Buying property in Thailand is filled with potential pitfalls, and it is an experience that should be taken with advanced planning and caution.
Foreigners purchase property in Thailand for various reasons such as a retirement home, a vacation home, or for investment purposes. The purchase of a second home is gaining popularity in many places in the world.
Just over a third of all homes owned by U.K. citizens abroad are located outside Europe, and Thailand is fast becoming a destination of choice as a location for a second home.
In this article, we identify nine pitfalls that are most common when purchasing property in Thailand.
No Title Search
Prior to placing a deposit or signing a reservation agreement, a comprehensive examination of the title deed recorded at the Land Department should be done. It is important to verify that the seller has clear and legal title of the land before entering into any contractual agreement. A title search will trace the land to the original owner as well as checking for any encumbrances such as liens, leases or mortgages on the title.
A title search will also verify zoning, environmental and planning codes in the area, and also mortgage, liens or encumbrances will be discovered during this process. There have been a number of situations where foreign nationals have purchased property only to discover later that they are restricted in terms of structural height on the land and therefore rendering the land virtually worthless.
Restrictions are especially true for beach resort communities where there are height limitations closer to the beach. A title search can be completed within a few days. 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.
Failure To Conduct Due Diligence
Every financial transaction requires 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 most likely research the profile and performance of the company or fund. It is also true when you purchase a property from a developer. It is important to check with the previous buyers to see if they are satisfied with the quality and timeframe of the construction. If you do not have time or ability to check the history of the developer, a local lawyer near the development will know or can check the project, details of the directors and their performance history. A Due Diligence report will also outline all the information contained in a title search mentioned earlier.
Buying Without A Lawyer
It is possible for individuals to purchase a property in Thailand without the services of an attorney. However, this may be risky unless you are familiar with the country, the language and its legal system. Contracts in Thailand do not always adhere to the international standards and may be different from the buyer’s home country. It is important to take the time to sit down and discuss the purchase process with a lawyer or a solicitor. Before signing any deposit agreement or contract, a buyer should sit down with a lawyer or solicitor to discuss the process. It is also important to be up to date with the correct legal process in Thailand for a foreigner to acquire property. Purchasing property in Thailand can be an expensive and you must carefully plan your steps in the process. A lawyer back home can give you general advice about the contracts and agreements however they will not be familiar with the country’s laws. A lawyer back at the home country may not have the experience in dealing with matters in Thailand.
Buying Without an Estate Agent
In our home country, we are told that when we invest in property, we should always invest in an area that we are familiar with. The property markets constantly change and can be affected by many variables. It is important to know the market and manage the potential risk that may be involved in any transactions.
It is no different investing in Thailand. Purchasers should seek the assistance of a local expert who is experienced in real estate transactions in the local area that they intend to make their purchase. An agent knows how to communicate in Thai and they are familiar with 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 units. They want satisfied clients and they will avoid problematic developments. A buyer may not really know the community. It is wise to find someone who has in-depth knowledge and experience with the property market. The most obvious benefit of a using an estate agent is that they will act as a conduit between you and the seller.
A real estate agent will obtain a fair price for you and act on your behalf to respect your best interest throughout the entire process. Several international estate agent firms have recently established themselves in Thailand. This provides you access to the same international standard of business practice as in your home country.
Putting the Deposit Down Too Early
Sellers and agents want to sell properties. When you have found the ideal property and are satisfied it will meet your expectations, the next 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. This is normally a nominal amount of between 10 percent and 15 percent of the purchase price.
The reservation fee will in most cases be deducted from the original purchase price if the contract is fully performed by both parties. However, in the event that you are not going to go through with the purchase, it is the seller’s right to retain the initial reservation deposit. If in case, it is through sellers default, this amount is usually refundable. It is important to obtain a receipt and terms of agreement in respect of the reservation deposit.
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.
Buying In a Mismanaged Project
Several areas in Thailand have seen a large increase in new property developers arriving on the scene. These developers vary in size and experience. There are many new developers who see property development as a lucrative business and have decided to venture into this industry. They may not have the required experience to manage the project, so these projects would often see delays and other fundamental problems. However, these new developers tend to offer much better prices and are more flexible in their approach to cater to your needs.
The larger developers are more established and many of them are publicly listed companies. They have the resources, experience and expertise to complete construction projects on time. They generally will not negotiate on the price of the property and some do not offer any advice on variations that you would like to make to the designed plan. They are less flexible but the commercial risks are reduced because of their financial stability and experience. It is important to find a developer in which you feel comfortable. It is recommended to check their previous projects for the quality of their work and ask questions from people who have purchased from them before. You will know them by the fruits of their labour.
Consider 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. You should plan for this accordingly in your plot selection. It would be most unfortunate to wait for one year while your new home to be build is being built, and then to move in to endure another one or two years of construction noise next door. You must be aware of the surrounding areas in general so as to avoid blockage of views from other buildings if you are going to purchase on a high floor.
Choosing On The Basis Of Price
There are many variables involved when evaluating the price. In general, a buyer can check the prices of adjoining projects in the surrounding area and that would give them a fairly good idea whether you are paying too much for your property. In most modern foreign countries, it is possible for us to check the value of various properties through a regulated body, and also by looking at tax receipts of a particular area. Thailand is advancing in this area. In Thailand, you are able to check price valuations however you will still see large discrepancies between the government’s assessed value and the actual price paid for a property.
Forgetting Your Heirs
It is recommended that you have a Last Will and Testament prepared in both your home country and in Thailand that includes any newly purchased property. It is not a pleasant thought to think of your demise however you should plan your estate in advance. In the unfortunate event of your passing, it is important to decide how your affairs will be distributed to prevent unnecessary disputes. The last thing you want to do is cause additional stress to your family during this period. Your property in Thailand is a part of your assets 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 and Testament details your assets in Thailand, such as property, bank accounts, vehicle, and personal items. Upon the death of a foreigner in Thailand, a Thai government office will ask the family for a copy of a Will or they will seek the deceased person’s lawyer or executor for this document.
Having a Will drafted in your home country to cover assets in Thailand may be problematic and burdensome to your family. Documentations will need to be translated, notarised and approved by a government body. It is recommended that you have a separate Will for your assets in Thailand. A beneficiary will have to pay certain fees payable to the Land department upon transferring of title, to affect their name in the title deed.
This article was written by Kert Stavorn. Kert is a partner with Siam Legal International and he graduated from the University of New South Wales and the University of Technology in Sydney, Australia, having read both law and communications. A licensed legal practitioner of the Supreme Court of New South Wales, Kert has published a wide range of legal journals and articles for various publications in Thailand and abroad, discussing key legal issues such as arbitration, property law, international law and commercial law. His practice primarily focuses on real estate, construction and corporate matters.
