House Purchase Agreement vs Construction Contract

When purchasing a villa in Thailand, developers may offer two different legal structures:
a sale and purchase agreement or a construction contract.

In practice, these are fundamentally different approaches, even though in both cases the land is typically transferred to a foreigner under a leasehold agreement.

What Is the Difference Between the Models?

Purchase of a Completed House

The developer:

completes construction
commissions the property
obtains a house registration book

After that:

a sale and purchase agreement is signed
ownership is registered with the Land Department
taxes and fees are paid (on average around 6.3%)

As a result, the buyer has:

the main document — the sale and purchase agreement
ownership rights arising after registration

Construction of a House

The developer acts as a contractor and builds the property for the client.

Key features:

the client becomes the owner of the building
ownership arises based on the construction permit
registration with the Land Department is not required
no transfer taxes apply

Key Differences

VAT

Purchase:

real estate sales are not subject to VAT

Construction:

contractor services are subject to 7% VAT
if VAT is not included in the contract, it increases the project budget

Ownership Rights

Purchase:

ownership arises only after registration
until then, the buyer does not control the property

Construction:

the client becomes the owner during construction
from the moment the construction permit is issued

This means:

all risks are transferred to the client at an early stage

Source of Funds

Purchase:

requires proof of funds transferred from abroad (TT3 form)
especially relevant in Phuket

Construction:

no such requirement
you can use:
- funds already in Thailand
- reinvested money

Title Documents

Purchase:

sale and purchase agreement

Construction:

construction permit

Important to consider:

obtaining a construction permit in the name of a foreigner may be complicated

In practice:

the permit is often issued in the developer’s name
then reassigned to the client

These conditions should be clearly defined in the contract in advance.

Conclusion

Purchase and construction are two different legal and financial models.

Purchase:

simpler in structure
clear documentation
but requires payment of taxes upon registration

Construction:

offers more flexibility
may be more tax-efficient
but transfers more risks to the client

The choice depends on:

the investor’s goals
the transaction structure
willingness to manage risks