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Why Due Diligence is Recommended When Purchasing a Property in Thailand
07/04/2023
Thailand has been a popular destination for foreign investors looking to purchase property or real estate. However, before making any investment, it is crucial to conduct due diligence to avoid potential legal and financial risks. Due diligence is gathering and analyzing information to make an informed decision.
This blog post will discuss why due diligence is essential when buying a property in Thailand and the potential pitfalls to avoid.
Key points
- Due diligence is gathering information and assessing the risks and benefits of a particular decision or transaction.
- Due diligence is crucial when buying a property in Thailand to avoid potential legal and financial risks.
- The due diligence process involves verifying the legal ownership of the property.
- A title deed search is used to determine whether the seller has the right to own or lease the property and confirm if any liens are essential.
What is due diligence?
Due diligence is a research and investigation process conducted to gather information and assess the risks and benefits associated with a particular decision or transaction. It is a way of verifying the accuracy of the information and evaluating the potential consequences of a particular action.
This process can help you identify potential risks and opportunities associated with the investment, allowing you to make an informed decision.
By undertaking due diligence, investors can make informed decisions and ensure a smooth and profitable investment.
Why is Due Diligence important?
Conducting due diligence when buying real estate in Thailand is crucial to avoid potential legal and financial risks. It helps identify issues that may seriously affect the investment’s value and profitability.
Buying real estate in Thailand involves a significant financial investment, making it essential to conduct thorough due diligence. This process involves verifying the legal ownership of the real estate, examining any existing debts, checking zoning regulations, and obtaining all necessary permits and licenses. Due diligence also helps identify any hidden liabilities or disputes affecting the investment’s value and profitability.
It’s important to emphasize that exercising due diligence can prevent potential issues, such as the ones mentioned below, that may cause substantial challenges for the new owner if they’re not recognized prior to finalizing the transaction:
- The buyer later discovers that the land is subject to a mortgage not disclosed during the sale, and they are now responsible for paying off the previous owner’s debts.
- The buyer realizes that the company that owns the land and villa has been involved in a legal dispute for years, and they are now facing legal action due to the purchase.
- The buyer discovers that the previous owner did not pay all of their taxes on the property, and the buyer is now responsible for paying back taxes and penalties.
- The buyer discovers that the building was constructed without proper permits or is not up to code. This could result in expensive fines and/or the need for costly renovations.
- The buyer discovers ongoing legal disputes related to the property, such as boundary or ownership disputes.
What should be identified during due diligence for a real estate transaction in Thailand?
If you’re looking to buy property in Thailand, there are a few important steps you’ll need to take to make sure everything is above board. One of the most important steps is conducting a title deed search, which will give you valuable information about the property you’re interested in.
Another important thing you’ll learn during a title deed search is whether the seller has the right to own or lease the property. This is important information to have, as it can help you avoid any legal issues.
During the due diligence, your lawyer should also review the property documents to check for any risks. This includes checking the following:
- Land title documents (have land title documents been lawfully issued, who is the current owner and is the land encumbered in any way by endorsements, liens, mortgages, easements or any evidence of a dispute).
- Land size, shape, orientation of the property and its border to public property, such as road, stream or beach (to ensure that the title accurately represents the offered property).
- The legal right of access to the land from a public road location of the land concerning zoning regulations and permitted uses within the area.
- Review Zoning Law for construction. This involves checking and translating the construction permit (if any).
What legal documents should I be aware of when undertaking due diligence for real estate?
When buying real estate in Thailand, it’s important to understand the different types of title deeds. Here are some of the most common types of title deeds you’ll come across:
Sor Kor Nueng Claim Certificate (SK-1): This document verifies land occupancy but not ownership. The land can be occupied and used by the holder and can be sold or passed down through the generations. However, it is not possible to register any rights to this type of land.
Nor Sor Sam Kor Confirmed Certificate of Use (NS-3K): This certificate is issued for an area where parcel points have yet to be established through an aerial survey. There are no constraints on how the land may be used, and the owner can even subdivide the land into smaller parcels.
Nor Sor Sawng Preemption Certificate (NS-2): This type of certificate allows for temporary land possession and use, but the land cannot be sold and can only be passed down through the generations.
Nor Sor Sam Certificate of Use (NS-3): This document confers unofficial ownership rights and requires the sale or mortgage of the land to be advertised for 30 days at the Land Department. The land has been unofficially surveyed, and the results have yet to be confirmed by satellite images.
Nor Sor Si Jor or Title Deed Certificate: This valid title document allows for the sale or transfer of the land, unless the prior owner has specified that the new owner cannot sell or transfer the land for a period of five or ten years after taking ownership.
Chanote Title Deed (NS-4): This type of title deed confirms complete ownership rights and is confirmed by a survey that is denoted by concrete or metal poles and later confirmed by satellite pictures. The property may be transferred or sold subject to any restrictions outlined in the purchase agreement by the prior owner.
What should be identified during due diligence for the purchase of real estate through a company in Thailand?
Due diligence for the purchase of real estate through a company in Thailand involves a thorough investigation of the company’s financial, legal, and commercial records to ensure that you fully understand the risks and opportunities associated with the acquisition.
During the due diligence process, you should:
- Check that the company is duly registered.
- Review and translation of the Company Affidavit and Shareholders list.
- Review of the Balance Sheet. Checking whether or not the owner of the assets (land and/or buildings) are correctly booked and at which value. Checking if there are any loans and/or debts.
- Checking with the local court if there is any lawsuit against the company
How can Belaws help?
For more information about due diligence in Thailand, why not talk to one of our experts now?
This article is for information purposes only and does not constitute legal advice.
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Consultations can be hosted via WhatsApp or Video Conferencing software for your convenience. A consultation with one of our legal experts is undoubtedly the best way to get all the information you need and answer any questions you may have about your new business or project.
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Frequently asked questions
What are due diligence?
Due diligence is a research and investigation process conducted to gather information and assess the risks and benefits associated with a particular decision or transaction. It is a way of verifying the accuracy of the information and evaluating the potential consequences of a particular action.
How to perform due diligence on a private company?
The article does not provide a detailed process for performing due diligence on a private company, but it does mention that due diligence for the purchase of real estate through a company in Thailand involves a thorough investigation of the company’s financial, legal, and commercial records to ensure that you fully understand the risks and opportunities associated with the acquisition.
What is the due diligence process?
The due diligence process is a research and investigation process conducted to gather information and assess the risks and benefits associated with a particular decision or transaction. It involves verifying the accuracy of the information and evaluating the potential consequences of a particular action.
Why due diligence is important?
Conducting due diligence when buying real estate in Thailand is crucial to avoid potential legal and financial risks. It helps identify issues that may seriously affect the investment’s value and profitability.
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