Of course any property investment carries some level of risk, and it is important understand the potential downside to an off-plan purchase.
Planned But Not Completed
The obvious risk that any investor faces during the “pre-construction phase” is that the development you are buying into is never be completed. This is not unique to projects in Phuket; it can and does occur elsewhere in the world.
If the off-plan sales are a critical part of the developer’s financing, but for whatever reason sales do not meet expectations, a project may never see the light of day.
In this case, investors who may have only paid deposits may still see some funds returned to them.
It is also possible that a developer’s struggles go deeper than their inability to sell out a particular development.
The problem may not be a weak real estate market, but rather a case of the developer overextending themselves. If they are juggling too many projects simultaneously it could put undue strain on their finances.
Investors need to be aware of this possibility and strive to ensure that the developer they are using is not overexposed. A good lawyer can really earn their fees by weeding out any potentially risky developers.
The Environmental Impact Assessment
Unforeseen obstacles may also arise with the plot of land designated for development. Changes in legislation/regulations have seen projects delayed or abandoned when the original planning is no longer approved.
For example, the Environmental Impact Assessment (EIA) may not yet have been conducted when off-plan sales begin, and negative one could cause problems for developers and investors alike.
A Disappointing Final Product
When buying off-plan, it is also possible that the final product differs significantly from the brochures and marketing materials which persuaded you to buy in the first place.
The Condominium Act was amended in 2008 to address this issue. Any marketing material you receive from a developer is now part and parcel of the sales and purchase agreement.
While delivering any major deviation from the marketing material technically violates the contract between the developer and you, most flaws are unfortunately not obvious until after construction.
Certain quality issues may be major or minor, and even if the developer is legally in the wrong – sometimes obviously so – you may still struggle to collect compensation. For this reason it pays to use a developer who is known for the quality of their finished product.
The Reservation Deposit
Reservations Deposits are common, but to ensure that yours is protected you need to make sure you have the right lawyer.
Even the best lawyer may not be able to begin due diligence until after the deposit is paid, but a good lawyer will ensure that any deposit is fully refundable should they find something amiss with the developer or the development.
Buying a condo off-plan comes with certain advantages, but it also carries a modicum of risk.
But carefully choosing the developer and engaging a qualified lawyer to guide you through the process will help to ensure that these risks are greatly mitigated.
Courtesy: Published at The Phuket News on January 26, 2020 by Thai Residential