Buying “OFF PLAN”
Buying off the plan is a literal term for purchasing property that has not yet been built. In other words, making a decision to buy an apartment / condominium or house based on the documentation available prior to construction.
This includes all financial and legal documentation which explains the contractual commitments, architectural plans and exterior/interior visual computer generated images.
Many buy off the plan as an investment, but purchasing fresh off the production line can also offer real advantages for first home-buyers. First home-buyers are generally short on cash and as a result have difficulty in finding funds quickly that are required for a finished property with a sort term settlement. Buying off the plan will give a first home-buyer time – time to save for settlement, time to plan for settlement, potentially time for capital growth prior to settlement (as most developers offer lower prices and financial incentives at the start and put prices up once construction has commenced) and time to make all the relevant applications for the first homeowners grant.
Buying a property which doesn’t yet exist is not for the fainthearted, but many home-buyers and investors have been handsomely rewards for their bravery.
In general, Pattaya is a very safe place to buy. Since the beginning of 2003 when the condo market first really took flight, there have only been a few failed developments out of hundreds now completed and under construction.
The concept is to buy a property off-plan at current prices and when the development is completed a year or so later, the capital appreciation will have made it worth much more. In a strong market, as we’ve seen recently, profits of between 10% and 30% can be made from an initial 10% deposit. During the construction progress, most developers keep rising the prices for the units, so early buyers getting usually the best deals. As a result, demand for off-plan property from developers remains strong.
How it works:
Often, large investment companies will be given the opportunity to buy a number of units for a discounted price pre-launch. The remainder are usually then opened out to individual investors and home buyers at the launch itself. Sometimes agents do get pre-launch homes to sell and they will try to sell these to serious investors already on their database. Either way, the estate agent will provide you with all of the relevant off-plan marketing material and you will have the chance to assess the units on offer, usually by inspecting a show home. The show home is designed to be a typical property equipped with the level of specification you can expect from your own investment. The earlier you get access to the property for sale, the greater the chance of securing one of the better units and of getting a discount on the price. Your negotiating position should be determined by the demand the development is attracting. The higher the demand, the less chance you have of negotiating the price down.
You make a reservation deposit payment to reserve the condo unit, house, villa, land plot. About one month later you sign contract and pay the first installment of anything between 15-30 % of the sales price and the remainder over a period in stage payments based on construction progress or payment plan until it is completed which is usually around two years after launch of the project.
When buying condominium in Thailand with resell in mind, make sure you get your units in “Foreign Quota”. Only 49% of the units in each project are allowed to be registered to foreign nationals, 51% must remain belong to Thai nationals.
Once registered to an expat, the unit can be sold and registered to an expat as it does not change the quota.
- Alternative deposits – which means you can use a lower cash deposit, a bank guarantee or a deposit bond (project dependent).
- Maximize tax advantages (country dependent)
- Stamp duty concessions in some States.
- Customized design possibilities.
- Longer settlement period, allowing for potential capital growth.
- If settlement is longer than 12 months, then often a valuation at the current market price may allow 100 percent finance.
- Interest on deposit is often received by purchasers when cash deposits are made.
- Time to save more cash during settlement period.
- Opportunity to move into a brand new apartment.
WHAT ARE THE RISKS?
- The project may not proceed.
- The finished product may differ to what you anticipated.
- Expected capital growth doesn’t materialize or value may be less than purchase price.
- Developer may go into liquidation which stalls the project and ties up your deposit.
- Project may be delayed and expected rental income not materialize.
Selling condominiums freehold in Thailand is a government contract controlled affair. The sale and purchase contract in an off-the-plan condo project must comply with government regulations issued under the Condominium Act and minimum consumer protection standards. The contract must be a fair contract and comply with the law or the content is not enforceable (Section 6 Condominium Act). An ignored aspect of a sale and purchase agreement in an off-the-plan condo purchase is possible price increase based on the final floor area of the unit to built. In case of a sale and purchase of a condominium building under construction the sale and purchase agreement will usually state that the square meter contract price of the condominium is adjusted based on the final floor area of the condo as measured in the official land office survey and as will noted in the unit title deed.
The condominium sale and purchase contract for a condo in an off-plan condominium development usually include the following clause:
'In the case where the area of the condominium unit to be sold varies from the usable area shown in the relevant title deed, the parties shall continue to be bound by this agreement and shall in no case terminate the agreement on the grounds of such variance. In addition, the parties agree to adjust the purchase price to correspond to the increased or decreased area at the rate of the purchase price per square meter as mentioned above.'
This clause should be amended to limit the allowed price increase by the developer, e.g. that any increase of the usable floor area of the unit by more than 3% will be for the risk of the developer.
New developers tend to be over optimistic and are notorious for under estimating the cost and time of developing land in Thailand.
Be cautious with developers that get involved with projects that are too big for their pocketbook, or experience level. This is especially important with high rise buildings, as many newer companies do not have a full understanding of the costs and the know how involved with high rise construction. This is by far the most important rule to consider.
A proven track record of successfully completed projects in Thailand is a good indicator to evaluate the performance of a developer.