Doing Business in Thailand

Is it worth purchasing a property in leasehold second hand?

Someone today’s asked whether it is worth purchasing second hand a property in leasehold?

Here again all depend what kind of property your purchase.

Apartments in leasehold in building built on Crown Property Bureau Land

For example in the Center of Bangkok there are a lot of apartment buildings which units were sold in leasehold and which are now on the resale market. Most of those buildings were built on Crown Bureau Property land.

The way it works the Crown Bureau Property grants a 30 years non renewable lease to a developer. The developer will built an apartment building and lease the units to buyers for a single period of 30 years (non renewable).

After the 30 years period the building ownership goes back to the Crown Bureau Property which will decide what to do. Chances are that if the building is still in a good condition the Crown Bureau Property may extend the lease to the current tenant at least on a year per year basis but there are no actual guarantees that this is what will happen.

In Soi Langsuan and Rachamdri Road (center of Bangkok) there are many buildings that have been completed before 1997 and were the leasehold agreements are only valid for another 15 to 18 years only. A few of those units are on the resale market now.

Despites the fact that there is only 15 or 18 years of lease left those apartments are still selling at prices that are above the original price of purchase for the whole 30 years lease.

Why?

Simple, because while there is only 18 years of leasehold left those apartments are located within the Center of Bangkok and are still a good deal even with only 18 years of lease remaining. Location, location location is everything when talking real estate purchase.

Purchasing a land and house second hand with a 30 + 30 + 30 lease

If you have read my other posts or my book you will have already understood that I’m not a big fan of the 30 + 30 + 30 because there are a lot of legal issues that make it impossible to guarantee to the buyers that there agreements will indeed be renewed a first time after 30 years and a second time after 30 years.

So you may purchase this kind of property as long as you can accept that you might be purchasing only for 30 years and that beyond this there are no guarantees.

After 30 years it might simply be it. On the other hand you might get lucky and get your renewal (don’t count too much on it).

Anyway if your purchase second hand a land and house into a project sold in leasehold you have two options.

The first option, which is the bad optio, is that the seller assigns to you his lease agreement for the reminder of the first period and the eventual period of renewal.

Do not choose this option. While it goes quicker and request less amount of paperwork you will not have a full initial period of 30 years.

Furthermore the seller may only assign to you the remaining period on the initial lease. Seller may not assign to you the renewal periods. Reason is that renewal periods are not deemed lease rights. They are personal obligations that may be legally transferred to a third party ( the new buyer) only with the written agreement of the lessor.

Therefore go for the second option. Ask the Seller to request from the Landowner that the Seller lease be cancelled and that a new lease be exectuted between the Landlord and the New Buyer.

This way the new buyer will benefit from a full 30 years lease and if he is lucky of the period of renewal.

Is there any advantage in purchasing a Land and House under Leasehold Second Hand?

Yes there is actually a big advantage.

The fact is that most land and houses sold under leasehold in Thailand are actually properties located in development built by what I call first time developers (please read my post of first time developers).

The advantage in purchasing in a first time developer project second hand is that by the time you purchased the project will have already been completed. Therefore you will have a chance to check with the neighbors whether they are happy with the constructions, if utilities or facilities are working and so on. In other words you will execute a transaction far less risky that if you had purchased off plan from a first time developer

Note: This post is an excerpt of Rene Philippe Dubout next book: “How to Invest Safely Into Thailand” to be published in January 2010

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

© Copyrights 2009 – Rene Philippe Dubout – This article may be reprinted if information about the author, the websites, and the URLs remain intact

Originally posted 2009-08-13 17:03:44.

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