Any type of investment carries risks, whether it is stocks, gold, or pork belly futures. An investment in Thai Property is no different, and it would be silly for anyone to suggest otherwise.
Risks exist everywhere in life. Sometimes they cause harm to our person, sometimes they harm our health, and sometimes they can harm our wallets. In fact, there are countless different types of risk that we have to face in our everyday lives.
Our investments usually carry financial risk (the wallet), rather than any physical risk to our person. (Of course, if you borrowed to make the investment, and now owe the wrong person a great deal of money, then there may be a physical risk, too.)
But whatever the risks, we cannot address them if we don’t know they exist. Controlling risk is paramount, but it is only possible if we first know what those risks actually are.
Here lies the problem with Phuket real estate.
Many buyers of property in Phuket have no idea that there are any risks. They are in the Land of Smiles. They are investing in property. They just can’t see how something can go wrong with a bricks and mortar investment in such an amazing country as Thailand.
They also suffer from safety in numbers syndrome. This is the rather inaccurate and misleading hypothesis that there can’t be any risk if so many other people are buying at the same time.
All those people couldn’t be taking a risk, so there must be no risks to look out for.
That mindset makes things difficult. Because potential risks can only be addressed, eliminated – or at the very least, mitigated – if they are first identified.
And of course, all risks are not created equal. Each one has a different probability or likelihood of happening. There may be a small chance of one thing going wrong, or an almost absolute certainty that something goes awry.
There are also big differences in the ramifications should the warning signs of risk go unheeded. Our mistakes may turn into nothing more than an annoyance or they may be far more costly.
Some losses may hurt us only temporarily, but sometimes the mistakes we make may have life-altering consequences – to our finances, our future plans, or even to our marriages.
It is essential, therefore, when making an investment of any kind (especially a major one) that every type of risk be scrutinized.
Here are some things which buyers of Phuket real estate must be aware of:
There is No Regulatory Protection For Foreigners in Thailand When Buying Property
Regardless of the country, you can almost always rely on protection from regulators when you make any kind of investment. The property industry in Thailand, however, is for the most part unregulated. Because of that, foreign real estate advisors/agents essentially have carte blanche in terms of their business practices.
Real Estate advisors can pretty much say whatever they like to sell you a property. If they think that telling you a lie will help them get the sale, many will. Even if that lie exposes you to risks that could mean a complete loss of your investment, there is no real regulatory comeback for them.
It could even be said that real estate agents are the biggest risk for buyers in Phuket. This is because the relationship they have with buyers is built on rapport and trust, so much so that buyers will believe everything told to them by their new-found friend.
It is also known that some real estate agents work closely with developers (and even lawyers), who may also play a part in any deception.
It is therefore of the utmost importance that buyers of real estate in Thailand, especially Phuket, are fully aware of the risks associated with using either the wrong Phuket real estate agent, or not seeking professional advice from an experienced (and independent) lawyer.
Seek Only The Best Legal Representation
Sound legal advice and having the best legal representation is imperative if you are to avoid some potentially risky pitfalls. This is the first step in making sure your investment is a sound one.
An ethical and experienced lawyer will be able to forewarn you about real estate agents who may not have your best interests at heart. They will also uncover any irregularities with your potential purchase.
They will do this by doing a thorough due diligence check on the property in question.
If you are not familiar with the term “due diligence” and would like to know more about what is it and why it is important, then you might find the following article helpful:
The Risks With Buying off Plan
When purchasing a completed property, whether villa, house or condominium, you obviously know that the property has been built. Being able to see and touch the tangible bricks and finishings of a completed building is reassuring.
Buying Phuket real estate off-plan, on the other hand, offers no such guarantees. Things can and do go wrong.
There are many things that can go wrong before a property has been completed, which is what makes buying off-plan the riskiest approach to buying Phuket property.
Irrespective of the peace of mind that resales or completed properties give, however, some people are happy to take the risks of buying off-plan.
Thankfully, things do not go wrong that often, but the risk is always there. Also thankfully, in most cases, many of the potential risks can be avoided.
If you’d like to know more about the risks of buying off plan, you may find the following article useful:
The Risks of Buying a Phuket Condominium Off Plan
What About Risks Associated with the Developer?
