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  Thailand Articles

15 Feb 2008 20:31:10 GMT

Pitfalls to Avoid in Purchasing Thai Property


Purchasing property in Thailand, like purchasing property anywhere and most especially in a new country with new laws and practices, is an experience that should be undertaken only with a great deal of advance planning and care. Many foreigners come to Thailand to purchase property for various reasons: for their retirement; as a second home; or for investment purposes. Purchasing a second home is gaining popularity in many places in the world, and Thailand is becoming a very popular destination of choice as a location for a second home. Welcome to Thailand, and best wishes in your search for a home or investment property in our beautiful country. Here are some of the mistakes we hope you’ll avoid as you consider buying property here.


  1. No Title Search


A comprehensive examination of the title deed recorded at the Land Department should be done prior to placing a deposit or signing a reservation agreement. It should be but more often than not, isn’t. You need to verify that the Seller has clear and legal title to the land before you enter into any contractual agreement. While title insurance is available in Thailand, it is available essentially only to developers of large projects, not to individual home-owners, so this step is listed first because it is the most important mistake commonly made.


The title search will trace the land to its first possession. This investigation will also verify zoning, environmental, and planning codes in the area. Moreover, any mortgage, liens or encumbrances will he discovered during this process. There have been a number of cases where foreign buyers have purchased property only to discover later that they are restricted in terms of structural height on the land, restrictions that rendered the land virtually worthless. This is especially true for beach resort communities where there are height limitations closer to the beach.


It is also worth considering that in some cases “squatters” have established a certain level of legal right to land by virtue of possessing it while the “legal” owner has “abandoned” it. Sometimes those “squatters” believe that they have the right to sell the land. However, if the original owner should return to claim possession of the land, it is unclear as to which claim would prevail. A prospective new owner should be very, very careful to assure that the seller has a legal right to sell the land. This is especially true since Thailand to date has no form of “title insurance” available to the individual homeowner, so a new purchaser could lose both the property and the money they paid for it if a court should determine that the “seller” had no right (or insufficient right) to sell the land.


This is the number one - and easiest to avoid - pitfall, since a title search can be completed within 48 hours. Failure to conduct this step is a grave error and could be fatal to your plans to build your dream house on that wonderful piece of property.


2. Failure to conduct Due Diligence


Every financial transaction requires some sort of due diligence on behalf of the purchaser to verify that it is a sound investment. When you purchase shares of a listed company in the stock market, or a mutual fund, you will generally research the profile and performance of the company or fund. The same is true when you purchase a property from a developer. You should check with previous buyers to see if they are satisfied with the quality and time frame of the construction. If you don't have time to spend on checking the history of the developer, a local lawyer near the development will know or can check the project, find out who their directors are, and what is their performance history.


  1. Buying without a Lawyer


True, it is possible under the law for individuals to purchase a property in Thailand without the services of a local law firm. Perhaps you read and speak Thai fluently and have bought property in Thailand before. If not (and even if so!) this is very risky unless you are intimately familiar with the country, the language, and with the Thai legal system. Contracts in Thailand often do not follow the international standards that you may have been thoroughly cognizant with in your home country. They may seem to be (and indeed are) quite unfamiliar to most foreigners.


That is why, before you sign any deposit agreement or contract, you should invest some time (and, true, some money) to consult with a Thai lawyer to discuss the process. You need to know the correct legal process in Thailand under which a foreigner can acquire property. Remember that you are spending a substantial part of your life savings to acquire this property, and you must carefully plan your steps to make sure that the process protects your interests and accomplishes what you set out to do. Your lawyer in your home country can give you general advice about contracts and agreements; however they will not be familiar with this country's laws as they may not have any experience in dealing with matters here.


  1. Buying without an Estate Agent


In your home country you knew that when you invest in property you should always invest in an area with which you are familiar. Because property markets are affected by so many variables, it is important to know the market and carefully assess and manage the potential risk involved in any transactions.


Investing in Thailand is no different, except that here it is much more difficult for you to thoroughly understand the environment. You will need a trusted representative who is experienced in property transactions in the local area in which you intend to make your purchase. That agent should know how to communicate in Thai, and they should be familiar with the location and the general geographical area. They can show you many quality properties in their inventory based on your needs and desires. Typically, a good agent will weed out the poor quality properties before they begin to show you choices. They want satisfied clients and they will avoid problematic developments.


