The “Due Diligence” what it is imperative to know!
Due diligence is used to describe the set of checks that a potential buyer or investor must carry out before completing a transaction. We will see in this post what is important to know.
Although it may seem strange, it is up to the buyer to presuppose “the bad faith of the seller” in order to avoid any unpleasant surprises.
When a foreigner buys a property in Thailand, he will have to carry out this Due Diligence in order to secure the transaction, or to appoint an intermediary for this purpose. In most cases, it is the buyer’s Thai lawyer who is in charge of this operation.
Due Diligence: What does it include?
This “Due Diligence” will include all or part of the following steps:
1. Translation of the land title
Translation of the land title in English or French in order to understand the exact characteristics of the property and its boundaries (surface area, etc…). A complete review of the land deed registered at the Land Office will be done.
2. Investigation of the exact nature of the land title
There are several kinds with different rights attached: Por Bor Tor, Nor Sor 3, Nor Sor 3 Gor, Nor Sor 4 Jor, Chanotte. It is also important to reconstruct the history of ownership with the different previous transfer dates and the chain of ownership. The chain of custody with the names of the various purchasers is shown on the back of the title deed.
3. Mortgages and charges ?
Existence of registered mortgages as well as all other charges registered on the property: long-term lease, various different obligations ( servitudes), charges, claims, power of attorney or pending legal action.
4. Detailed physical inspection
Detailed physical inspection to verify the condition of the property, its accessibility during the rainy season (flooded areas), possible drainage problems or land subsidence.
5. Ongoing court proceedings ?
Existence of ongoing bankruptcy proceedings or civil court investigation regarding the owner. For example, the contestation of an inheritance can cause problems if the heir who sells the property has his real property contested and then invalidated.
6. Previous use of the land
Past use may affect the future use of the land: pollution of the land, existence of building restrictions in the area.
Existence of persons occupying or using the land, even illegally. This is important because a person who has been using the land for a long time can claim ownership of it without being on the title deed.
8. Verification of easements and servicing
Verification is also carried out at the level of servicing, such as connection to the electricity network, public water or drilling, and sewage disposal. Likewise the accesses will be verified such as the existence of easements or public access.
9. State of the neighborhood and possible inconveniences
There may indeed be problems due to the neighborhood adjacent to the desired property. For example, animal farming, buffalo fighting camps generating odors or noise pollution. It could also be that there are nearby garbage dumps which, depending on the wind direction, can bring you very foul smells.Other elements can also be taken into consideration, such as the proximity of an airport that generates harmful traffic depending on the runways.
As you can see, Due Diligence is an important verification to be carried out before any real estate purchase in Thailand. It is an act generally carried out by Lawyers on behalf of the buyer.
Good to know: Once you own your land (in your own name or through a Thai law company), you are free to use it as you wish:
- A Real Estate Investment: many expatriates develop the land or build a house on it (villa, building) in order to sell their property with a nice capital gain.
- A Rental Investment : also very common. Buying a piece of land with a view to building one or more houses, bungalows or buildings on it and renting them on a “Short Term” or “Long Term” basis (renting for short periods, seasonal or year-round) and thus receiving a regular income.
- A Private Placement: build your own home.
- A Placement of Professional Order: to buy a piece of land in order to create one’s work tool (restaurant, hotel, resort, store, company).