Most problems that arise from a real estate investment come from the developer: either mistakes they make, occasional wrongdoing by them, or from them going bankrupt.
Why Developer Reputability is Important When Buying Real Estate in Phuket
Developers may also make mistakes (or even be unlucky) when obtaining the necessary permission from the authorities to construct the project in the first place.
The Environmental Impact Assessment (EIA) is what it sounds. It is an assessment on the impact the construction project will have on the environment.
The assessment looks at both the positive and negative consequences of the project, mainly so that the Kingdom’s natural resources are used in a way that is conducive to the economic benefit and continued development of Thailand.
Incredibly, some projects have started construction before obtaining EIA approval or even a building permit.
Whatever the reason for a project running into trouble, whether regulatory or financial, it would likely mean problems for buyers. Investors would have to prepare for a long, drawn out court case, heavy legal fees and a loss of all or part of their investment.
The Problems with Land Titles
Unfortunately, there have been problems in the past with developers building on questionable land.
Some developments in Phuket (both villas and condominiums) were actually constructed on land that the developer did not legally own. Some of the land was the at the root of corruption scandals dating back more than 30 years. Whether this was done unknowingly, or intentionally, “dirty land” (as it is called) will inevitably be returned to the government.
Such land is often national forest (and belongs to the Forestry Department), or if it is near the sea it may be simple case of encroachment on land which is under the purview of the Royal Navy.
Reclamation of government-controlled land is not subject to any statute of limitations. There is a strong possibility encroached land and dirty land, will sooner or later be reclaimed.
When the government seizes dirty land, it will very promptly be returned to nature. We’ve already seen it happen: illegal structures demolished, the bulldozers brought in to flatten what is left, and finally new plants and trees are planted. And when that transpires, anyone who purchased within an illegal development, will likely see a loss of their investment.
If you’d like to know more about the risks of buying into a development built on dirty land, you may find the following article helpful:
Will You Get Your Deposit Returned if You Change Your Mind or Find Something Untoward in the Sales Agreement?
Placing a deposit without first seeking legal advice does carry risks.
It makes sense to be absolutely 100% sure that you want to buy a property before placing the deposit. Many buyers complain they are victims of high pressure sales tactics and are coerced into placing a deposit, only to get “buyers remorse” soon after, and request to cancel the purchase.
Others are advised to cancel after they hire a lawyer who finds things in the contract that the buyer feels weren’t pointed out to them previously.
Unfortunately, in most cases, deposits are not returned.
If a buyer has hired a lawyer prior to making any decision, but still has a change of heart, the legal backing would undoubtedly put them in a much better position.
Buyers must be aware of the following:
- There is no regulatory protection for foreigners in Thailand
- You must understand that the risks are very real
- Not all developers are reputable and/or honest
- Not all agents are honest. In fact some real estate agents pose the biggest threat to buyers of real estate in Phuket
- Buying off plan is the riskiest way to buy especially if you fail to do due diligence
- No matter what your nationality, you should always use a lawyer
- Many developers are renowned for not returning deposits if you have a change of heart
- Many developers are known to keep deposits even if your lawyer turns up something in the due diligence process
- Phuket has experienced many issues with land titles. Buyers must be careful and have a lawyer conduct thorough due diligence
Summary
Things can go wrong and sometimes they do. It is extremely important, if you are investing in Phuket real estate, that you understand these risk are very real.
In fact, they should not be understated.
By paying careful attention and doing due diligence on each investment, these risks can often be avoided, or at least mitigated.
Read more of our articles on the Phuket real estate market:
The Benefits and Advantages of Owning a Freehold Condominium in Thailand
Is Thailand Alone? How Many Countries in the World Prohibit Foreign Ownership of Land?
Reasons to Invest in Phuket Property for New and Experienced Investors
The Things All Phuket Condominium Investors Should Know About the Condominium Act
Owning a Freehold Condominium through an Offshore Company
The Pitfalls of Buying a Condominium Leasehold Unit
Using a Thai Company Limited to Purchase a Leasehold Condo Unit
What is a Condominium Sinking Fund?
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