When investing in property whether as a home or for rental income and investment, it’s best to ensure that you have all the relevant data on hand to allow you to make credible and informed purchasing decisions. When searching the internet or talking to friends it appears that everyone seems to be an expert, yet even those who are, often find it extremely tricky and frustrating dealing in the property sector in Thailand. This is more so for foreign buyers who often have a romantic notion of how things are done in the Kingdom. A nice laid-back culture may be great when you are reclining on a sun lounger but is profoundly aggravating when important information is needed or time sensitive decisions need to be made.
In my article in last month’s edition of Square Foot, I touched on the importance of conducting thorough due diligence. There are also many steps you need to take from the outset including what type of property to buy, what to look for and what type of financing you will need.
At ALFA Investors we only work with credible developers and legal firms to ensure that our clients have the best services and representation to conclude successful transactions. One such consultant, Rodney waller has written the definitive and best selling book, The Essential Guide to Buying Property in Thailand, and I am happy to highlight some of the issues the book covers and recommend it as essential reading for anyone wishing to or is already investing in Thai properties. Waller has based his research on real experiences.
The procedure for purchasing property can be divided into ten distinct steps: It is important to be familiar with these steps for two reasons. First, it allows buyers to proactively prepare for each step in advance. Second, by defining each step, buyers can ensure that relevant action is taken for each stage before moving prematurely to a subsequent stage. It also ensures that none of the steps are overlooked.
A brief explanation of each step:
1. Determining the purpose of the investment (such as primary residence, rental income, holiday home, retirement or capital appreciation) and the exit strategy should always be the starting point because the answers influence the majority of subsequent decisions related to the purchase of property, including what to buy, where to buy and how to structure the purchase.
2. Conducting preliminary research is concerned with achieving a fundamental understanding of Thai property law (as it relates to foreign ownership), i.e. what a foreigner can and cannot own. It is important to come to terms with this basic information prior to commencing a property search so as to enable the buyer to ask relevant questions and communicate effectively with lawyers, agents and sellers. Part of the preliminary research should also be to narrow down the property search to a specific resort, area and location.
3. Appoint your own lawyer. It is advisable to appoint a lawyer at this early stage – in advance of viewing properties or making offers – for two reasons: firstly, once engaged, your lawyer is on hand to offer advice during the entire process of viewing, negotiating and purchasing. Secondly, once you have identified a property, it is possible to move more quickly with a purchase if a lawyer has already been engaged. (While the sequence of steps outlined above makes logical sense and is recommended, it is also possible to continue with steps four, five and six before engaging a lawyer. In other words, some property buyers prefer to view properties, choose the one they wish to proceed with and commence negotiations before appointing a lawyer).
4. Property search and viewings. This includes working with property agents and discusses what to look out for during the viewing of properties.
5. Short-listing and choosing a property require properties to be evaluated and compared according to your investment objective and personally chosen criteria.
6. Making offers and negotiating requires a familiarity with the full range of issues that can potentially be negotiated with property owners or developers.
7. Reservations and deposits. Once a property has been chosen and a price has been agreed with the seller, the next step is usually entering into some form of reservation agreement and the payment of a deposit. The seller often requests a deposit as a demonstration that a purchaser is serious, in return for taking the property off the market and agreeing not to sell it to another party for the duration specified in the reservation agreement.
8. Due diligence. Sometimes step seven is skipped entirely, if a purchaser prefers to proceed with due diligence before putting any deposit money down. The risk is that the deal could be lost if a second purchaser comes along and pays a deposit to reserve the property before the first interested purchaser has completed due diligence. Whichever sequence is preferred, due diligence is an essential step to perform for all property purchases and one that should not be skipped under any circumstances.
9. Completion. Once due diligence has been completed and findings are satisfactory, seller and purchaser can then proceed to completion, which involves the signing of contracts, full payment of the purchase price (less any deposit or reservation fee already paid) and the transfer of property ownership.
10. Taking possession of the property involves the handover of keys, together with any other relevant documentation and guarantees. It is also where the purchaser needs to check and confirm that the fittings and fixtures detailed in the sales agreement remain in the property.
These ten steps provide a conceptual framework for property buyers to move through the process of purchasing a property. It also provides a framework for much of the information contained in the book. If you want to read more, The Essential Guide to Buying Property in Thailand by Rodney Waller is available on Amazon.com.