Risks When Buying Pre-Construction
In Thailand, the off-plan condo projects’ standard payment schedule varies, but it normally requires a substantial part of the purchase price to be paid to the developer prior to the completion of the condo and before ownership is transferred. Below is a typical schedule for sale and purchase payments:
- a reservation agreement (if any) with a 100,000 baht (approximately 3300 USD) reservation fee
- A 10-20% deposit of the total condominium price on the condominium sale and purchase agreement’s execution date
- Payment via monthly installments during the construction of the condominium, and the final amount paid upon the completion and transfer of ownership of the condominium
To whom should you pay the purchase price installments?
During the construction of the condominium, payments are often made straight into the developer's bank account and not into a third party escrow account that protects the payment of the buyers. Developers don’t usually offer escrow for the reason that they need the ongoing payments to fund their project. Under the 2008 Escrow Act or new 2008 Condominium Act, they are also not obligated to offer the consumers escrow agreements. In fact, in Thailand, it is very uncommon for property developers to offer escrow arrangements. On the other hand, they are free to require installments or deposits from clients without offering any guarantee or security for such payments (except the contractual obligations under the sale and purchase contract). When the buyer pays the deposit and price installments straight into the developer's bank account, he acknowledges the associated disadvantages and risks. There is a risk for the buyer to lose all money paid in the event of default or bankruptcy of the developer, and because the developer has already received a big part of the purchase price, he has a much stronger position in any dispute. In the event that the developer did not deliver as promised and so the buyer does not make final payments, the developer could say that the buyer defaults upon not paying the final payment installments, implying that he is permitted to forfeit the deposit and installments that the buyer has made so far, and sell the condo to another person (something he won’t be able to do if payments were held in a third party escrow account).
Payment via escrow account means that payments are made to a third party escrow bank /licensed financial institution (not a law firm), who where until the terms of the (condominium) sale and purchase agreement have been met, will hold the deposited cash for safekeeping. Although using escrow servicers offer consumers with greater security, it is not commonly practiced in Thailand.
Company of the property developer
In Thailand, it is not recommended to pay a large part of the purchase price to the developer prior to completion and delivery thereof. However, if the developer is a reputable property developer (perhaps SET listed), with a significant share capital or a local limited liability company (e.g. a company with a 5 million baht share capital running a 100 million baht development), the situation could be somewhat different. Obviously, there are greater risks when it comes to local developers with a property development run by a company of under-capitalized limited liability, most especially when he has no or perhaps a poor track record.
Note: if and when payments are made to the developer (release of foreign currency held in escrow) the developer has the responsibility to issue the required foreign exchange documents for the registration of foreign condominium ownership (FET form).