Cost To Lease?

[rexall]

Sat 14 Apr 07, 10:35 a.m.

Hello all,

Regarding falang home ownership, I often read and hear that a

30 year lease is now a safe[r], more strictly legal alternative,

especially as the company formation route is shaky or even

closed to falang. Is that still the case? However, I don't recall reading anything about pricing. Is anyone familiar with how lease prices are determined? Is it simply based upon how much the property would sell for or is there an

entirely different concept involved?

How would you determine a fair market price for a 30 year lease on, say,

a house which would ordinarily sell for 1.5 million bahtski ?

I assume you need a lawyer to do it properly. What is a typical feel for that? Any other costs to file the lease or whatever?

Thanks for any info.

Aloha,

Rex

[ProThaiExpat]

Your post is ambiguous at best. Almost all 30 year leases spoken of in TV are leases created in lieu of ownership of the land and the house thereon. The falang gives the money to buy the land and/or the house to a thai, wife, b/f, etc. who buys the property and in exchange issues a lease of the property in question at a nominal rate, usually payable upon completion of the 30 years in one lump sum. The rent, although nominal, is taxable.

Obtaining a lease from a third party landlord for 30 years would seem to be almost impossible unless built in cost and rent increments were included. Few would be interested in such a long lease.

Perhaps more detail in a follow up post would get you better answers.

[rexall]

Your post is ambiguous at best.

Obtaining a lease from a third party landlord for 30 years would seem to be almost impossible unless built in cost and rent increments were included. Few would be interested in such a long lease.

First of all, I see no reason for two pesonal digs (in one post!) in responding to a perfectly reasonable question. And there is nothing whatsoever "ambiguous" about my question: How is the price of a lease determined? For Pete sake!

Yes, I am aware that one approach to leasing property is the sort of "device" you mention about buying for a spouse. I was not aware (assuming that your interpretation is correct) that straight leases are uncommon or "almost impossible." There are many places (Hawaii before land reform as one eample) where because most of the land was held in trust, so that a long lease (99 years) was the only way to approximate home ownership. The lease was treated as just another asset, the significant difference being that ownership tended to appreciate in value and a lease depreciate over time. The advantage to an owner of leasing as opposed to selling would seem to be obvious. But I am obviously thinking a a different model than exists in Thailand.

Aloha,

Rex

[ProThaiExpat]

Rex: Sorry if you mistook my prose as derogatory, it was not meant to be. In addition to the Hawaii model, there is Indian Land, mostly in California, that can only be leased as the Federal Government doesn't allow Indian Land to be sold.

In both of those cases, there is so much history that most sophisticated real estate buyers have liffle fear that the lease be renewed at the end of the term and so the value of the lease does not diminish that much, also renewal is made prior to the end of the lease.

You may well be forecasting the future if the Thai Government changes the Foreign Business Act too much. So far, foreign investment has been made through nominees and Thai corporations in which foreign investors remain in control. However, there is an effort to change that and make ownership of Thai land effectively off limits to foreigners.

If such be the case and a foreign automobile manufacturer decides that it wants to build a manufacturing facility, for example, the level of infrastructure improvement would be so great that a long term lease may well be the only way to amortize the cost over a sufficient length of time to make the investment viable.

[stevejones123]

The standard leasehold period in much of the world is 99 years (there are also 999 year leases but they are freehold to all intents and purposes). As that period is longer than the life expectancy of the youngest buyer, that means the price is more or less what it would be freehold, and of course goes down proportionately as the lease period gets smaller.

As has been pointed out the Thai 30 year lease is neither fish nor fowl; too long a period for a rental agreement, too short for buying. The result, I believe, is that Thais don't buy or sell them amongst themselves, and as has been pointed out they are normally used by foreigners who build a house with a Thai partner, and wish to safeguard some of their rights.

You could always buy a 30 year lease for a price approximating the freehold value; it's doubtful if there would be many sellers prepared to give you a larger discount.

