Buying Off Plan Properties

Buying Off-plan Property in Thailand

Pre-construction in Thailand is not uncommon. Thailand is seeing a current surge in housing and condominium developments despite the slight downturn in the economy. The demand for these projects by foreign investors is still strong, particularly in traditionally popular markets such as Bangkok, Phuket, Pattaya and Hua Hin.

This is not exceptional in Thailand as the rest of the world have for many years embraced pre-construction investment for its highly attractive buy low and sell high scenario. Regardless of this trend, in order to protect your future investment and interest with such types of acquisitions, there are certain things to look out for when buying a pre-construction property here in Thailand.

What is Pre-construction Acquisition?

• Firstly, pre-construction real estate acquisition is the practice of buying properties very early on in the construction process.
• Developers are selling these future properties to customers in order to finance the development itself.
• The customers, on the other hand, are banking on the appreciation of the property once the land has been subdivided all infrastructures and amenities have been put in place.
• There are certainly advantages to buying a pre-construction property such as the relatively discounted price, the choice of selecting a more appealing plot within the project or other added incentives offered by the developer to early buyers.

You should, as you would with any property acquisition:

• Carrying out proper due diligence on the pre-construction development is by no exception, very important. In fact, it is prudent to do so.
• It is often easy to get caught up in the buying excitement and the sales pitch of the developer but it is always important to know exactly what you will be purchasing.
• Apart from title deed checks, you may wish to also check on the history of the developer, their financial standing or any previous projects they have developed.
• You can check if the developer has applied for any necessary licenses required for development or if an environmental impact study has been conducted on the project as these licenses give you some automatic protection under Thai law.
• You can also conduct your own investigation into the values and costs of the property or you may want to have an independent surveyor appraise the property or project for you and compare this with the figures given to you by the developer.

These are just some of the things you can do before signing any contracts with the developer in order to safeguard your future investment.

The Thai Contract Culture

• It is interesting to note here that the Thai approach to contracts in general is linked to its cultural importance to relationships between parties.
• Back home, we place great faith on what is written on paper whereas in Thailand, far greater emphasis is given to relationships itself. Throughout the many years of dealing with international clients, Thailand has shifted its approach to accommodate a more comprehensive type of document.
• A "Boston lawyer" style of contract drafting may still not work too well here and it is still common for Thai parties to give you a 2 to 3 page type contract for all types of matters. This is based on the tradition that the contracts are just an outline of the principles.
• We are much more used to seeing a contract as an exhaustive list of all the rights and obligations which allows for all possibilities and contingencies. So it may be good to keep this in mind when dealing with contracts in Thailand although you will generally find they can be quite accommodating to amendments if your relationship with them is good.
• Some foreign managed developers do tend to offer a more comprehensive contract which we are more accustomed to in the West. However, they still tend to provide contracts which are largely biased against the buyer as opposed to a more 'balanced and fair' approach we are used to back home.

Care should be taken whether you are buying from a local or an international developer.

What to Look Out for in Pre-construction Contracts?

There are some minimum requirements which must be met in a pre-construction contract in order to minimize your exposure to any risks should anything happen. These are some fundamental elements which should be included in every pre-construction contract:

1. Time Frame
   • An agreement should have a time frame which clearly stipulates the starting date for construction as well as its completion date.
   • Check for any extension clauses which normally give the developer a few extra months to complete without incurring any penalties.
2. Price
   • The agreement should state clearly the price, the payment terms and the payment method. Ideally, in a construction agreement this should be listed as a schedule.
   • It should also be calculated by units such as per square meter or square wah as plot size may wary after completion. Be wary of additional charges that you have not discussed with the developer.
3. Payment Penalties
   • Check that the penalties for default of payment are not too burdensome on you.
   • Terms such as immediate rescission of contract and retaining the money you have already paid are not uncommon but there should be a period given to you to remedy this default.
4. Developer's Default
   • Ensure that you have some recourse to a full refund in the event that the developer does not complete the construction due to insolvency or for any other reason.
5. Late Completion
   • Penalties should be given to you, a buyer, if the completion is late.
   • This is normally deducted from the final payment due upon completion.
   • Penalty rates vary greatly in Thailand although for condominiums there is a daily minimum penalty of 0.01% of the total unit price. For homes and villas, the penalties tend to be around the 3,000 THB to 5,000 THB per day figure.
6. Building Specifications
   • The contract should have a comprehensive list of all the materials being used in the construction including its quality, quantity and model. Usually, the more detailed the better.
   • Be wary of substitution clauses which gives the developer the latitude to replace certain materials with "similar or better quality" items should the price of that material increase.
   • Ensure that such a clause is drafted in a way so as to give you the final decision on the matter.
7. Building Floor Plan
   • Ensure that a floor plan is also attached to the main documents.
   • Again be wary of clauses in the agreement which allows the developer to "modify" the floor plan but keeping it 'similar' to the plan agreed upon.
   • You will want to be aware of such deviations whether minor or not and the agreement should be drafted to reflect this.
8. Recitals
   • Ensure that in the recital or in the beginning of the agreement, it states that the developer is the rightful owner of the land in question.
   • If they don't, you should address the concern in the fine print or by adding an addendum by inserting language such as if the developer does not currently hold title, the agreement may be rescinded by the buyer along with full refund.
9. Assignment
   • Many things can happen in the future so it is useful to have an 'exit clause' should your plans change.
   • An assignment clause allows you to transfer the obligations of the agreement to a third party.
   • Note the administration fee due to the developer for this action. An assignment clause may also allow you the option to 'flip' the property should the market be conducive.
10. Alternative Dispute Resolution
    • No matter how careful you are or how good your relationship is with the developer, a dispute may arise.
    • The agreement should have an arbitration clause so settle any disputes.
    • Arbitration is generally less costly and formal compared to court proceedings.

It is always a good idea to have your contracts reviewed by a legal practitioner here in Thailand whether it's drafted in English or Thai. There can be many unanticipated problems associated with pre-construction acquisitions. However, if proper due diligence and research is done and accompanied with a sound contract, you will be in a much better position when making that decision to invest.