Thai off-plan condo purchase and escrow
Payment terms and risks when buying pre-construction
When an existing condo unit is sold by the owner the purchase price could be paid by cashier's check at the time of completion of transfer of ownership at the land office. A small deposit from the buyer could be asked by the seller at the time of signing the condo sale and purchase agreement. In the case of the sale of an off the plan condominium in Thailand a substantial part of the purchase price is often paid by the buyer to the developer prior to transfer of ownership and prior to completion of the condo or sometimes even before the work has started. The standard payment schedule in off-plan condo projects is:
- if any, a reservation agreement with a reservation fee of 100,000 baht (approx 3300 USD)
- a deposit of 10 to 20% of the total condominium price on the execution date of the condominium sale and purchase agreement
- monthly installments during the construction of the condominium with a final amount upon completion and transfer of ownership of the condominium (see sample payment schedule in clause 4 of this developer's standard sale contract).
Who to pay the purchase price installments to?
Payments during the construction of the condominium are usually made directly into the developer's bank account and not into a third party escrow account protecting the buyers payments. Developers in Thailand do not offer escrow often because they need the ongoing payments for the financing of the project. They are under the 2008 Escrow Act or new 2008 Condominium Act also not required to offer escrow agreements to consumers. In fact escrow arrangements are very uncommon and property developers in Thailand are free to require deposits and installments from consumers without offering any protection or guarantee for these payments (other than contractual obligations under the sale and purchase contract). Obviously this carries some risk for the buyer. When the buyer pays part of the purchase price directly into the developer's bank account he accepts the associated risks and disadvantages:
- in the event of default or bankruptcy of the developer the buyer could lose all money paid, and
- in any dispute the developer has a much stronger position as he already received a large part of the purchase price. If there is a dispute and the buyer does not make his final payments because the developer did not deliver as promised or delivered a substandard product the developer will say that the buyer defaults by not paying the final payment installments and he will suggest that he is entitled to forfeit the payments made by the buyer and sell the condo to someone else. Something he would not be able to do when the payments were held in a third party escrow account. The buyer could go to court to get his money back but that is in Thailand a frustrating and long route with an uncertain outcome.
Paying in an escrow account means that payments are made to a third party escrow licensed financial institution/ bank (not a law firm), that will hold the deposited monies till the conditions of the (condominium) sale and purchase agreement have been met. The use of escrow services offers greater security for consumers but are not common practice in Thailand.
The property developer's company
Paying a large part of the purchase price to the developer prior to completion and delivery is not recommended in Thailand. The situation could be slightly different if the developer is a reputable (maybe SET listed) property developer with a substantial share capital or a local limited liability company (e.g. a 5 million baht share capital company running a 100 million baht development). There are obviously greater risks with a local developer running a property development through an under-capitalized limited liability company, especially if he has no or maybe a poor track record.
Note: if payments are made to the developer (foreign currency held in escrow is released) the developer is responsible for the issuance of foreign exchange documents required for registration of foreign condominium ownership registration (FET form).
The most common problems
Especially expensive tourist condos do not easily sell in the current market. The most common problems buyers face are:
- the developer goes bust and the project partially completed
- the condominium turns out to be offered as a leasehold
- substandard quality of the built
- late completion
- general default on various terms
- new condominium act to protect consumers
- sample condo purchase payment schedule
- apartment contract price and final price
- practical condominium legal knowledge
- introduction to Thailand real estate laws
- sample condo sale and purchase contracts
- Escrow service for home buyers (article)
- Realty development and escrow (external)