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Key Questions To Ask Before Buying Off-Plan Property

FazWaz
Written by FazWaz

Key QuestionsBuying off-plan property can be an attractive option for many homebuyers as it allows them to secure a property before it is completed, including potentially at a lower price than a completed property. However, as with any property purchase, it's important to ask the right questions to ensure you're making a wise investment. Some key questions to consider before buying off-plan property in Chiang Mai include:

1. Are you happy to wait?

Many investors are eager to begin earning a return on their investments right away, and buying an off-plan property is no exception. With a buy-to-let property, renting it out to tenants is the only way to generate short-term returns. 

However, if the completion of the construction is several months or years away, the process of renting out the property will be delayed and also you will have to wait for rental income. The advantage of buying off-plan is that you can often purchase the property at a lower price compared to properties that are already finished. 

Therefore, you need to decide if you are willing to take advantage of the reduced price and also wait for the construction to finish, or if you prefer to purchase a property that is ready for immediate rental.

2. What is the developer’s track record?

As part of your due diligence, it's crucial to assess the developer's experience and track record. Have they successfully completed similar projects in the past? Were they completed on schedule and within the budget? How have the projects performed since completion? Were the properties built to a high standard?

Typically, projects developed by experienced property developers are more likely to proceed smoothly.

3. How risk-averse are you?

Every construction project comes with a degree of risk. Although the risk of an incomplete property project is low in the real estate industry, unforeseeable circumstances can still disrupt or cancel a project.

Therefore, it's important to consider your risk tolerance. If you prefer investments that are completely safe and secure, off-plan may not be suitable for you. However, if you're comfortable with a moderate level of risk, recognizing that it may lead to greater rewards, then it might be a good fit for you.

Regardless, it's crucial to conduct proper due diligence and reduce risk by selecting reputable and experienced developers who have protection schemes in place.

4. What happens to my deposit and how is my money protected?

Deposits for off-plan properties typically earn interest during the construction phase, which is then subtracted from the final payment upon completion. This can be an effective way to reduce the overall cost, especially if the interest rate is higher than what you would earn by keeping the deposit in your bank account.

However, it's crucial to ensure that your deposit is adequately protected in case of project failure or developer insolvency. Therefore, it's important to inquire about the safeguards in place.

For instance, if the developer is NHBC approved, you can be assured that your deposit, as well as the entire development, is protected.

5. How much do I need to pay before completion?

To avoid any confusion, it's crucial to understand the precise amount of money required to invest in an off-plan property.

Typically, a reservation fee is paid upfront to secure your preferred property from the designs and blueprints. This is followed by a cash deposit when exchanging contracts, which is usually around 20-30% of the total purchase price.

The remaining amount will be due upon completion. It's also essential to determine whether the final payment can be financed through a mortgage or if it must be paid in cash since certain developments, such as student accommodation, may not qualify for mortgages.

6. What’s likely to happen to the local market during construction?

The developers can provide valuable information about the local property market that will give you much to consider. One important area to explore is how the market may be impacted during the construction period.

For instance, if you are buying a property two years before completion at a price of ฿8,295,283 that is in line with the market in terms of size, quality, and location, it's worth considering how the market might change during construction. If the local market flourishes and average values increase by 10% annually, your property could potentially be worth more than ฿9,954,339 resulting in a substantial return on investment if you choose to sell immediately.

7. What’s the timeline?

No matter if you're purchasing a property before or after it's built, it's essential to understand the expected completion timeline. Typically, larger and also more complex projects take more time. To avoid potential delays, consider opting for a property with a shorter turnaround time.

Furthermore, if you're intending to use a mortgage to finance your purchase, most lenders only offer mortgages up to six months before the completion date. Thus, if the anticipated completion date is more than six months away, it's crucial to ensure you can obtain a mortgage offer at the right time and schedule the necessary dates accordingly.

8. What’s the forecast for the local property market over the next 5-10 years?

Understanding the anticipated completion timeline is crucial, whether you're purchasing a property before or after construction. More extensive and intricate projects generally take longer to complete, so choosing a property with a shorter turnaround time could help you avoid potential delays.

Additionally, if you plan to finance your purchase with a mortgage, keep in mind that most lenders only offer mortgages up to six months before the completion date. If the expected completion date is more than six months away, it's essential to ensure that you can obtain a mortgage offer at the right time and schedule all necessary dates accordingly.

9. What’s the expected return from rental income?

If you're purchasing a property to generate rental income, it's essential to have a clear understanding of the expected rental prices.

The developer should provide an information pack detailing the anticipated rental performance, which can be used to calculate the potential rental yield. You can also research similar completed projects in the local area to gain a better understanding of the expected rental prices.

Alternatively, some developers may offer a guaranteed yield for the first few years, which could provide additional peace of mind.

10. What are the incentives for buying early?

Off Plan

Developers typically offer various incentives to entice buyers to purchase off-plan properties. These incentives can range from discounted purchase prices to covering legal costs, paying stamp duty, and providing free furniture packs. As a buyer, it's essential to take advantage of these incentives to maximize the value of your investment.

If you require assistance in negotiating and unlocking exclusive benefits not available to the general public, consider consulting a property investment advisor.

Summary
By asking the questions outlined above when researching and considering investing in off-plan property, you can differentiate between excellent including poor investment opportunities. Additionally, this process can help you understand your risk tolerance and  identify the type of property that best suits your needs.

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