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Issues for the Buyer – Benefits and Risks of Buying ‘Off Plan’ Property or property which is ‘to be constructed in the future’.
Legal Matters: June - August 2007“Why are ‘off plan’ properties a popular strategy for developers?”
On a micro-economic level, developers use ‘off plan’ as a way to ensure that they build to a scale which accommodates demand and will generally use a combination of deposit
funds and project loan or financed backing to commence construction. On
a macro-economic level, this activity helps prevent a glut of
unoccupied property appearing in the market.
(Kris Limcharoen, Partner)
“What are the key risks for a buyer?”
In most ‘off plan’ transactions, a buyer is expected to pay a large proportion of the purchase price prior to receiving legal transfer of title:
• A developer in an unsuccessful development could suffer financial problems
• There could be a defect on the title which the developer is unaware of
• If the development does not turn out in the way a buyer expects – practically obtaining a refund of up to 95% of the purchase price without incurring huge costs relies upon ‘trusting’ the developer/seller to be fair…
• If the project is not insured properly during the construction phase both developer and buyer will lose all in the event of serious or complete damage to the property
At various stages of a transaction, the bargaining power of the parties shifts according to where the control of the transaction monies lies.
(Desmond Hughes, Partner)
“How can these risks be protected against?”
• Avoid signing a reservation contract with binding payment terms unless you consult an adviser first
• Conduct a full title search as soon as possible
• Don’t be averse to negotiating the payment structure, developers should be able to offer some flexibility unless they are financed 100%
• Consider conducting a credit/financial check of the developer
• Ensure that your adviser examines the insurance policy of the development and compares it properly to the terms in the contracts
(Kris Limcharoen, Partner)
“What are the benefits for the buyer?”
An off plan purchase should result in a saving for the buyer due to their taking on the risk of and being patient in respect to their property being built over time. Additionally, buyers will normally be able to tailor-make their property by consulting the developer and architects regarding modifications in advance of construction. If the buyer is using the property as an investment then the buyer will have the time during the property construction-phase to market the property for re-sale or for rental. The legal documents should be robust enough for the buyer to be compensated for unreasonable delays which will prevent an investor-buyer or a home-buyer from being penalised unnecessarily in respect of securing a buyer/tenant or being unable to move into their home on the ‘long-stop’ completion date.
(Desmond Hughes, Partner)
This article is one in a series of articles for Exclusive Homes and was co-written by Desmond Hughes (Partner) and Kris Limcharoen (Partner) based in the Phuket, and Bangkok offices of Belmont Limcharoen respectively and now with an office in Koh Samui.
Information supplied by:
Limcharoen Hughes Glanville (Phuket)
T: +66 (0) 7634 2882-4 F: +66 (0) 7634 2885
E: Phuket@Limcharoen.com
Limcharoen Hughes Glanville (Bangkok)
Tel: +66 (0) 2635 5071-3 Fax: +66 (0) 2635 5074
E: Bangkok@Limcharoen.com
Limcharoen Hughes Glanville (Samui) Co., Ltd
T: +66 (0) 7724 6185 - 7 F: +66 (0) 7724 6188
E: Samui@Limcharoen.com
Limcharoen Hughes Glanville (Ho Chi Minh City)
T: +84 938 8469021 E: HoChiMinhCity@Limcharoen.com
www.limcharoen.com
