Is it Safe to Buy Off Plan Properties in Thailand?
No matter what we are buying we want a good deal with high returns at a low cost and at minimal risks. Investing in pre-construction or Off Plan properties in Phuket are a way to achieve all three of those conditions, granted you do your due diligence and make the right investment.
For a list of recommended off-plan investment real estate on Phuket, take a look at our list of Investment Properties in Phuket. Now, let’s dig into what steps you should take in order to maximize your off-plan property investment in Phuket, minimizing the risks of buying a property in Thailand and turning your property into a hassle-free moneymaker.
What are the main benefits of buying an off-plan property?
- One of the main benefits of purchasing off-plan properties is that you are purchasing at a discounted price, well below market value. Current trends indicate that the difference between the off-plan prices and prices for the completed product can be as much as 30-35%.
- The developer might need the money raised from selling off-plan properties to fund the start of the construction, so you are in a good bargaining position and 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.
- In many cases, you can customize the property with regard 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 to have more choices and can get a better plot/unit, rather than choosing from the leftovers at the end of construction.
- There are often other incentives on offer depending on the project, for example, upgraded design features or furniture packages.
What are the potential downsides of purchasing off-plan property?
- The biggest disadvantage of buying off-plan properties is an obvious one; there is no completed product. You simply have an artist’s impression or other marketing material, 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). Virtually all developers on Phuket now also have show units/villas that can be inspected.
- The buyer is at risk during the construction period and therefore must ensure they do their due diligence on the developer (see below). It is however rare that investors pay everything up front, with generous payment terms often offered with a certain percentage of the total cost due during various stages of the building process.
- If you’re looking to buy low and sell high there is a possibility of a price fall. With current trends in Thailand, this is unlikely though.
- If you buy early-stage off-plan properties with the intention of living there, look at how the 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, instead, look at what you can do to minimize the downsides and safeguard your investment as much as possible. We’d be happy to answer all your questions and give a personal consultation free of charge or obligations.
Do your due diligence!
- Research the developer and their previous developments. This will not only help you with the developer's 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?
- Clear terms – make sure what you are getting for your money is clearly laid out.
- Title Deeds – does the developer have the necessary deeds?
- Licenses – has the developer applied for the necessary licenses, such as the Environmental Impact Assessment (EIA). Without this, it is illegal to build.
- Environmental Impact Study – has one been carried out? (Under Thai Law these licenses 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 that minimizes your exposure. (see below)
Can I expect a similar contract to that of Western culture?
The contracts in Thailand are very different from 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.
Western contracts 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 party's 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 that clearly lays out the price, as well as payment terms and methods. The price should be calculated by meter 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 – Research the penalties for non-payment and what kind of window the developer allows for you to remedy matters. It is not uncommon for the contract to be rescinded and money paid thus far retained.
Late Completion – On the other hand, compensation should also 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 completely, 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 developer's 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.
Key Points & Summary
- Do your due diligence and research the developer.
- Ensure you have a contract that safeguards your rights and investment.
- Have the contract confirmed by a lawyer before signing it.
- Keep in touch with the developer and ask to be informed of any issues or modifications.
- Do not individualize the property too much to your tastes if you are not going to use it for residential purposes as simplistic, more generic properties are easier to rent out.
- Take into consideration which extras in the property could generate more rent or interest – i.e. a western kitchen.
And remember, the earlier in the construction process you purchase a property, the better the deal you’ll get.
Do not hesitate to get in touch with us at phuketcondo.net if you have any further questions regarding off-plan property investments in Phuket.