Buying Off-Plan Property in Thailand: Escrow Agreements and Buyer Protection

Buying off-plan property in Thailand can offer attractive prices and payment terms, but it also exposes purchasers to financial risks. Deposits and construction-stage instalments are usually paid directly to the property developer and often form part of the financing used to complete the project. If the developer defaults, becomes insolvent, or fails to complete the development, the purchaser may have difficulty recovering the money already paid.

Off-Plan Property Developments and Escrow Agreements

Off-plan property, also referred to as pre-construction or under-construction property, is commonly sold before the house, villa, or condominium unit has been completed. The purchaser normally pays a reservation fee, deposit, and a series of instalments during the construction period, with the remaining purchase price payable upon completion and transfer of ownership.

In many Thai property developments, these payments are made directly to the developer and form part of the financing used to construct the project. This arrangement gives the purchaser limited protection because the money is no longer under the purchaser’s control once it has been transferred to the developer. If the project is delayed, abandoned, or affected by the developer’s insolvency, the purchaser may be left as an unsecured creditor.

The Escrow Act B.E. 2551 (2008)

Thailand introduced the Escrow Act B.E. 2551 (2008) to establish a legal framework for escrow arrangements and to promote confidence in property transactions. Under the Act, escrow services may only be provided by authorised and licensed escrow agents. In practice, these are primarily banks and certain financial institutions authorised to conduct escrow business in Thailand. Under an Escrow Agreement, the purchaser pays the deposit and purchase-price instalments to the escrow agent rather than directly to the seller or property developer. The escrow agent holds the funds separately and releases them only when the contractual conditions agreed by the parties have been satisfied.

An escrow arrangement protects both parties to the transaction. The seller has assurance that the purchaser has deposited the agreed funds, while the purchaser gains greater protection against the financial consequences of the seller's default, insolvency, or failure to complete the property development.

The Escrow Act does not require buyers and sellers to use escrow. An escrow arrangement is entirely voluntary and applies only where the parties expressly enter into an Escrow Agreement with a licensed escrow agent. Neither the Escrow Act, the Condominium Act, nor Thailand's consumer protection laws generally require a property developer to offer escrow facilities. As a result, most off-plan property purchases in Thailand continue to be financed through purchaser deposits and instalment payments made directly to the property developer.

Why Escrow Agreements Are Rare in Thailand

Although the Escrow Act has been in force since 2008, escrow agreements remain relatively uncommon in Thailand's residential property market. Neither the Escrow Act, the Condominium Act, nor Thailand's consumer protection laws generally require developers to offer purchasers an escrow arrangement. As a result, buyers of off-plan property are normally expected to pay deposits and construction instalments directly into the developer's bank account in accordance with the sale and purchase agreement.

From the purchaser's perspective, direct payments provide significantly less protection than an escrow arrangement. Once the funds have been transferred to the developer, they generally become part of the developer's working capital and are no longer under the purchaser's control. If the developer experiences financial difficulties, becomes insolvent, or fails to complete the project, the purchaser may have limited legal remedies and could rank only as an unsecured creditor.

Direct payment arrangements may also reduce the purchaser's practical negotiating position. By the time construction is nearing completion, a purchaser may already have paid a substantial part of the purchase price while legal ownership of the property remains with the developer. If disputes arise concerning construction quality, delays, contractual performance, or completion, the purchaser may have little practical leverage, whereas withholding the final payment could expose the purchaser to allegations of breach of contract or even termination of the sale agreement, depending on its terms.

Why Many Developers Prefer Direct Payments

The limited use of escrow arrangements in Thailand is largely explained by the way many residential developments are financed. Purchaser deposits and construction-stage instalments often form an important source of project financing, allowing the developer to fund the ongoing construction of the housing or condominium project. Requiring payments to be held by an independent escrow agent may therefore reduce the developer's access to working capital during construction.

For this reason, many developers continue to require direct payments rather than escrow. While this may be commercially understandable, purchasers should recognise that they are effectively providing part of the project's financing and should carefully assess the developer's financial strength, reputation, track record, and ability to complete the development before committing substantial funds without the protection of an escrow arrangement.

Practical Considerations Before Buying Off-Plan Property

When purchasing off-plan property in Thailand, buyers should carefully consider the risks associated with making unsecured payments directly to the seller or developer. Where an escrow arrangement is not available, it becomes even more important to carry out proper due diligence before signing the sale and purchase agreement or paying a deposit.

Purchasers should consider the developer's financial strength, reputation, track record, completed projects, and ability to finance and complete the development. It is also advisable to determine whether the developer is an established public company listed on the Stock Exchange of Thailand (SET) or a privately held company with limited capital and little or no proven development history. Although a listed company does not guarantee that a project will be completed successfully, established developers often have greater financial resources and a longer operating history than newly incorporated project companies.

Many property developments in Thailand are carried out through separate limited liability companies established specifically for an individual project. While this is a common and legitimate business structure, purchasers should understand that shareholders generally benefit from limited liability. If such a project company becomes insolvent, buyers who have made direct payments to the developer without the protection of an escrow arrangement may rank only as unsecured creditors and may recover only a portion of their payments, if anything.

For this reason, buyers should not base their decision solely on the purchase price or promised return on investment. The developer's financial stability, legal structure, reputation, and the availability of an escrow arrangement are all important factors that should be carefully evaluated before committing significant funds to an off-plan property purchase.

Can a Buyer Require an Escrow Agreement?

An Escrow Agreement can only be used where both the purchaser and the seller voluntarily agree to appoint a licensed escrow agent. Thai law does not give a purchaser the right to require a property developer to use escrow, nor does it impose a legal obligation on developers to offer escrow facilities. Whether an escrow arrangement is available therefore depends on the willingness of both parties to enter into an Escrow Agreement before or at the time the sale and purchase agreement is concluded.

Conclusion

An Escrow Agreement can significantly reduce the financial risks associated with buying off-plan property in Thailand by ensuring that purchase funds are held by an independent licensed escrow agent until the agreed contractual conditions have been satisfied. However, because escrow arrangements remain voluntary under Thai law and are not commonly offered by developers, purchasers should carefully evaluate the developer's financial strength, track record, and contractual terms before making substantial payments during construction.