[backflip]

The price of a lease is based upon an agreed upon preceived value of the use of the land. Pretty simple. If you lease a car, substitute "car" for "land". If you lease a boat...well, you get the hint.

[rexall]

as has been pointed out they are normally used by foreigners who build a house with a Thai partner, and wish to safeguard some of their rights.

I got it Steve & ProThai. Thanks. Without giving it much thought, I had been inappropriately applying the 99 year lease model in other parts of the world with the 30 situation in Thailand. You are right, I think, it would require a particular buyer and seller who would uniquely, for whatever reason, benefit from the arrangement.

I wonder what the original intent of the law was? Certainly it wasn't a device created to serve expats and their Thai spouse?

However, this quote from Pattaya4U

.... IMHO the 30 year lease houses are being sold as if they were freeholds

if that makes sense...

I wonder if that is so and if others may have notice such a trend?

Aloha,

Rex

[kdf]

as has been pointed out they are normally used by foreigners who build a house with a Thai partner, and wish to safeguard some of their rights.

I got it Steve & ProThai. Thanks. Without giving it much thought, I had been inappropriately applying the 99 year lease model in other parts of the world with the 30 situation in Thailand. You are right, I think, it would require a particular buyer and seller who would uniquely, for whatever reason, benefit from the arrangement.

I wonder what the original intent of the law was? Certainly it wasn't a device created to serve expats and their Thai spouse?

However, this quote from Pattaya4U

.... IMHO the 30 year lease houses are being sold as if they were freeholds

if that makes sense...

I wonder if that is so and if others may have notice such a trend?

Aloha,

Rex

Hello Rex,

My farang wife and I have been in the house market for a while in Pattaya/Jomtien area. Several of the large developers seem to have been having trouble selling their mid to upper range properties in the current legal/political climate. With some calling up periodically to offer sweeteners. We have been offered 30 year leases with "perpetual extension". When I asked how that would effect the price I was gawked at. Full price of course. I understand that if the property is sold or the owner dies or is dissolved there is no guarantee of the buyer even getting the original 30 years, much less renewals. Also I have been told that the legality/reality of 30 year renewals is not something yet tested or proven in case law. I have further been told that the right to sell or inherit is also not a sure thing.

We are waiting for now.

Good luck

kdf

[Gary A]

A thirty year lease is recognized by the land office. No agreement beyond that is legally binding. That doesn't sound like a bad idea for a farang to control property. What I never hear about are the tax consequences. Apparently the Thai law says that the tax on a lease is 12 1/2 percent per month on the value of the monthly lease. Anyone?

[ProThaiExpat]

Gary A: Here is my personal experience in Chiang Mai, although we are 8km north, so Mae Rim land office has jurisdiction.

I bought from an established developer who had built over a hundred houses by the time I built and has built many hundreds since. He had done business with many falang and spoke English well.

When it came time to close on my custom built home, he and my Thai went to the land office to effect the transfer of the land, no mention of the house built thereon. I paid 900K for the land and the transfer fee at the land office was 8k baht, I was told that the developer underreported to the land office the sales price considerably,

When it came time for my lawyer to effect the lease of the land and house from my Thai, we all went to the land office and I payed 20k for recording the lease and 20k for recording the mortgage. Both documents could be considered a transfer of interest in the property, so there is a fee, I believe.

About three months later, my Thai was contacted by the tax office and asked to pay 200k baht tax on the proceeds of the lease, ie the lease payments which equaled the mortgage payments, so no money changed hands, even on paper.

My Thai went in, plead poverty, no money to pay etc. and a month went by before one day a ring at the door and the tax man was standing there. No English of course, but my Thai translated.

After much talk, the tax man told a story of pleading my Thais poverty with his boss and he got an agreement to accept 10k for the 30 years of lease rental. 333 a year in tax on a 2 million house and land transaction amortized over 30 years. The tax man made it clear that a gift of appreciation for his efforts was required and he actually had receipts for each years tax in hand, each tax receipt was dated for the year in question into the future for 30 years. We agreed of course.

