On Plan vs Off Plan?
Buying property off plan can be an attractive option for investors in Thailand. The resort destinations of Phuket, Pattaya, Koh Samui and Hua Hin, Chiang Mai and Bangkok have many off plan developments however this way of purchasing property does have some risk involved. Here we point out some pros and cons of each way of buying:
• One of the main benefits is that you are buying at the current price. Experience has taught us that the price difference between buying off plan compared to buying a finished property is at least 30-35%. Some people find themselves priced out of the market if they wait until a project is completed before committing themselves.
• When buying off plan you might be able to benefit from bigger discounts from the developers. The reason being is that some developers have to finance construction in some way and need to secure some early sales quickly. Particularly a new developer might have some trouble getting financing from a bank or other financer who has enough confidence in them. This is also why most of the times the biggest parts of the payments are made before completion of the property.
• For many buyers the possibility of having to pay just a reasonably low deposit when committing and having staged payments according to construction progress enables them to get that dream holiday property in Thailand which they would maybe not be able to afford when the payment had to be made in one go. This way they are able to secure a high value asset for a low initial capital outlay.
• Sometimes people purchase off plan never intending to wait until it is completed. They sometimes take advantage of the staged payment and put the property back onto the market just before it is completed or almost sold out. By doing so, they take the profit from the natural increase in the property value. There might be some risk involved but when you have selected the right property in the right location good profits can be achievable.
• You can have your own input into things like the interior design, type of floor tiles, kitchens and bathrooms etc.
• Because of the ‘First come, first served’ principle, when buying off plan you get the best choice of land plots, locations and views.
• As off plan buyers are technically funding the project, they sometimes can negotiate extras in to the deal. This can go from upgraded finishings to furniture packages etc.
• Having one of the earliest finished properties in the development, the early buyer has the possibility to stay in contact with the developer while he is still finishing the rest of the development. If something should go wrong, this makes it easier to get the problem solved.
• One of the major disadvantages for many people is that, when buying off plan, there is nothing to see. You are depending on the ‘Artist impressions’ and other marketing material that the developer has to try to convince you that what you are going to buy is the right choice. Very recently the Condominium Act was amended and strengthened for consumer protection because there were many complaints from buyers who had purchased a property off plan and were not given what they were promised.
This could go from spectacular views to certain finishings and facilities… Now it is written in law that condominium developers can be taken to court if they are not delivering what they promised in their marketing materials like brochures, pamphlets…
• Some developers are well known because they already have completed a few projects while others are less known because they are newer and/or smaller. The buyer has to be careful to find the right developer because during the entire construction period he is at risk. There is some security since the buyer has only paid a deposit and has staged payments according to building progress. However, reality is that there is nothing really to protect you or your money.
You and your lawyer can maximize your protection to write or amend the contracts to be as much in your favor as possibly can, but unless a contractor or developer provides a bank guarantee, all this will not be of any use. Here is where the use of an agent is helpful because they know the market and are familiar with the developments and developers and can advise you which ones are good and which are better to stay away from.
• Villas are not protected under the Condominium Act. So if buyers of villas are not getting what they were promised by the developer about the only thing they can do is take the developer or contractor to court. In this jurisdiction this would not be an easy thing to do.
This does not mean that it cannot be done because Thailand recognizes straightforward contract law. But it would costs time and money and a lot of effort. Therefore, a strong contract with as much details as possible in it regarding specifications, delivery times, payment structures etc. is very important.
• If you are buying off plan with intentions of re-selling the property when it is completed or nearing completion, there is the risk that prices can fall as well as rise. However, experience has learned that on Phuket, with a Florissant market so far hardly affected by outside influences it is at present highly unlikely that prices will drop dramatically in the foreseeable future.
• When buying off plan in the first phase of a development which will be developing multiple phases, you might be having the impression you are living on a building site for some time unless the developer really separates the different phases from each other. This could affect your quality of life and/or rental potential.
• one of the major down sides of investing in off plan property is that you will be paying out for something for a while before being able to benefit from it by living in or renting out the new property.
People who are thinking about buying off plan and inform themselves before have more confidence in this way of buying because they know how it works.
BUYING ON PLAN
• Because the property is already completed you can actually see what you are buying.
• You take no risk at all with the developer.
• The surroundings are also completed and landscaping is already in place.
• You get immediate benefit of your purchase, be it by being able to live in the property yourself or be it by having it generate rental returns.
• You pay about 30-40% more for the property than when you would have bought off plan.
• You need to pay the balance in one go as mortgages are not available for foreigners in Thailand.
• Almost impossible to make changes to the lay-out and finishings.
• You might have difficulties tracking down the developer if anything is wrong with the property.
• You are limited to what is still available because most likely the best plots or units will have been taken by people who purchased off plan or very early stage of construction.
It is all about speculating carefully and taking into consideration all the elements which might affect your investment in the future. The more you do so the greater the chances are you make the right decision. Buying off plan is a good idea with clear benefits but you have to be careful where you are buying and who you are buying from. As mentioned above this is where the assistance of a reputable agent is very useful.