Ten pitfalls to avoid in purchasing Thai property

Purchasing property in Thailand is an experience that should be taken with some advanced planning and forethought. Many foreigners come to Thailand to purchase property for various reasons: for their retirement, as a second home or for investment purposes.

We will look at nine pitfalls which are most common in purchasing property in Thailand.

1. No Title Search

A comprehensive examination of title deed recorded at the Land Department should be done prior to placing on a deposit or singing of a reservation agreement. 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 be 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 and therefore rendering the land virtually worthless. This is especially true for beach resort communities where there are height limitations closer to the beach. This is the number one pitfall since a title search can be completed within 48 hours of you purchase. 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 the 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, who their directors are and their performance history.

3. Buying without a Lawyer

It is often possible for individuals to purchase a property in Thailand without the services of a local law firm. This may by risky unless you are familiar with the country, the language and its legal system. Contracts in Thai land do not always adhere to the international standards that we are used to back home and may seem quite unfamiliar to us.

That is why before you sing any deposit agreement or contract, you should take some time and sit down with a lawyer or solicitor to discuss the process, You need to know the correct legal process in Thailand for a foreigner to acquire property. Remember that you are spending part of your life savings to acquire this property and you must carefully plan you steps in the process. Your lawyer back home can give you general advice about the contracts and agreements; however they will not be familiar with the country’s laws as they may not have the experience in dealing with matters here.

4. Buying without an Estate Agent

Back home, we are always told that when we invest in property, we should always invest in an area that we are familiar with. This is because property markets are affected by so many variables. It is important to know the market and manage the potential risk which may be involved in any transactions.

Investing in Thailand is no different. You will need a local expert who is experienced in property transactions in the local area that you intend to make your purchase. The agent knows how to communicate in Thai and they’re 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 units. They want satisfied clients and they will avoid problematic developments. Think about it: you may not really know the community and it would be wise to find someone who has in-depth knowledge and experience with the property market. The most telling benefit of a using an estate agent is that they will act as a conduit between you and the seller. They will obtain a fair price for you and act on you behalf to respect you 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.

5. 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 of 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 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 a ‘subject to clear title; or ‘subject to a new title deed being issued’ and so on.

6. Buying in a Mismanaged Project

Developers do vary in size and experience. There are many new developers who see the potential in property development as a lucrative business and decided to venture in this industry. They may not have the necessary experience to manage the project so you would often see delays and other fundamental problems. However, these developers do tend to offer much better prices and are more flexible in their approach to 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 in which you feel comfortable with. 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.

7. 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 after having waited for one year while your new home to be build and then moving in to endure another one or two years of construction noise next door.

8. Choosing on the basis of price

There are many variables involved when evaluating the price. In general, you may wish to check the prices of adjoining projects in the surrounding area and that would give you a fairly good idea whether you are paying too much for your property. Back home, 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 but you will still see large discrepancies between the government’s assessed value and the actual price paid for a property.

9. 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 a pleasant thought to think of your demise. However you should plan in advance regarding your estate so the affairs are in order in the unfortunate 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 document will detail your assets in Thailand, such as property, bank accounts, vehicle, and personal items. Typically upon the death of a foreigner in Thailand, the government office 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 b problematic and burdensome to your family as documentations will need to be translated, notarized and approved by a government body. We recommend a separate Will for your assets in Thailand. It may be interesting to note that Thailand does not have any inheritance tax.