Investing in "off plan" real estate in Thailand – What are my risks and how can I maximize my return on investment?

Buying a property in a foreign country for the first time can be a scary thought and requires research to understand the rules, regulations and restrictions applicable to foreigners wishing to buy. If you are thinking of buying or investing in a "off plan" construction project in Thailand, you need to do more due diligence before you get started.

The purchase of an off plan project can have tremendous benefits. If you buy early in the process, you have the widest choice of choices and can usually get the positioning and design that best fits your needs. And, in most cases, prices only increase so that, upon launching or building a project, you will get the best price possible while ensuring the best possible return on investment.

To take advantage of this advantage, however, you must take into account and accept certain elements of risk. And with my background in finance, I know a little bit about risk management. Projects can fail and fail. You must therefore determine if you are ready and financially able to lose the funds committed for the property. You must carefully consider your risk tolerance. But read carefully and you can significantly reduce your risk.

Know the developer

Before committing funds to a new project, consider the following factors:

  • Does the developer have the reputation of being able to count on its achievements and to keep its promises? More specifically, what other construction projects have they done in Thailand?

  • Does the developer own the free and clear terrain? Ask for a copy of the "Chanote" (title deed) of the land.

  • Have you verified that the required permits and authorizations have been obtained? If no, what is the status of the approval process?

  • How is the project funded? Does the developer use its own funds, is it financed by a bank or private investors, or does it rely on cash flows from the sale of projects?

  • Is the overall design and scale of the project adapted to the chosen location?

  • Has the developer clearly documented the building specifications, unit specifications and equipment included in the project? The Condo Act requires developers to build on contract specifications and marketing materials.

  • What company was hired to do the construction? What is their relevant experience?

  • If construction has already begun, what is the actual progress compared to the original schedule? Are there any significant delays?

Tips for reviewing and negotiating contracts

Once you are comfortable with the overall project plan and the developer is well positioned to perform their tasks, you must consider several factors when reviewing and negotiating the contract.

Consider the following factors before signing the contract:

  • If you plan to buy under the "foreign" quota, does the contract clearly state that the property will be transferred to your name?

  • What is the payment structure? Contracts that require smaller payments before completion and transfer are preferred. Developers requiring larger payments during construction can count on your funds to complete the project.

  • What happens if there are significant delays in the completion of the project? Are sanctions imposed on the developer? Can I get a full refund if I wish?

  • Do I have the unlimited right to resell my contract before it is completed? What are the fees charged by the developer to transfer my contract to a new buyer?

  • Make sure the floor plan is included in the contract. A provision with a fluctuation of the size of the unit per floor plan in relation to the completed property must be addressed. The tolerance is normally not greater than +/- 5%.

  • Who pays the transfer taxes, including the specific business tax, land transfer tax and stamp duty?

  • How much does the depreciation fund and the annual maintenance cost?

  • Are there any other non-recurring acquisition costs, such as payment for parking, water meters, electricity, etc.?

  • Make sure that the contract clearly states what is included in your appliance, such as the integrated kitchen, the bathroom, air conditioning, appliances, furniture, electronics, etc.

  • The contract must clearly define which common areas are included and it must be clearly established that co-ownership residents have the right to use all common facilities.

Manage your currency risk

If you buy a plan project in Thailand, you will send foreign currency to Thailand over a long period of time, which can last several years, depending on the size of the project and the time of your purchase. Currencies fluctuate daily and inherent risk is associated with them. Although you can transfer the entire amount in foreign currency to your Thai account at the time of signing the contract, it will probably have an adverse effect on your investments. You should plan with a financial advisor familiar with currency hedging to help you develop a strategy that is best for you.

Property as an investment

Do not forget that all property purchases are an investment and that because of the costs involved, it is usually a sizeable part of one&39;s investment portfolio. When you buy a new project, be sure to conduct a thorough financial analysis to calculate all of your acquisition costs, including the initial development and supply of the condominium. After all, if you do not understand your cost base, you can not calculate a specific return on investment (ROI).

When forecasting your rental income, be sure to use conservative estimates that you can at least check by analyzing the rental prices of similar units in the area you are planning to buy. And remember that resort towns may be subject to seasonal demand. So be sure to use a realistic vacancy rate.

Before you can finalize a precise return on investment calculation, consider all your operating costs. These include maintenance of common areas, interior maintenance, repair and replacement of furniture and electronics, property management fees, lease commissions, content insurance and all other costs. When you buy a "off plan" project in Thailand, you should be able to achieve a return on investment of at least 8% if you buy the property that suits you.

How to choose the best property?

Although all developers sincerely believe that their product is the best and you should buy their last launch, you will be well advised to choose a real estate professional who will help you negotiate the best price, terms and conditions. The best agents are agnostic towards developers or specific projects and will answer all your questions in a complete and precise way. They will be candid about the potential risks and drawbacks and will not try to sell you on one option. They will also ensure that you have all the details of realistic acquisition and maintenance costs and lease forecasts so you can determine if "the calculation works".

In the end, the purchase of a property is always very emotional, even though its main purpose is to invest. You must therefore take into account what is important to you aesthetically, emotionally. Risk management and financial analysis are important aspects for making an informed decision, but you should also feel good when you tell your friends and family about your decision.