Buying Overseas Property: Frequently Asked Questions
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FAQs
Some aspects will of course be market specific, but we have broken down the buying process into 12 generally applicable steps. In any property market, having an understanding of each step and the overall process is very important for mitigating risks and maximising the likelihood that you will be happy with your purchase, but this is especially true as you are buying a holiday home and/or investment property overseas, a very different proposition to real estate acquisition in your country of residence.
STEP 1.
WHY ARE YOU BUYING THE PROPERTY?
Ask yourself about your reasons for buying the property. Is it your dream holiday home to enjoy with family and friends, or is it just a straightforward investment opportunity? Very likely, it’s a combination of the two. Once you’re clear on your purpose, you can make decisions about what type of property to buy, the location and proximity to services, how much to spend, how you’re going to finance the purchase and how you’re going to structure the deal.
STEP 2.
KNOW THE PROPERTY LAWS
This is of paramount importance because the laws for buying property in abroad are very different to those of your own country. There are stringent laws and regulations about the type of real estate foreign people can and cannot own and the ownership structures they can employ. For example, concerning in Thailand, one of the most important restrictions to be aware of is that a foreigner cannot register the freehold of land directly in their own name – please see the following link: https://charlesdel.com/legal-and-tax-thailand/
STEP 3.
SEARCH ONLINE AND CHOOSE YOUR AGENT(S)
You want to be able to research and evaluate all suitable properties without dealing with too many agents. It advisable to decide upon one or two independent agents. Look for an independent agent with a diverse portfolio who is responsive, experienced and knowledgeable. By firing off some emails and assessing the timing and content of their responses, it will not take you long to see which agents offer the quality of service and guidance you require.
STEP 4.
BOOK YOUR INITIAL VIEWING APPOINTMENTS
Following your online research about the property market and your dialogue with your agent(s) of choice, you will be in a position to decide upon your initial shortlist of properties and schedule the first round of viewing appointments.
STEP 5.
VIEW PROPERTIES
This is the fun part and involves the physical viewing of properties when you actually arrive at your destination. Seeing a reasonably broad selection of properties is advisable. Though it can be quite mentally wearing, this is the only way you will really understand the market. Every time you go on a viewing you are discovering more about the region and finding out about what you really want. Properties of serious interest will merit second viewings as you work towards a final shortlist.
STEP 6.
NARROWING DOWN THE SHORTLIST AND CHOOSING YOUR PROPERTY
Take time to compare and contrast the properties on your shortlist and weigh up what’s going to work for you. Properties on your final shortlist will be viewed two or maybe three times. Be objective and narrow down the list to decide upon a property based on your investment criteria.
STEP 7.
CHOOSE YOUR LAWYER!
Many people will view properties and even decide on a property and make an offer before meeting a lawyer. However, it is advisable to at least have an initial consultation with a lawyer(s) and decide which lawyer you will be engaging before committing to a property purchase. Most lawyers will explain the ownership options and give you some initial guidance before they have been officially engaged. Once you have chosen a lawyer, you will in a position to officially engage them and quickly move forward with a purchase.
STEP 8.
MAKING AN OFFER AND NEGOTIATING
Making offers and negotiating is done through your real estate agent. Remember, unless the property is listed as non-negotiable, often the case with off-plan projects, the vendor will expect you to negotiate. Always stay calm and stick to your budget!
STEP 9.
PUT DOWN A DEPOSIT
When you have finally found the property you want and agreed on the price, then it’s time to sign a reservation agreement and pay a holding deposit. If you are buying in a development, the developer will normally have a standard reservation agreement. If you are buying a stand-alone property, you can use your lawyer to draft the agreement. Either way, the agreement should state that your deposit is fully refundable if, following the due diligence process, any legal reason is uncovered which indicates that you should not proceed with the purchase. By paying the deposit, you show the seller that you are committed to buying the property and in turn they take the property off the market for the period specified in the reservation agreement.
STEP 10.
DUE DILIGENCE
Before you actually complete on any property and take ownership, it is of course of fundamental importance that you get your appointed legal representative to carry out all the necessary legal checks, commonly known as conducting due diligence. The main areas of consideration for legal due diligence are the following:
- Does the property have legal right of access?
- Is the property unencumbered, i.e., free from any mortgages, liens or debts?
- Does the seller have the proper legal rights to sell the property?
- Does the property breach any regulations concerning Thai real estate?
- If the property is being sold with a company, does the company have any outstanding debts or tax liabilities?
Note, a lawyer’s due diligence only checks for any legal reasons why you should not proceed. You need to carry out your own due diligence to assess risk. For example, if buying from a developer, you should ask, how well funded is the developer and to what extent are they relying on sales to pay for construction? This is an indicator of their level of exposure to a downturn in the property market. Or, does the developer have a proven track record of completed properties as reassurance for high quality timely delivery? Proper due diligence is essential for the purchase of any property, especially in overseas markets; it is imperative that everything is in order and you are totally satisfied before you complete and take ownership.