I then sent my Thai off to the supermarket to buy the guy some scotch and to take it to him in his office. That was done and sure enough, a week later, the tax man was standing at my gate waving the scotch bottle at me and yelling Thai.

Subsequently, I had my Thai call him and we were advised that Scoresby scotch was Thai scotch and his boss would be insulted if he were to share such cheap scotch. So this time I told my Thai to buy the tax man 1000Baht scotch, ie Haig and Haig or something similar, which was done and all was happiness.

On hindsight, I might have not put the house in my Thais name, thus avoiding the value of the house appearing in the lease and mortgage. Since my lease and mortgage correctly enumerated the value of the land and house, much more tax was paid than had I stuck with the undervalued property cost stated by the developer, as many falang do, never mentioning the house at all. After all, my Thai can't do anything with the land when a 30 year mortgage liens on it.

I hope I answered your question GaryA, in my highly truncated way, you wish!!

[Gary A]

Gary A: Here is my personal experience in Chiang Mai, although we are 8km north, so Mae Rim land office has jurisdiction.

I bought from an established developer who had built over a hundred houses by the time I built and has built many hundreds since. He had done business with many falang and spoke English well.

When it came time to close on my custom built home, he and my Thai went to the land office to effect the transfer of the land, no mention of the house built thereon. I paid 900K for the land and the transfer fee at the land office was 8k baht, I was told that the developer underreported to the land office the sales price considerably,

When it came time for my lawyer to effect the lease of the land and house from my Thai, we all went to the land office and I payed 20k for recording the lease and 20k for recording the mortgage. Both documents could be considered a transfer of interest in the property, so there is a fee, I believe.

About three months later, my Thai was contacted by the tax office and asked to pay 200k baht tax on the proceeds of the lease, ie the lease payments which equaled the mortgage payments, so no money changed hands, even on paper.

My Thai went in, plead poverty, no money to pay etc. and a month went by before one day a ring at the door and the tax man was standing there. No English of course, but my Thai translated.

After much talk, the tax man told a story of pleading my Thais poverty with his boss and he got an agreement to accept 10k for the 30 years of lease rental. 333 a year in tax on a 2 million house and land transaction amortized over 30 years. The tax man made it clear that a gift of appreciation for his efforts was required and he actually had receipts for each years tax in hand, each tax receipt was dated for the year in question into the future for 30 years. We agreed of course.

I then sent my Thai off to the supermarket to buy the guy some scotch and to take it to him in his office. That was done and sure enough, a week later, the tax man was standing at my gate waving the scotch bottle at me and yelling Thai.

Subsequently, I had my Thai call him and we were advised that Scoresby scotch was Thai scotch and his boss would be insulted if he were to share such cheap scotch. So this time I told my Thai to buy the tax man 1000Baht scotch, ie Haig and Haig or something similar, which was done and all was happiness.

On hindsight, I might have not put the house in my Thais name, thus avoiding the value of the house appearing in the lease and mortgage. Since my lease and mortgage correctly enumerated the value of the land and house, much more tax was paid than had I stuck with the undervalued property cost stated by the developer, as many falang do, never mentioning the house at all. After all, my Thai can't do anything with the land when a 30 year mortgage liens on it.

I hope I answered your question GaryA, in my highly truncated way, you wish!!

The next question is, are you legally married to her and was that before or after the lease was drawn up?

[backflip]

ProThaiExpat,

I've read about "Cheap Charlies" before, but I've never read such an arrogant post by one.

The difference between paying the correct tax, and what you paid, was about $175 year. It's clear that you are very proud of this accomplishment.

Rather than show your gratitude appropriately, you chose to insult the person who assisted you, and you saved less than $50. You are a real hairshirt of a guy. A real prince.

You've shown all of us how little you think of your partner, referring to her as "my Thai" 7 times, believing in ownership, control, and servitude of another human. I'm sure that you deserve to be treated as a king in your abode, and have "your Thai" wait on you hand-and-foot, at you beck and call 24/7. You have one of the greatest minds of the 18th century.