We think it worth considering investing in acquiring the services of a “buyer’s agent”, also known as an estate agent. This is a realtor or business broker who will work for you to identify and investigate prospective properties. Under typical arrangements (both here and in other countries), a selling agent is paid by – and therefore owes primary allegiance to – the seller of a property. A buyer’s agent is paid by, and works exclusively for, a buyer and is responsible to consider first and foremost your interests. Well worth the cost when making a substantial investment in a new country.


Another important benefit of a using a “buyer’s broker” is that they will act as a conduit between you and the seller. They will try to obtain a fair price for you and act on your behalf throughout the entire process.


  1. Putting the deposit down too early


Sellers and agents obviously want to sell properties. When you have found the ideal property and you are satisfied that it will meet your expectations, the usual process in a transaction is to put down a reservation fee or an earnest deposit. In return, the seller or agent will reserve the property for you and begin the process of drafting the contracts for the acquisition. The deposit is normally a nominal amount and should, in good practice, be fully refundable.


This is not always the case as sellers and agents sometimes keep this fee for the opportunity cost involved while the property was reserved. Unless you specifically draft an "exit" clause in the deposit agreement, for example "subject to a clear title" or "subject to agreement on contract terms," the money deposited is non-refundable. Exit clauses can be items of fundamental importance such as `subject to clear title; or ‘subject to a new title deed being issued' and so on.


6. Not confirming the lease


When acquiring a leased home or business, it is crucially important that you confirm that the lease-holder will permit an assignment of the existing lease, or that they will give you a new lease to your satisfaction. DO NOT ASSUME that a landlord will accept a new tenant, or that they will do so without some additional compensation.


  1. Buying in a Mismanaged Project


Thailand has recently seen a surge in new property developers arriving on the scene to build homes. This is particularly the case with “villages”, or residential subdivisions. These developers vary in size and experience. They may or may not have the necessary experience to manage the project, so you could see delays and other fundamental problems if you buy “pre-construction”. However, these developers might offer better prices and be more flexible in their approach as they attempt to move into a new market, and might better cater to your needs.


The larger developers, on the other hand, are more established and many of them are publicly listed companies. They have the resources, experience and expertise in completing construction projects. They generally will not negotiate on the price of the property and some do not offer any variations that you would like to make to the design plan. They are, therefore, less flexible, but the commercial risk is much less. The key factor is to find a developer with which you feel comfortable. Check their previous projects for the quality of their work and ask questions from people who have purchased from then before. Anybody can put up a sign or even publish a glossy brochure.


8. Not considering the surrounding area


If you purchase in a popular development, most likely the developer will be eager to repeat their success and start a Phase II right next door as soon as Phase 1 is fully booked. You should plan for this accordingly in your plot selection. It would be most unfortunate if, after having waited for a year or more while your new home to be build, and then moving in, to endure another one or two years of construction noise next door.


  1. Choosing on the basis of price alone


There are many variables involved when evaluating price. In general, you should check the prices of adjoining projects in the surrounding area; that would give you a fairly good idea of how to avoid paying too much for your property. In your home country, it is usually possible to check the prices at which “comparable” properties have sold through a regulated body and also by looking at tax receipts of a particular area. Thailand is advancing in this area but you will often – maybe even typically - find large discrepancies between the government's assessed value and the actual price paid for a property. Assessed values, though, may reflect the government’s skeptical opinion of developers’ “asking prices”, and should not be ignored. They are also the price at which your property will be taxed.


Most importantly, though, price is only one consideration when evaluating a prospective property acquisition. The area, the neighborhood, development plans in surrounding areas, access to the beach or to shopping or to schools, are also very important. Find the area you want to be located in first, then negotiate the price.


 10.    Forgetting your heirs


It is strongly recommended that you have a Last Will & Testament prepared in both your home country and in Thailand. It is not pleasant for any of us to think of our eventual demise, and we fervently hope that yours won’t come any time soon. However, you should plan in advance regarding your estate so everything is in order in the unfortunate but inevitable, eventual event of your passing. The last thing you want to do is cause additional stress to your family during this period. Your property in Thailand becomes of value once you sign the contract and make an initial payment. Hence even before the handover of the property you will have an asset to consider for your estate planning.


The Last Will & Testament document will detail your assets in Thailand, such as property, bank accounts, vehicles, and personal items. Typically upon the death of a foreigner in Thailand, the government officer will ask the family for a copy of a Will, or they will seek the deceased person's lawyer for this document. Having a Will drafted in your home country to cover assets in Thailand may be problematic, as documentations will need to be translated, notarized, and approved by a government body. We recommend a separate Will, drawn up with the assistance of local counsel, for your assets in Thailand. It may be interesting to note that Thailand does not have any inheritance tax.


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