STEP 11.
TIME TO COMPLETE AND SIGN ON THE DOTTED LINE
Once you are totally and utterly satisfied that due diligence has been completed and that there are no legal or other reasons why you should not proceed then you are ready to complete. If you are buying a finished property, unless finance is on offer, you would typically pay the balance in full at the same time as you sign the sales and purchase agreement. If you are buying an off-plan property or a property under construction, you would sign the sales and purchase agreement, plus typically a construction agreement and pay the first instalment as per the agreed payment schedule.
STEP 12.
PROPERTY HANDOVER
Finally, you can take possession of your new home. Reality usually hits when you are handed the keys. Don’t get too carried away in the moment though, make sure you are given all relevant documents and guarantees and that all fixtures and fittings are in place. If you’re buying a new build who you will of course go through a snagging list with the developer.
When looking at the best locations in Koh Samui to buy a property, the answer of course largely depends on the buyer’s individual preferences and reasons for purchase. How close they want to be to the main tourist hubs, restaurants, bars and nightlife, amenities such as the airport, the international hospitals etc, the importance of rental returns, closeness to a good year-round swimming beach, or preference for a more tranquil setting in a less developed part of the island are all factors to be assessed.
The main tourist hub of Koh Samui is Chaweng Beach in the north-east region with its long stretch of soft powder-white sand, numerous resorts, bars, restaurants and shopping facilities. Commercial property development, the most important amenities on the island, such as the airport, hospitals, shopping malls etc., and also residential real estate has naturally developed in and around the area of Chaweng. Hence, in terms of overall market demand for property, the most popular Northeast, in close proximity to Chaweng, is where a majority of property development has occurred and where most people, but not all, seek to buy property.
There is virtually no residential property for sale on or next to Chaweng Beach itself, (one notable exception being Mia Palm) as nearly all this real estate was long ago developed for hotels and resorts. Hence, the most sought-after areas are other locations in north-east region driven by factors such as quality of beachfront, quality of sea view, proximity to amenities, restaurants and bars. Within the Northeast, the areas most in demand for residential property are Choeng Mon and Plai Laem, Bo Phut and Chaweng Noi. All four areas have great beaches, Choeng Mon Beach arguably the best beach on the island, and offer stunning ocean and island vistas from their hillsides. Plai Laem also includes highly-desirable Tong Sai Bay, Tongson Bay around the north-east peninsula with a number of high-end resorts. Bo Phut includes Fisherman’s Village, which has a good range of high quality restaurants, chic bars and an a tasteful open-air shopping centre. Chaweng Noi, just south of Chaweng, offers magnificent ocean views of Chaweng Bay and a lot of high-end villa development is found on the hillside.
After Chaweng, the second most popular tourist town is Lamai on the south-east coast. As with Chaweng, the area of Lamai Beach itself has all been developed by hotels. However, A lot of residential property development can be found on the surrounding hillsides and nearby beaches such as Hua Thanon and Laem Set.
Other main areas worth noting for residential property include the north coast, partly due to the quality beach of Maenam, stretching to the north-west coast at Ban Tai/Bang Por – these have more peaceful beaches than Maenam but still great sand. For exclusive high-end beachfront villas, the west coast at Lipa Noi is popular due to the good quality of the beach and the sunsets. For expats and fulltime living, Ban Rak in the north-east is popular plus less developed areas in the south such as Taling Ngam and Laem Sor.
What are the different taxes you need to consider?
When purchasing a property in Spain, you can expect to pay several taxes. These include Value Added Tax (VAT) or Transfer Tax (ITP), Stamp Duty, Notary and Registry fees, and potentially Capital Gains Tax (if applicable).
What is the Value Added Tax (VAT) or Transfer Tax (ITP)?
VAT is typically imposed on new properties and is set at a rate of 10% of the property’s purchase price. However, in some cases, Transfer Tax (ITP) is applied instead, ranging from 6% to 11% depending on the region.
What is Stamp Duty?
Stamp Duty, also known as Documented Legal Acts Tax (AJD), is a tax imposed on public deeds, mortgage loans, and other legal documents related to property transactions. The rate varies by region and typically ranges from 0.5% to 1.5% of the property’s value.
What are Notary and Registry fees?
Notary and Registry fees are charges associated with the legal registration of the property transaction. These fees are determined based on the property’s value, the complexity of the transaction, and the chosen notary and registry.
When is Capital Gains Tax applicable?
Capital Gains Tax is applicable when selling a property in Spain. It is calculated based on the difference between the purchase and sale price, with rates ranging from 19% to 23%. However, there are exemptions available for residents and specific circumstances.