I would encourage you not to get too comfortable where you are, because I foresee "your Thai" owning your home, without you in it - in less than a thousand days. I can't wait to read your posts after that.

Edited April 15, 2007 by backflip

[ProThaiExpat]

It looks like, from the two previous posts, I should have PMd GaryA, who knows me not to be as one post characterized me without any evidence and the other assumed I was married, and I am not.

[Naam]

It looks like, from the two previous posts, I should have PMd GaryA, who knows me not to be as one post characterized me without any evidence and the other assumed I was married, and I am not.

you might be nice a chap in reality. but the fact remains that the language used sounds quite derogatory. even my[not so]humble self -who is not married to a thai lady- found it quite offensive.

[Gary A]

It looks like, from the two previous posts, I should have PMd GaryA, who knows me not to be as one post characterized me without any evidence and the other assumed I was married, and I am not.

If I added correctly you were able to take care of the taxes and the cost of the lease itself for 58,000 baht for the full 30 years. That being the case, I'd say that you have handled it quite well.

[barryofthailand]

I don't know where you guys are coming up with these stories. First of all if you are legaly married to a Thai lady you can legaly loan her the money to purchase a home and register a mortgage not a lease with the land office. This way you are both protected. The current tax rate for a mortgage is 1.05% of the purchase price. this is a one time tax. So who ever is telling stories about high taxes is getting ripped off by someone at the land office.

Barry

[Lancashirelad]

The original (& good question) still doesn't seem to have been answered.

what would be the average per annum cost of a 30 year lease on, say, 1 rai, upon which to build a house?

I also understood the 30 years was guaranteed renewable and was willable, but interesting input by pkf.

can anyone who knows, expand on that?

Edited April 15, 2007 by Lancashirelad

[Tim207]

you might be nice a chap in reality. but the fact remains that the language used sounds quite derogatory. even my[not so]humble self -who is not married to a thai lady- found it quite offensive.

Other possible explainations,

He is gay and doesn't feel the need to advertise it here.

He is a she and doesn't feel the need to advertise it here.

I would assume his relationship to the Thai is something he doesn't want to discuss here so he makes it ambiguous. My first thought was he is gay but it could just as easily be some other relationship that he doesn't want to devulge on an open forum. I suppose he could also be an a$$ that sees his Thai as an object but I think privacy concerns are more likely.

[Gary A]

The original (& good question) still doesn't seem to have been answered.

what would be the average per annum cost of a 30 year lease on, say, 1 rai, upon which to build a house?

I also understood the 30 years was guaranteed renewable and was willable, but interesting input by pkf.

can anyone who knows, expand on that?

Guaranteed renewable by who is the BIG question? Certainly not by the Thai government. It also depends on which crooked lawyer you listen to. Most will write you a contract that says anything you want it to say. That doesn't mean it is legal or binding. The people making the claims have thirty years before they can be challenged.

As far as the taxes, the government wants 12 1/2 percent per month on the monthly rental value of the property. As I understand it, the taxes can be avoided by getting married to the owner BUT then the property becomes common marital property so what good is the lease?

[Naam]

I also understood the 30 years was guaranteed renewable and was willable

neither nor!

[ProThaiExpat]

tim2007: Quite perceptive. Yes, I am gay and have a lifemate of five years who is "my thai", a gender neutral expression that has been complimented in the past. In a non-gay thread, I try to keep gender out of my posts, as that subject is irrelevant.

My post was of a personal experience offered to inform only. I recited facts and events only. I did not characterize my thai or the tax man in any way, so I just don't understand how I was so wrongly judged. Especially when backflip went from condemnation of my post to condemnation of my relationship based on his interpretation of my post. Then to predict the future destruction of my relationship on top of all that, just huge leaps in illogical reasoning.

In five years as a member of Thaivisa, I have only been personally attacked once before and that was by Tornado, so I guess I should consider myself lucky, since I post in my own form of expression with no thought of writing in a humble style in a effort to ingratiate myself with the majority of readers.

