasehold villas, houses, and apartments come with the challenge of lease terms. A buyer will of course be concerned if minimal years remain on a 30-year lease, unless the lease can be renewed upon sale, or the buyer has confidence in future renewals. Ensuring clarity on lease renewals is essential for attracting buyers.
Freehold Houses and Villas:
Villas and houses with their own freehold land, when owned through a company structure, present unique challenges in the resale market. Many foreign buyers are unfamiliar with using a Thai company to hold property, which can be a deterrent. Ensuring that the company is properly structured, with compliant accounts and no use of Thai nominees, is critical in easing potential buyers’ concerns.
If a new buyer needs to set up a company to purchase the property, the transactional costs—company creation, government transfer fees, taxes, and legal fees—can be significant. However, in many cases, the sale can be completed by transferring shares in the existing company, allowing the buyer to take over control without changing ownership of the asset itself. Due diligence on the holding company will be essential to facilitate this type of transaction.
Offshore Holding Companies:
For high-end villas or houses, investors may have been advised to use an offshore holding company. In such cases, the offshore company acts as the foreign shareholder in the Thai company holding the land. However, transferring ownership through an offshore entity adds complexity, administrative costs, and potential legal issues. Most buyers are unlikely to take over an existing offshore company, making the process more complicated.
Mortgage Finance Limitations:
One significant point to consider when selling a property in Thailand is the fact that overseas buyers have very limited access to mortgage finance. Due to the complex ownership structures and local regulations, most banks and mortgage lenders in Thailand and other countries do not offer mortgage finance to foreign buyers. This significantly reduces the pool of potential buyers, and many investors are unaware of this limitation until later in their property search. As a seller, it’s crucial to be aware of this factor when considering your exit strategy, as it will likely impact the ease of resale.
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