Buying off plan real estate
Housing and condominium developers in Thailand and escrow agreements
Off plan or pre-construction or under construction real estate developments in Thailand are usually financed by the buyers who pay deposits and price installments during the construction directly to the developer who uses these payments to finance the housing or apartment project. In the event of default or bankruptcy of the developer the buyers could lose all monies paid unless his payments were deposited in an escrow account held by a third party
Thailand has since 2008 an Escrow or Escrow Business Act regulating escrow arrangement in Thailand. Under the 2008 Escrow Act only licensed financial institutions are allowed to offer escrow services. Paying in escrow means that payments are made to an Escrow Act licensed third party financial institution or bank in Thailand that will hold the deposited monies (under an escrow service agreement) till the conditions of the agreement have been fulfilled. An escrow arrangement offers both the seller as well as the buyer protection. The seller knows that the buyer has paid the installments under the sale and purchase agreement, and the buyer knows that in case of the seller's (developer's) default or bankruptcy his payments are not lost. Generally property developers in Thailand do not offer third party escrow services.
Property developers are under the Escrow Act, Condominium Act or Consumer Protection laws also not required to offer escrow agreements to consumers. In an off-the-plan or pre-construction property development the developer usually requires that during the construction payments are made directly into his bank-account. Obviously payments into the developer's bank account, as opposed to payments into an escrow account, has disadvantages for the buyer and carries a financial risks in case of default or bankruptcy by the developer. In addition, the buyer looses all practical leverage of withholding payments or release payments in the event of a dispute over the work, default or delay, as at the time of completion the buyer could have paid up to 90% of the purchase price to the developer who at that time is still the full owner and together with the money in his account has a much stronger position than the buyer. He would likely argue that the buyer is in default by not paying his installments and threaten that he will sell the unit to someone else and that the buyer will forfeit payments already made.
Negotiating escrow
Most property housing and condominium developers in Thailand's tourist areas simply cannot afford to offer escrow because they need the ongoing income from sales during the construction for the financing of the project. When sales are slow this could affect the completion of a project because there is not enough money generated from sales to continue with all consequences for the buyers who paid unsecured deposits and payment installments to the developer.
In the current property market in Thailand buyers should minimize unsecured payments to the seller or developer, and when accepting such disadvantageous payment arrangements the buyer should consider the developer’s track record and company. Is it a large established S.E.T. listed (Thailand stock exchange) real estate developer, or is it an under-capitalized limited liability company with a low share capital and maybe a poor track record? Say a 2 to 10 million baht limited liability company running a 300 million baht project. Note that limited liability in Thailand means limited liability and in case of default there is for the buyers little chance of getting any of the payments back.