Paying in escrow or to the developer in an off plan condominium (or other real estate) purchase in Thailand. Off-plan means buying a property in a planning or pre-construction stage or not yet fully constructed property. The common payment schedule in a condominium development in Thailand 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 (less reservation fee);
- periodical installments during the construction of the condominium with a final installment of maybe 1/12th to 1/20th of the purchase price upon completion and transfer of ownership of the condominium.
Who to pay to?
Paying in an escrow account for a condominium in Thailand means that payments are made to an Escrow Act licensed third party financial institution or 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 in Thailand for off plan property offers greater security for consumers but are not common practice in Thailand. Generally property developers in Thailand DO NOT offer escrow arrangements, often because they need the ongoing payments for the financing of the project. Property developers in Thailand are under the 2008 Escrow Act or new 2008 Condominium Act and its ministerial regulations also not required to offer escrow agreements to consumers. In fact escrow arrangements are very uncommon in Thailand's real estate development sector.
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. Thai real estate development laws do not offer any specific protection for payments made by buyers to the seller in an of off-plan realty property development.
Even though selling condominiums in Thailand is a contract controlled business, this part, the payment terms and schedule in the contract, simply depends on the agreed and accepted contract terms and conditions between the seller and purchaser. If the buyer pays directly into the developer's account and not into an escrow account then accepts the associated risks
- as opposed to payments made in escrow, payments made directly to the developer carries some serious financial risks in case of default or bankruptcy of the developer;
- as opposed to payments made in escrow, by paying in advance directly to the developer the buyer looses a lot of his leverage in case of delay or poor workmanship. The developer has a much stronger position in any dispute in case he has received already a large pat of the purchase price before transfer of ownership.
The developer's company
Is it a reputable, maybe SET listed (Stock Exchange of Thailand), real estate developer with a substantial and appropriate share capital or a local undercapitalized limited liability company, i.e a less than 5 million baht share capital company running a 100 million baht development? The risks of paying in advance are obviously greater with a local developer running a development through an undercapitalized limited liability company, especially if he has no or maybe a poor track record. The new Condominium Act supposed to protect the interests of the buyers of condos in Thailand but it does not require the establishment of escrow arrangements in an off-plan development.
By paying directly to the developer in Thailand the buyer puts himself in a much weaker legal position than would be the case if payments were made under an escrow arrangement under the Thailand Escrow Business Act 2008.
Notice
Many condominium buyers in the past few years have paid deposits only to find the developer has failed and the building has either not started at all or it is standing in a state of partial completion. As there is no legal requirement for escrow accounts in Thailand, the buyer is very much at the mercy of the developer. Other than taking a civil action against the developer or going to the consumer protection board, there is really nothing you can to do to recover your deposit. Unless payment can be made into an escrow account, the best advice would be to buy in a completed building, a resale unit in a well-maintained and well-managed building.
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