[LoveDaBlues]

I also understood the 30 years was guaranteed renewable and was willable

neither nor!

Well, the law can be debated forever; until a court decision is made it would be a pointless debate.

My understanding is that if the lessor and lessee agree in the original 30 year lease to the terms of the 2nd 30 year lease then the lessee has the OPTION to the 2nd 30 years should he choose to do so.

My understanding is also that the lease dies with the lessee; so NO it's not willable. Given the situation, you could be worth much more dead than alive.

Just stating my opinion on this matter; as I said before until it's tested in court at some future date the 30 year option is really a pointless debate.

[ProThaiExpat]

One of the difficulties is predicting the outcome of a lease prevision guaranteeing renewal at the end of the term is that such a lease provision is an agreement to agree on the renewal terms, a provision abhorred by most legal experts. An obdurate landlord could just plain refuse to be reasonable and then the court is put in the position of determining what is reasonable.

The stronger the terms of the guaranteed renewal provision and the specificity of the renewal provision agreed to in the first lease, the closer one gets to creating a lease for longer than 30 years, since the specific terms of the renewal contained in the the first lease, would be viewed as a "de facto" lease or in other words a 30 year lease with a "locked in" additional 30 years, clearnly violative of public policy in Thailand.

One of the essential elements of a lease, which is of course a contract, is "bargained for consideration" and since the rent to be paid or any other provision normally bargained for in negotiations before signing, are pre-determined in the first lease, there is no bargaining and therefore the subsequent lease is a nullity.

[Naam]

Yes, I am gay and have a lifemate of five years who is "my thai", a gender neutral expression that has been complimented in the past. In a non-gay thread, I try to keep gender out of my posts, as that subject is irrelevant.

irrelevant is whether you are gay or straight Expat. but wouldn't it be much more respectful to use instead of "my Thai" the expression "my thai partner"? just my two satangs.

[Arkady]

Gary A: Here is my personal experience in Chiang Mai, although we are 8km north, so Mae Rim land office has jurisdiction.

I bought from an established developer who had built over a hundred houses by the time I built and has built many hundreds since. He had done business with many falang and spoke English well.

When it came time to close on my custom built home, he and my Thai went to the land office to effect the transfer of the land, no mention of the house built thereon. I paid 900K for the land and the transfer fee at the land office was 8k baht, I was told that the developer underreported to the land office the sales price considerably,

When it came time for my lawyer to effect the lease of the land and house from my Thai, we all went to the land office and I payed 20k for recording the lease and 20k for recording the mortgage. Both documents could be considered a transfer of interest in the property, so there is a fee, I believe.

About three months later, my Thai was contacted by the tax office and asked to pay 200k baht tax on the proceeds of the lease, ie the lease payments which equaled the mortgage payments, so no money changed hands, even on paper.

My Thai went in, plead poverty, no money to pay etc. and a month went by before one day a ring at the door and the tax man was standing there. No English of course, but my Thai translated.

After much talk, the tax man told a story of pleading my Thais poverty with his boss and he got an agreement to accept 10k for the 30 years of lease rental. 333 a year in tax on a 2 million house and land transaction amortized over 30 years. The tax man made it clear that a gift of appreciation for his efforts was required and he actually had receipts for each years tax in hand, each tax receipt was dated for the year in question into the future for 30 years. We agreed of course.

I then sent my Thai off to the supermarket to buy the guy some scotch and to take it to him in his office. That was done and sure enough, a week later, the tax man was standing at my gate waving the scotch bottle at me and yelling Thai.

Subsequently, I had my Thai call him and we were advised that Scoresby scotch was Thai scotch and his boss would be insulted if he were to share such cheap scotch. So this time I told my Thai to buy the tax man 1000Baht scotch, ie Haig and Haig or something similar, which was done and all was happiness.