Are there any additional taxes or costs to consider?
Apart from the aforementioned taxes, it’s important to budget for other costs such as legal fees, property valuation fees, and mortgage-related expenses (if applicable). These additional expenses should be taken into account when calculating the total cost of purchasing a property in Spain.
Are tax rates the same throughout Spain?
No, tax rates can vary depending on the region in Spain. Each autonomous community has the authority to set its own tax rates, so it’s essential to be aware of the specific rates applicable in the area where the property is located.
Do non-residents have different tax obligations?
Yes, non-residents in Spain have certain tax obligations. For example, they are required to pay income tax on rental income earned from the property, even if they are not Spanish tax residents. It’s important to consult with a tax professional to understand your specific tax obligations as a non-resident property owner.
Can I benefit from any tax incentives or deductions?
Yes, there are certain tax incentives and deductions available in Spain, such as deductions for first-time buyers or for using renewable energy systems in the property. These incentives can vary, so it’s advisable to consult with a tax expert to determine if you qualify for any deductions or incentives.
Before you consider investing in land in Phuket for any type of property development, or even solely for land banking, it is essential that you fully understand the different building regulations according to different zones. In Phuket, along with other Thai destinations such as Koh Samui, there are many failed projects where the investor did not do the proper due diligence concerning zoning restrictions on their land. It therefore goes without saying that you engage these services of a reputable and experienced lawyer to conduct thorough due diligence on any land in question, bearing in mind the type of property development project you have planned. Here we summarise the most important zoning restrictions.
Restrictions according to distance from shore:
- Nothing can be built directly on the beach, within 20 meters of hightide (typically this is the boundary on the land title deed)
- Within 20-50 meters of the high tide mark inland you may build to a maximum height of 6 metres
- Between 50 meters and 200 metres inland you may build to a maximum height of 12 metres
- Between 200 metres and 400 metres inland you may build to a maximum height of 16 metres
- Anywhere else, the maximum height is 23 meters (other restrictions may apply – see below)
Restrictions according to altitude:
Height restrictions play a critical role in Phuket’s building regulations. According to local laws, the maximum height for any structure is restricted to 80 meters. Notably, this measurement is from sea level to the pinnacle of the building, rather than from the ground level of the property. Consequently, if your land is situated on a hillside that is 70 meters high, the allowable construction height for your house, villa, or condominium is capped at 10 meters (approximately 32.8 feet).
Restrictions according to gradient of the land:
Land gradient is another significant aspect to consider under Phuket’s building regulations. The 2018 amendment to the laws now prohibits construction on some of the steeper slopes of the island. While premium properties often boast scenic hillside views, developers and homeowners must ensure their land complies with the 2018 regulations concerning land gradient. The Ministry of Natural Resources and Environment mandates that construction is not permitted on land with a gradient exceeding 35 degrees. Additionally, there are stringent controls on building elevation. Structures erected at 40 meters or higher above sea level are restricted to a maximum height of 6 meters. This rule is less likely to impact individual homes like hillside villas but could significantly influence larger-scale constructions, such as hotels or condominiums designed to offer sweeping views. For smaller-scale developments, adapting to these regulations may be more manageable. Projects with 29 units or less are exempt from Environmental Assessment procedures. Larger developments, in contrast, will face an array of new criteria to meet regulatory approval.
Restrictions according to width of the access road:
Thailand, including Phuket, enforces regulations that dictate a building’s maximum height and its set-back distance from the road, both of which hinge on the road’s width. For instance, if the access road is less than 6 meters wide, there are specific requirements for how far the building must be set back from the road. Additionally, the permissible height of the building is also regulated. In essence, the allowable building height and the required distance from the road will vary in accordance with the width of the access road. This is to ensure that the development is in harmony with infrastructure capacities and to maintain a consistent urban landscape.
Government forestry land, national parks & conservation areas:
Phuket, along with other regions in Thailand, has a history of transactions involving large tracts of mountainous or beach-adjacent land that were illicitly sold to private entities. These lands, often situated on scenic capes or hillsides, are actually under the jurisdiction of the Department of National Parks, Wildlife and Plant Conservation, a subsidiary of the well-known Ministry of Natural Resources and Environment and were not legally available for sale. While such occurrences have diminished, the issue persists, with construction still taking place on what is termed “dirty land.” The existence of a villa, condominium, or hotel for years does not exempt it from legal action; the land remains the property of the government and, by extension, the Thai public, and it may be subject to reclamation at any time. Importantly, there is no statute of limitations on these matters. In cases where land is revealed to be part of a national forest, forest reserve, or any public land, the buyer may face total loss without compensation, regardless of being misled during the purchase. Experienced lawyers play a critical role here, as comprehensive due diligence is often the only means to uncover such latent legal issues.
