Is it Safe to Buy Off Plan Properties in Thailand?
Off Plan Properties
No matter what we are buying we want a good deal, with high returns, lower costs and minimal risks. Pre-construction or Off Plan properties are certainly a way to achieve this when buying a property, wherever you are in the world. Provided of course you are careful, don’t allow yourself to get swept up in excitement or jargon and follow some simple rules.
What is a pre-construction or Off Plan property?
This is a property bought early in the construction process.
What of the benefits of buying off plan properties?
- One of the main benefits of purchasing off plan properties is that you are buying at a discounted price below market value. Current trends show the difference between the off plan price and completed price can be between as much 30-35%.
- As some developers use the monies raised from selling off plan properties to fund the construction you may benefit from larger discounts.
- The ability to secure a high value property for a low initial deposit with affordable staged payments, laid out according to construction progress.
- You can customize the property with regards to fixtures, fittings and interior design. Many of us want our home to reflect our tastes and individuality, not that of strangers.
- As you are buying early this allows you choose a better plot, rather than choosing from the leftovers at the end of construction.
- There can be other incentives on offer or negotiated as extras, depending on the project, for example upgraded design features or furniture packages.
What are the negatives of buying off plan properties?
- The biggest disadvantage of buying off plan properties is there is nothing to see, no house to walk around or facilities to check out. You simply have an artist’s impression or other marketing materials, which can sometimes be misleading. However, the Condominium Act was recently amended to offer more protection to the buyer to ensure they are getting what they have been promised. Note that this act does not cover villas.
- The buyer is at risk during the construction period and therefore must ensure they do their due diligence on the developer. (see below)
- If you’re looking to buy low and sell high there is always the possibility of a price fall, although with current trends in Thailand this is unlikely.
- If you buy early stage off plan properties with the intention of living there, look at how building in later phases may affect your quality of life. Will you feel like you are living on a building site? Will your access be restricted?
- A final downside is you’re paying for a property for sometime before being able to benefit from living in it or renting it out, but patience is its own reward.
Don’t be too discouraged by the negatives, let’s take a look at what you can do to minimise negatives and safeguard your investment as much as possible. You can find some of the investment properties in Phuket on our website. Also you can drop us a line if you have any questions. We’d be happy to answer all your questions free of charge or obligations.
Do your due diligence!
- Check out the developer and their previous developments. This will not only help you with the developers financial standing (going with established developers is always more advisable) but can also help you get a feel for the aesthetics of your development, if similar to previous builds.
- Research the Final Product – when looking into the developer look at previous builds and compare the outcome to their promotional materials. How accurate of their renderings?
- Know what you’re getting – make sure what you are getting for your money is clearly laid out.
- Title Deeds – does the developer have the necessary deeds?
- Licences – has the developer applied for the necessary licenses, such as the Environmental Impact Assesment (EIA). Without this it is illegal to build.
- Environmental Impact Study – has one been carried out? (Under Thai Law these licences can offer some protection)
- Compare – have an independent surveyor carry out an appraisal or do your own investigations into the costs and value of the property. How do these compare with those given to you by the developer?
- Contract – a comprehensive contract which minimizes your exposure. (see below)
Can I expect a similar contract to that of Western culture?
The contracts in Thailand are very different to those with which we are accustomed in Western society. Whereas in the West we put a great deal of focus on having everything written down, the Thai culture focuses more upon the relationship between the parties involved.
These tend to be extremely detailed, iron clad documents, which can often end up in a large document comparable to ‘War and Peace’. However, these do tend to be fair and balanced documents, with both parties interests being assured equally.
These tend to be much smaller 2-3 page documents outlining the main points or principles of the contract, but on the whole tend to be biased against the buyer.
Having said this, as Thailand gains more experience of dealing with foreign investors we are seeing a shift in their approach to contracts and a developer with foreign management is likely to use a more comprehensive contract.
What are the minimum requirements of a pre-construction contract?
Timescales – details of the start and completion date for the development.
Price – There should be a schedule which clearly lays out the price, as well as payment terms and methods. The price should be calculated by metre squared or meter wah (1 sq. wah = 4 sq. m). Be vigilant about additional charges which have not been discussed with you.
Building Specification – Materials should be listed including the amount, the quality and the model where appropriate. This is a case of the more detail the better should substitutions prove necessary later. (see clauses below)
Floor Plan – A floor plan should be attached to the contract.
Penalties & Compensation
Payment Penalties – Check what the penalties are for non-payment and what kind of window they allow for you to remedy matters. It is not uncommon for the contract to be rescinded and monies paid thus far retained.
Late Completion – Compensation should be paid to you if the developer is late with completion. The daily minimum for these is 0.01% and they are generally deducted from the final payment.
Developer’s Default – Should the developer fail to complete the project ensure there is an option for a full refund.
Extension Clause – this will contain the length of grace period allowed to the developer before incurring late penalties.
Substitution Clauses – these relate to the developers right to substitute materials for ones of similar or better value, or modify floor plans if deemed necessary. Make sure this clause reflects that you as the buyer have the final say and wish to be kept informed regarding any deviations.
Assignment – this is an ‘exit clause’ and given that we don’t know what the future may bring it is advisable to have one. This can allow for the transfer to a third party of the obligations or allow you to ‘flip’ the property if the market is agreeable. Ensure you check the administration fees for this.
Recitals – precede the main text of a contract and provide a general idea about the contract to its reader such as, what the contract is about, who the parties are, why they are signing a contract. Ensure that this states that the developer is the rightful owner of the land. If they don’t this should be addressed in an addendum to ensure that you, as the buyer have the right to rescind and receive a full refund if the developer does not hold the title.
Alternative Dispute Resolution – this is an arbitration clause in case things do go wrong. Arbitration is generally less costly than more formal court proceedings.
As always seek the advice of a lawyer with regard to contracts and documents before signing, as there is no replacement for a legal expert in safeguarding your investment.
- Do your due diligence with regard to the developer.
- Ensure you have a contract that safeguards your rights and investment.
- Have this checked by a lawyer before signing.
- Keep in touch with the developer and ask to be informed of any issues or modifications.
- Don’t individualise the property too much to your tastes if you are not the one moving in, as simplistic, more generic properties are easier to rent.
- Do think about which extras in the property could generate more rent or interest – i.e. a western kitchen.
- Remember the earlier in the construction process you purchase the property, the better the deal.