On hindsight, I might have not put the house in my Thais name, thus avoiding the value of the house appearing in the lease and mortgage. Since my lease and mortgage correctly enumerated the value of the land and house, much more tax was paid than had I stuck with the undervalued property cost stated by the developer, as many falang do, never mentioning the house at all. After all, my Thai can't do anything with the land when a 30 year mortgage liens on it.

I hope I answered your question GaryA, in my highly truncated way, you wish!!

The next question is, are you legally married to her and was that before or after the lease was drawn up?

It doesn't matter, if you are legally married or not. The Land Code considered couples cohabiting the same as legally married couples. As long as you made the official declaration to the Lands Dept that the money used to buy the land was hers and that you have no claim on it, the transaction cannot be regarded as a circumvention of the Land Code. However, if you agree to bribe a government official and then send around a bottle of fake scotch, you are going to get what you deserve. I hate the system but generally corrupt government officials are keen their ability to demand bribes which means they have to provide more of less the service they have agreed to. If you have not made the declaration and have irritated government officials, you should prepare yourself for more visits and more bribes. By the way you didn't mention whether you or your Thai were male or female the Thai is always referred to in the passive voice, avoiding the use of he or she. I have nothing against same sex couples but I don't know the Land Offices will accept the declaration in this case, since civil partnerships have yet to come to the LOS despite general tolerance here.

[Arkady]

ProExPat, please accept my humble apologies. I have just seen your earlier post and explanation re the second part of my post. As I said, whiile being legally married is not a requirement, I am not sure if the Lands Dept will accept the declaration in this case and I haven't looked at the Thai wording of the Land Code to see if it is ambiguous enough, although it is possible. I also don't know if it is possible to make the declaration in retrospect. Good luck anyway but careful how you treat government officials. You want them to still be on your side, if the case comes up again.

[ProThaiExpat]

Arkady: You apologies are appreciated but my posts have not dealt with the issues you raise regarding declarations of interest in property filed between husbands and wives or common law versions of the same.

Such a declaration is not possible or required, nor probably accepted, between two men, regardless of how close they are. My factual account of my dealings with a Thai official and a gift of scotch as appreciation for his efforts, were in reference to a tax department official whose duty was to impose a tax on the stated amount of rent called for in the lease agreement.

My wrong impression was that since no money changed hands, the mortgage payments due were offset by the lease payments called for in the lease, and thus no tax was due. I learned later that a mere recitation of payments of rent, whether collected, never payed or a bad debt, are taxable none the less. My original post, which caused some negative replies, was intended to express my surprise that such a great reduction in tax declared due was possible. The gift of the scotch was discussed only to point out that gifts of appreciation made to public officials must be of such a degree as to not cause "loss of face".

I am not one to feel aggrieved by Thai law that requires such devices as leases in order for falang to have some rights of possession over land and houses they have bought and payed for in cash. It might be considered insult to injury to then tax the documents on top of all that, not only for recordation purposes but tax purposes as well.

However, I still hold the western view that it is the right of all taxpayers to minimize the amount of tax incurred in a taxable transaction and in doing so through negotiation, one does not rightfully earn the appellation of "cheap charlie" that I have in one reply post.

[Scottbiker1976]

The original (& good question) still doesn't seem to have been answered.

what would be the average per annum cost of a 30 year lease on, say, 1 rai, upon which to build a house?

Take the cost of the land or land and house and multiply by 1,5%, that's your maximum cost for the lessee for a 30 year lease, it is the owner who pays the 12,5% tax for rental property.

I also understood the 30 years was guaranteed renewable and was willable, but interesting input by pkf.

It is not, you only got 30 years not more, lease is a private right in Thailand and not a business right, so you can never win incourt if the owner don't want to extend your option after 30 years, simple.

can anyone who knows, expand on that?

For more info, contact me by private msg, Scottbiker

[stevejones123]

As I am sure that proexpatThai is commonly referred to as 'X's farang', I fail to see why the phrase should be derogatory.

[backflip]

"but wouldn't it be much more respectful to use instead of "my Thai" the expression "my thai partner"?"

Or, you could simply use a first (nick)name: "Poom did this", or "Da did that".