Is it worth investing in pre-construction condominium projects? This question becomes even more significant in the recent surge of consumer cases against developers of uncompleted and stalled condominium projects in Thailand. If you are a potential investor, it is prudent to initially weigh the pros and cons as well as take into account mitigating measures to minimize the risks involved in this type of investment.
PROS
In a pre-construction or off plan condominium selling scheme, condominium units are sold to buyers at a very early stage in the construction process. At this stage, the buying price is substantially much lower compared to the completed and occupant-ready condominium units.
Although inherently risky, buyers are eager to invest into off plan condominium units not only because of the substantially discounted prices but especially due to the anticipated appreciation of its value once completed.
Moreover, the buyers are better positioned in choosing the best possible unit location in the condominium project. Likewise, the buyer’s active albeit indirect involvement in the construction process is another desirable feature in pre-construction investment. At the end of every construction phase, the buyers are given the opportunity to inspect their respective units and communicate any defects to the developers for adjustment and repair. This way, the buyers can ensure that their units are constructed according to the promised standard. Furthermore, developers at this stage may also be amenable to slight modifications in the unit’s structural design that can easily be incorporated in the construction phase.
CONS
The risks involved in buying pre-construction condominiums are considerably much higher compared to buying completed units. Primarily, the project is still under construction; in fact some projects have not even started construction when developers start selling. There is no real guarantee that the project will be completed, that the anticipated return of investment will materialize, or the money already paid to the developer will be refunded in the event of non-completion or bankruptcy.
In view of these pessimistic possibilities, some investors would rather pay the extra price in buying a unit from a completed condominium project rather than take a gamble on the pre-construction condominium market. Some may argue that the projected profits far outweigh the risks involved; however, the injured parties –in consumer cases currently clogging the court dockets in the Kingdom– are vehement advocates to the contrary.
Investing in pre-construction condominium projects admittedly involves certain amount of risks. However, buyers interested in this particular venture can exercise mitigating measures to protect their valuable interest in the project as well as minimize their exposure to risks.
MITIGATING MEASURES
A prudent buyer can significantly minimize his exposure to risks and safeguard his investment by employing the following precautionary measures.
First, conduct due diligence to check the land title deeds to ensure that it is free from liens and encumbrances, verify that the developer is the absolute owner of the land, ascertain the reliability and financial standing of the developer, and make sure that the necessary land development licenses are in order. Due diligence will reveal crucial facts about the land, the project, and the developer. These facts can serve as a gauge of the developer’s capacity to complete the project as well as serve as the buyer’s guide in determining the project’s overall investment worthiness.
Moreover, it is necessary to pay close attention to the following essential provisions in a pre-construction investment contract: construction timeframe, price schedule, penalties for default or delay in payment or construction, rescission in case of default, and forfeiture of payments. These provisions are critical in defining the remedies and liabilities of the parties in the event of dispute. A mere cursory reading of the contracts can be a recipe for disaster. The services of registered and reputable lawyers are crucial and indispensable.
Pre-construction investment can indeed be risky. However, with a measure of caution, proper due diligence, and sound contract, it can prove to be a highly profitable venture for the prudent investor.
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