Pre-constructed Properties in Thailand: Risks and Payment Terms
When a buyer purchases an existing condominium unit, it is usually settled during an actual transfer at the land office where the customer pays the seller through a cashier’s check. A small amount is usually collected from the buyer upon signing the purchase agreement. However, in the case of an off- plan property, the payment terms are quite different.
When a buyer purchases an existing condominium unit, it is usually settled during an actual transfer at the land office where the customer pays the seller through a cashier’s check. A small amount is usually collected from the buyer upon signing the purchase agreement. However, in the case of an off- plan property, the payment terms are quite different. The buyer is required to pay a substantial portion of the sale price to the developer prior to completion of the construction or even before the groundbreaking. But since, the Thai government does not require an escrow account for the security of the payments, buyers may be facing huge risks when making payments directly to the developers.
Standard Payment Timetable in an Off-plan Project
If there is an agreement for unit reservation between the buyer and seller, the buyer has to pay a reservation fee of about US$3,300 or 100,000 Thai baht. Also, upon signing of the sale and purchase agreement, the buyer has to pay a deposit that amounts to 10 up to 20 percent of the total price of the condominium property. After this, a certain amount is paid in monthly instalments during the course of building construction. The final amount is turned in only upon completion of the project and transfer of ownership.
Payment Process
Monthly instalments are normally paid to the bank account of the developer, not to escrow account of third party entities. This is the normal procedure in Thailand since the developer need the payments to fund the project’s activities. Take note that the new Condominium Act of 2008 or Escrow Act 2008 does not require escrow agreements. Buyers and sellers have obligations provided for by the sale and purchase contract. Other than this, developers do not offer protection or guarantee over instalment payments of buyers.
Risks Associated With the Absence of Escrow Account
The fact that the law does not require one to have an escrow account poses certain risks to property buyers. Once the buyer pays directly to the account of a developer, he or she accepts the risk of losing all the money in an event of bankruptcy or default by the developer. Having already received the money, the developer can be in a stronger position in case of dispute. In the event that a dispute arises between developer and buyer where the buyer fails to make the final payment due to some reasons, like in a case where the developer did not deliver the quality as it had promised, and the developer can declare that the buyer has defaulted. The firm can then have a reason to forfeit the payments made, and sell the unit to someone else. The risks can be minimized if the payments were secured by an escrow account. Making payments to an escrow in a bank or licensed financial institution will ensure that the money does not go to the developer until all conditions of the sale agreement are met. But since this is not the common practice, what the buyer can do is to take the case to court but this can take a while.
What a Buyer Can Do
The buyer can minimize the downside by selecting developers of high and tested reputation. These are normally those with high share capital. The risk of bankruptcy is higher for those undercapitalized companies or those with poor record. The buyer has to take caution when encountering companies that have records on partial completion, substandard quality of building, late completion, and general default. Other developers have also run into problems when they offered a building for leasehold when it should have been for full ownership.