The Necessary Due Diligence When Buying Property in Phuket

Most people who visit Thailand for the first time are taken in by the remarkable country and its people. After all, surely nothing could go wrong in the “Land of Smiles.” Could it?

Sadly, things do occasionally go wrong, but that is also the case elsewhere in the world. It is essential therefore that you conduct due diligence before buying any property. You must ensure that you have all the facts about the property and the seller, and must make sure your purchase is going to be a sound investment.

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:

Understanding the Importance of Due Diligence and Exactly What Due Diligence is When Buying Real Estate in Phuket

It is common for investors in the stock market to look at company fundamentals and balance sheets for hours before investing even $500 (or €500, or £500).

Why is it then that so many people ignore similar research when spending millions of Baht in Thailand?

This research is called due diligence. Due diligence is vital, which is why it’s important that you engage an experienced lawyer to help you with it.

The Importance of Sound Legal Advice When Buying Property in Phuket

If you are purchasing from a property developer, the first thing you must do is ensure that the land is titled in the name of the development. It should not be in the name of an individual, it should be in name of the corporate entity from which you are buying the property.

This is especially important if you are buying off plan, and it is easy to confirm because the legal owner will listed on the title deed. Make sure the land title deed does not mention an unrelated third party as the owner. The named owner, whomever it may be, is within their legal rights to sell the land at any time.

A developer could maintain that ownership was structured in such a way to make titling the land easier. And they may insist that the title will be put in the name of the development company upon completion of construction.

But whether a deposit has been submitted, or the property has been paid in full, the person whose name is on the deed can still sell the land. The true owner may also encumber the land by securing a loan against it or taking out a mortgage with the land as collateral.

If there is a third party ownership regime, they may very well have a good and honest relationship with the developer. But if that party happened to die, the new owners may not have the same inclination toward cooperation.

And if they decided to sell, investors who have given money to the developer could find themselves out of pocket.

The risk may not even result from malicious intent on the part of the third party. Taxes might go unpaid, or the bank might foreclose upon the property if a mortgage or loan is unpaid. In such cases either the revenue department or the bank could take ownership of the property which people thought they legally owned.

This applies to any property purchase, not only condominiums. But with a condominium, there are potentially hundreds of people affected by one land title.

So if you are buying a condominium, you should always request a copy of the title – especially if you are buying off-plan. The Chanote title of land is the on you want to see, and it should be the Chanote for the entire development, not only the title for the individual condo unit you are buying. The proper Chanote title will clearly indicate any loans, mortgages, or liens against the property.

The individual title deed for your unit will contain the same information, but since that is only issued once the condominium is completed, it cannot serve to protect you prior to construction.

Because the greatest risk lies prior to construction, resale condo units are comparatively safe. A foreign investor might therefore also consider a completed development (or a development which is very nearly completed).

If you are in the market for a property in Phuket, here is a brief due diligence checklist for you:

Are there any liens, loans or mortgages taken out against the property (these will be referenced on the title deed)?
Is the Seller the Legal Owner of the Land? – the name on the Title Deed will confirm this
Was the Building Erected on “Dirty Land”? – a thorough title deed check will look the entire ownership history of the land, reducing your chances that the title is not sound. Any building on dirty land can be ordered to be demolished by the authorities.
Does the Property Have Legal Access Rights? – another piece of information which can be found on the title deed. The will show the exact location and dimensions of the land, as well as access points.
Does the Building Have a Permit? – whether a villa or condo it is important to establish that a proper permit to build the structure was used. The authorities can order an illegal building to be torn down.
Have you checked the License(s)? – you should confirm that any development being sold as condominiums has the requisite condominium license. Likewise, if the facility is promoted as having both condominium and hotel licenses, you should confirm both licenses.

This is an excerpt from the Thai Residential Phuket Property Guide 2019/20. To download your free copy, please click here.