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10 Tips to Acquiring Thai Property

Introduction : Separating emotional excitement from the need to impartially assess the risks of an important investment when purchasing a dream home is not easy. A real estate agent may have shown the purchaser glamorous photographs and conducted a personalized tour, so the desire to sign on the dotted line might impair the purchaser’s judgment. The real estate industry in Thailand is largely unregulated and it is therefore imperative that a purchaser considers the following steps and tips as a pre-requisite to achieving that dream.

The Developer : In an unregulated market, and particularly when buying a property off-plan and therefore unseen, a prudent purchaser should do all they can to check a developer and his track-record. When buying off-plan there is nothing to see beyond the glossy marketing information, and until construction is completed the purchaser is always under some degree of risk. A new developer will by definition have no track-record so the purchaser must do all he can to talk to other purchasers and real estate agents. While it inevitable that some risk must be accepted at least let’s keep that risk to a manageable level. As freehold title is not available freehold to foreigners, aside from condominiums (the subject of last month’s article), any acquisition made in a foreigner’s personal capacity must be leasehold, so the developer/land owning company will be the purchaser’s landlord. A prudent investor must therefore establish that the landlord seems likely to be able to uphold his long term obligations under a lease. If the economics justify it, procuring a letter of good standing from the Bank of Thailand or a company credit report might be well justified. A long term lease from a public listed company would be ideal, however an unlikely prospect.

:  Property construction generally requires payment by a schedule of  installments, the frequency of which is determined by milestones in construction being met. The schedule needs to be carefully considered both in respect of the purchaser’s ongoing budget and in respect of the milestones themselves to ensure that the payments fairly reflect the value of the works completed at each stage and are not too front-loaded thus leaving insufficient funds to complete the structure. The advice of an independent engineer or surveyor might prove invaluable.

Leap of Faith
: The decision to purchaser having been made, the next step is often (although not always) to make a reservation by executing e Reservation Form and paying a small percentage of the overall price as a proportion of the deposit. This is a show of commitment which ties both parties to the process and triggers a defined time line within which it is expected that the contract terms will be settled. Care must be taken, as the reservation fee ought to be refundable in certain circumstances, for instance where it is discovered that there is an irreconcilable defect in title. A purchaser should be aware that for all payments into Thailand it is prudent to remit foreign currency. The on-shore rate is better than that purchased elsewhere.

: Having made a reservation the parties will need to agree the form of contracts, which might comprise a sale and purchase contract, a long-term lease, a construction contract, maybe a management contract, and the form of transfer of a building permit for villa ownership, so the contracts will all need to be carefully considered and adjusted according to the best interests of the parties. Competent developers will have all necessary base documents in place to ensure a smooth transmission for the purchaser and his lawyer to review.

Legal Advi
ce : In Thailand the law does not guarantee clear title. All title and land issues should be investigated in the district where the property is located. When choosing a lawyer a local presence is beneficial. Quality legal services need not be expensive and it should be possible to agree a fixed fee rather than employ a lawyer on an hourly rate basis. A reputable firm will have no hesitation to advise initially on a no-charge basis to discuss what is necessary and set the purchaser at ease.

:  The review and negotiation of contracts must be done expeditiously and effectively in order to protect the investment. Until the point of registration which may be at some distant date depending on the payment terms, an effective contract is the purchaser’s only real security. A lease in Thailand can only be registered for a term of 30 years, and although that lease term may be renewed on two occasions the landowner’s obligation to do so depends on the contract. The contract must therefore be written in a way that obliges the landowner to ensure any successor is similarly obliged to renew the lease and that the lease shall be binding upon and inure to the benefit of any succeeding party. Equally the contract must provide that the purchaser has the right to pass on the lease to another, who shall be similarly protected. Occasionally the landowner’s obligation to renew can be underscored by the purchaser obtaining a minority but controlling interest in the landowning entity. Ownership of a lease through an off-shore company is also an option, enabling a property owning company to be sold with no taxable event occurring on-shore within Thailand.

: During the construction phase the purchaser should be regularly informed and updated, and construction milestones being achieved will trigger payment installments. Factual accuracy might be checked by an engineer or surveyor as previously described. More on construction in next month’s article in the Gazette!