The real estate sector of Koh Samui and Koh Phangan is very much geared towards off- plan and newly built second homes due to the fact that property developers invest huge sums into marketing their projects.
However, thumb through any real estate magazine, including this very publication, and the reader will see extensive listings of second hand or re-sale properties which are being offered for sale by private owners looking to sell their property. As the property market matures (particularly in Koh Samui) investors are finding their target property on the re-sale market and are closing deals with private owners in order to acquire their dream home. The good news is that acquiring a re-sale property can be less risky than “off-plan” transactions because the risk of the developer becoming insolvent and being unable to complete the construction of the property is ruled out. However, there are other risks that investors need to be aware of. The following article examines some of the key issues to be addressed by investors who choose to acquire a re-sale property in Koh Samui or Koh Phangnan.
The first step for any foreign investor is to understand the laws of Thailand which regulate and in some cases prohibit the ownership of property by foreigners. Potential investors must be aware that foreigners are prohibited from owning freehold land in Thailand and whilst long term leases (of no more than 30 years) to foreigners are permitted, there are still limitations and risks that need to be considered. Furthermore, it is important to understand the risks which occur upon selling the property in the future, such as downturns in the property market and currency risks. It may be the case that the exchange rate between the Thai Baht and the investors home currency have changed significantly over the course of the investment term; and even though the investor may make a profit upon a future sale of the property, that profit may become a significant loss due to adverse exchange rates upon repatriation of the proceeds of sale.
Prospective investors should beware that he or she buys at their own risk and should therefore undertake a detailed and independent investigation into all aspects of the property prior to paying any portion of the purchase price to the seller. The scope of such investigations will depend upon the precise nature of the property but all investigations should include:
A title investigation to establish that the Seller is the legal owner of the property and that the title to the property has been legally issued in accordance with the laws of Thailand and has full legal rights of access;
An investigation to establish whether or not the property has been built in accordance with local building and environmental regulations;
A structural survey to ensure the structural integrity of the property and to ascertain whether or not any major repairs are required;
The physical testing of the facilities at the property such as the swimming pool pump and filter and air conditioning units to ensure that they are in full working order.
Any defects, inconsistencies or concerns which are revealed by such investigations should be put to the seller in writing and the seller should provide further written information or documentation to satisfy the concerns of the prospective investor. Where appropriate, such information and documentation should be independently verified. It may be appropriate in certain circumstances for the seller to provide contractual assurances with regards to matters or consider a reduction in the purchase price of the property to reflect corrective actions to be undertaken by the purchaser after acquiring the property.
A prospective investor may find that the seller does not own the property in their own name but through the ownership of shares in a limited company which owns the property. Such transactions will often involve the sale of the shares in the company to the investor rather than the sale of the property itself. In share transactions, in addition to the above investigations, the investor should also carry out detailed investigations into the company to ensure (amongst other matters) that the company is correctly formed and validly exists, has paid its taxes, has no outstanding liabilities and is the legal owner of the interest in property.
The seller and buyer should negotiate a detailed sale and purchase agreement with regards to the sale of the property, or Share Transfer Agreement if the transaction relates to the sale of shares, setting out the respective obligations of the parties. The sale and purchase agreement should set out clearly the main terms of the agreement between the seller and investor including the purchase price, payment terms, completion date and the consequences of a breach of the agreement by either party. Any specific terms and conditions agreed verbally between the seller and investor, should be clearly set out in the sale and purchase agreement with clear consequences for failure to comply with the obligations.
There will be a number of transfer and registration fees and taxes to be paid upon the legal transfer of the property to the buyer. The sale and purchase agreement should set out in detail who shall be responsible for the payment such fees and taxes as such fees and taxes can represent a significant cost to factor into the transaction.
In transactions which involve the sale of property in managed developments, the terms of the agreement between the developer and the original buyer may require the seller, investor and developer to enter into a “Novation” agreement under the terms of which the buyer agrees to abide by all of the agreements signed by the original buyer. In such transactions, the buyer should ensure that they are fully aware of the terms and conditions of the original sales contracts, management agreement, rules and regulations and in certain circumstances the rental agreement as they will be obliged to abide by the terms of these agreements notwithstanding the fact that they were not an original party to the original agreements.
This article sets out some of the main issues which should be addressed by investors who elect to acquire a re-sale property in Thailand. Comprehensive due diligence into all aspects of the property (and company in share transactions) and a comprehensive sale and purchase agreement can provide assurance to an investor who may not be familiar with real estate transactions and investments in Thailand.
This article was written by Tanun Rungwiwattanakool, Attorney of Limcharoen Legal (Samui),
please contact our Koh Samui offices on 0935759675
or e-mail Samui@Limcharoen.com