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Bangkok Condo – Buyers Beware When Making Condo Purchase

By on Aug 23, 2013 in Residential

A special article on advice for foreigners who are interested in buying condominiums in Thailand written by James Pitchon, Executive Director – Head of CBRE Research & Consulting, Thailand, for the British Chamber of Commerce Thailand.

For many expatriates working in Bangkok there comes a time when they consider to buy property instead of renting property.Residential Graph

In this article I will look at this question from the perspective of an expatriate living in Bangkok.

There are restrictions on foreign ownership of property in Thailand, generally foreigners cannot own freehold land and the longest length of registered lease is 30 years, but they can own up to 49% of the sellable area in a condominium building on freehold title meaning that you can own the property in perpetuity.  Before purchasing, they should check if the building has remaining foreign quota.

An additional restriction is that, except for permanent residents, all the funds used to buy the condominium   must come in from overseas as foreign currency. The process is to obtain Foreign Exchange Transaction Form (previously known as Thor Tor 3) when they transfer money each time to pay for condominium.  This form is required upon transfer of ownership of condominium at the land department.

There are few banks that are willing to lend money offshore in foreign currency  to purchase a condominium in Thailand. This means that most foreign purchasers need to be cash buyers, for those that can borrow from an overseas bank they need to be aware that they will be taking an exchange risk if the Thai baht depreciates against the currency in which the loan is denominated.

Most condominiums are sold on a freehold basis but there are exceptions. In the Lumpini area some developments are built on land owned by the Crown Property Bureau or Privy Purse and these are only available on a 30 year lease.

The choice for most buyers is whether to buy a project off plan before or during construction or once a development is completed.

If you buy off plan, then normally you pay a non- refundable booking fee which varies from project to project and then on signing the sales and purchase contract, another amount bringing the total paid up to 10% of the purchase price. The contract will specify that a number of monthly payments are made bringing the total paid during construction up to 20-30% of the purchase price with the remaining g 70-80% on completion and transfer of title.

The advantage to buying off plan is that you can choose the unit that you want and in many cases if the development if successful the developer will raise the price during construction. The risk is that you are buying promise from the developer that he will build a project that looks like the brochure and the show units. Consumer protection has become more stringent in recent years binding developers to promises made in brochures and advertising but purchasers still face development risk in terms of timing and specification.

Purchasers can mitigate this risk by looking at the reputation of the developer, have a look at their past projects, if they are a listed company you can look at their financial statement.

The basis of measurement for sellable area includes net internal area and balconies  with a share of common walls but excludes columns and all common areas such as entrance lobbies, floor lobbies and other common facilities. Some developers provide a title deed for the car park but more commonly the title is the common property stating the right to use a car park or car parks.  In buildings with small units there are often less car parks than units and purchasers are not given the exclusive use of a car space.

Final payment is usually made at the land department when title is transferred into the name of the purchaser.

The sales process is quite straight forward but buyers should be aware that their funds are not held in escrow and so they are taking risk on the developers’ ability to complete the project.

For a new projects,  developers will also charge a “sinking fund” (a capital item replacement fund ) that is transferred to the juristic condominium (the co owners association) on registration of the juristic condominium  and developers also charge  a certain period of common area management fees in advance, these amounts will be set out in the sales and purchase contact.

Some buyers will not want to take the risk of buying off plan and will only buy in a completed project either from the developer if there are unsold units or a resale.

Units can also be resold during construction whereby the original purchaser’s contact is assigned to the buyer through a novation agreement that is signed by the vendor,  purchaser and developer with the purchaser taking over the original buyer’s responsibilities for the contract and paying the vendor a price which is normally what the original buyer has paid the developer already and a premium but on some occasions the original purchaser who  is desperate to sell because they don’t have the funds to complete a purchase or who have changed their minds for other reasons may sell at a loss. The most active period for pre-completion resales is normally just before the building is finished.

For purchasers looking at completed projects they can see what has been built and the unit that they are buying, sales prices are however not publically available information unlike the UK or Australia. Most of the listing in the internet has shown the asking prices but no certainty on historical, actual transaction prices.

Prices in Bangkok are determined by the individual market dynamics of supply and demand within each building and not by location. There can be a huge variation in prices between a 20 year old building and a new building being launched off plan in the same location. It is not possible to valuation by street or postcode in Bangkok.

Thai buyers prefer new rather than old buildings and consider anything has been completed for more than several years as being old. New buildings constructed in the present cycle since 2004 have generally been better specified than older buildings but there is value in older buildings where you can get two or three times the space for the same amount of money as a new building. The risk is in the management of the building by the juristic persons. Are they collecting enough money to properly manage the building and have they been spending enough money on capital item replacement?  Some of this is visible from a visual inspection of the building but more detail can be found in the condominium accounts which the buyer can check, simply by looking at the income and expenses to see if the common area fees cover the outgoings, checking the receivables to see if everyone has everyone been paying and seeing what is left of the sinking fund. The vendor should be able to provide a potential purchaser with the latest condominium accounts.

Lastly the question people always ask- “will I make money?“, this is a question that  question I cannot answer as that depends on the market for each building. In some developments there are a steady stream of potential purchasers and prices continue to rise, in other building there are few potential purchasers and prices have not moved or in some cases fallen. Property is not a commodity where prices for the whole market rise or fall by the same amount. Each property and each unit within a property has its own unique features that determine its price and liquidity.  Location and quality of the building will determine the prices and salability.  In todays market, prices of property in the short term may fluctuate but historic records show that property prices on average have steadily appreciated for the best buildings.

Source | The Link Issue 4 2013, Magazine of British Chamber of Commerce Thailand.

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