Tips for Buying a Condo Off-Plan
With a relatively recent shift to developers providing finished properties, it may seem that buying off plan is less attractive. However, buying off plan still occurs and even in developments where there are finished units for sale, off plan purchasers likely got a better deal as early bird buyers. Still the process is not without its risks and so these also need to be weighed up accordingly.
Times are not as bad as in 1997 when many condos went unfinished leaving buyers who were buying them off plan with a hole in their pocket. Yet in the current boom time it seems that everyone and his dog is now planning to build a new condo building. Let us not forget that the 1997 crash occurred amid a preceding boom also!
Still times are different. Interest rates are at all time lows. The government’s coffers are in good shape and a re run of the Asian financial crisis looks as far away as ever. In short, the economic backdrop is very favorable for condo builders and condo buyers alike.
So success in terms of buying off plan will come down to the good standing of the individual contractor or developer who is behind the project. Look to ensure that the developer in question has good financial health. A search of previous projects should provide you with peace of mind (or otherwise) of a developer’s strength and previous successes. A background check of public companies is easy to do by looking at published financial statements. Typically public companies can appear to have a better reputation than smaller developers and may even have brand awareness. Land and Houses, San Siri and AP Group are just a few of these types of developer where maybe you will feel so comfortable so as not to check them out. Yet it is worth making sure from financial statements that the company is not overstretching itself with too many projects at the same time. For smaller companies it is easy to request financial statements from them and they should be forthcoming with these without hesitation. Be aware that some companies, even those that have had good success in the market, may open a separate corporate entity for each of their condo developments, and this will offer less protection for buyers, as the shell entities will be divorced from the parent company.
Once the developer has been checked out, secure an off-plan purchase on good terms such that your payments are very little in the early stages. Typically you will be expected to pay a deposit of around 10,000 baht to secure the unit. Then a contract deposit amount of 50,000 to 100,000 baht will normally be payable, which is part of the contract opening stage. Both will be deducted from the total cost of the cost of the property so they are not extra amounts by any means. After this, depending upon how early you are arriving in the build cycle, look to secure 18 to 30 months of payments that will typically be around 1 % of the cost of the condo unit. For a 2 million baht condo the monthly payment should be around 20,000 baht. The key is to ensure that these payments are as little as possible as this will become your snowballing risk during the time that the building is being erected. At the end of the monthly payment period the balance will be due. This will typically be 70% to 80% of the condo price in one lump sum. The idea is to use the time of the monthly payments not only to make those payments but also to save up the money towards the lump sum. In that way you will have secured a condo at the market price of maybe several years before it is erected and may see an immediate profit in just this time.
The best time to start an off plan purchase is during the build stage when you can see the lower floors of the building already erected. At this point in time the job is more than half done and you can be more confident the building will be completed. You will of course have less months available to pay monthly payments, and these may be a little higher. Also the price may have been raised during this time. This will likely be blamed on natural market prices moving upward over time, (during the course of the build period), but it is also the case that the condo developer will up-price the units as risk becomes less of an issue. The cheapest time to get in is at the very start before the first pile driver has even arrived, but this is also the most risky time, with the condo building really being just a plan and nothing else. Still, you will get more months to pay and will also likely benefit from a wider choice of unit positions within the building. If you did your homework with regard to the company’s history and financial standing then this may be a good time to commence an off plan purchase, but be aware of the slightly higher risks of failure to reach completion even with well regarded developers.
With the choice of units in mind, it is worth noting that the many companies block out some of the units for “resale” into the market later. You might expect them to be sold to an investor on mass for them to profit, but often it is the company itself that is holding back the units and branding them as resale units as a way to avoid the off plan sales. It is also the reason that buying off plan can be cheaper than buying once fully complete since resale units are typically considerably more expensive than off plan purchases. Of late, some condo developers have elected to put all of the units up on a resale basis, not allowing anyone to buy off plan.
Other things to look for when buying off plan are the transferability of the contract. It is worth having this available in case your plans change. Transferring the contract will simply be a case of “selling” the right to buy the unit in question that you have already been making payments on for an amount ideally equal to or above the payments already made. It is in this way that speculators were able to profit from condo purchases and sales with out actually ever buying or selling a property itself, simply only by trading the contracts. Some would approach the condo developer and buy many units on contract for the best located rooms with a view to selling them on to those people who had missed out on the original sale.
Speculation aside, having the ability to transfer out of the contract will be a good way to protect yourself in case of unforeseen circumstances that may prevent you from making the final payment.