Dodging the Dodgy Developer

Confused & Bewildered?

Confused & Bewildered?

Economic woes make it a minefield for would-be property buyers

The phenomenon of “buying a condo and not getting it” that once plagued buyers in the 1997 Tom Yum Kung crisis may be coming back to haunt property seekers during this global economic downturn.

There are an increasing number of condominium projects that are unlikely to be completed as scheduled. Some haven’t even started.

Many of the developers experiencing financial problems include small-scale ones, newly established ones and less professional ones. Some of them haven’t been able to record enough sales during the downturn to get project loans from banks.

Basically the developer’s default period is normally no more than six months after the promised date. Responsible developers will generally pay daily penalties to their unit buyers.

If buyers want to return units they’ve booked, they can demand a refund plus interest from developers. High end developers will normally give a refund as it’s not worth damaging their reputation by refusing. But what about developers who are not so scrupulous and try to avoid giving refunds?

Many buyers have sought help from the Office of Consumer Protection Board (OCPB). Complaints should be made as soon as possible if an initial negotiation with a developer fails.

The agency provides a consumer information network to give advice with regard to the process of lodging a complaint. For more information, please visit http://www.ocpb.go.th or contact their 1166 hotline. Most cases end with positive results.

One thing buyers must always bear in mind is to keep all written contracts, receipts, letters, sales brochures, sales kits, advertisements and the like as evidence.

Other details that need to be kept include: developers’ contact numbers and addresses, booking documents and other forms of communication sent by developers. You just never know when you might need them.

Fortunately, it’s now easier and faster for buyers to file complaints after the Consumer Case Procedures Act came into effect last year. The act allows consumers to sue or lodge a complaint at any local court.

More good news for consumers is that they are not required to prove their cases - it’s the developers’ job. And if consumers win their case, developers are responsible for all expenses incurred, including those of the consumer.

Here are some suggestions from experts on how to avoid choosing the wrong developer and project.

Aliwassa Pathnadabutr, managing director of property consultant CB Richard Ellis (Thailand), says buyers should first consider a developer’s financial status and check if there is any financial institution supporting the project’s construction.

“To make sure, the projects should already have construction permits so that risks of not getting a condo will decrease,” she suggests, adding an escrow account is a good tool to prevent possible risks.

An escrow agent, not the developer, will collect payments from buyers and will pay the developer in line with the construction progress. The agent will ensure that the benefits of each party are properly met. Under an escrow agreement, property sellers and buyers need to perform in accordance with the terms and conditions.

A good track record is helpful. Buyers should visit previous projects the developer has completed and see whether there were problems.

The internet is another source. Search for information online to see if there are any complaints posted by past buyers.

Developer Test
Law firm Rene Philippe & Partners Ltd has introduced a Developer Test, a method enabling condo buyers to check the reliability of developers themselves.

1) The type of company: Is the developer a public or private company? If it is a public company, is it listed on the Stock Exchange of Thailand (SET)? You can check on the website www.set.or.th or www.settrade.com.

Normally it takes time and a portfolio of good financial results before a company can apply to be listed on the SET.

Being listed generally means easier access to capital and financing compared to a non quoted company and more transparency.

2) Capitalisation: How big is the developer’s capitalisation? It’s one of the key indicators of a developer’s financial health.

3) Longevity in the market: How long has the developer been registered or been in the market? The longer it has been in the business, the more reliable it is likely to be.

4) Experience: How many projects has the developer completed? The more projects it has built and been successful with, it should have a better reputation.

5) Financing scheme: What payment schedule does the developer use? The terms of payment proposed by the developer tells a lot about its financial status and its ability to complete its projects.

developer-test

Test results
Well-known developers that are also SET-listed will score 75 and pass the test with flying colours. Developers that are experiencing troubles will score below 40 or often 25 or less.

Criterion 1 is difficult to fake. Criterion 2 and 3 can be faked. A developer might register big capital and not pay it all or a developer could purchase a company that’s been in business 10 years or over.

Criterion 4 and 5 cannot be faked. A developer cannot fake experience and if a developer does not have sufficient funds, it cannot implement 30% or 40% before and 60% or 70% upon transfer in its terms of payment.

If the test shows a developer scores the maximum on questions 2 and 3 but only five or zero points on question 4 and five points on question 5, you know there is a problem.

To analyse the result, if a developer scores from 40 to 75 points, you can buy. Less than 40, ask a lawyer to do a full due diligence including corporate documents and balance sheets and take additional precautions if you still want to buy.

About the author

Kanana Katharangsiporn Kanana Katharangsiporn
Kanana Katharangsiporn is a senior journalist with The Bangkok Post, Thailand's first English language newspaper and specialises in property and real estate areas.
Other posts by Kanana Katharangsiporn ( 31 )
Website: http://www.bangkokpost.com/

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