How to conduct due diligence in Thailand?

How to conduct due diligence in Thailand?

How to conduct due diligence in Thailand?

Whenever it comes to making an investment in real estate, it is always a good idea to investigate beforehand, and to prepare the project the best way, to make it successful. This is a process known as due diligence.

Table of Contents
  1. What is due diligence in the real estate industry?
  2. Financial due diligence
    1. Market Analysis
    2. Historical Analysis
    3. Rent Roll and Vendor Contracts
  3. Legal due diligence
    1. Title Deed Ownership
    2. Land Regulations
    3. Land Dimensions
  4. Physical Due Diligence
    1. Building condition
    2. Environmental Factors


What is due diligence in the real estate industry?

Due diligence in the real estate industry is basically investigating a property to help ensure everything is as it is presented to be. The experts would look into the property for any unforeseen issues that might be a problem if you went ahead with the investment.

This helps to protect you against people who are being dishonest, and against genuine oversights. It is usually a relatively straightforward process because it will be carried out by the experts, especially your real estate agent and your property lawyer. It might sometimes be a little time-consuming, and there is a cost, but it saves you a lot of money and inconveniences further down the line.

Anybody looking to invest in Thailand or in Koh Samui, should undertake their own due diligence. Most people will not know the Thai property market well enough to do it themselves, and then there is the language barrier to consider. However, there are services available that will perform due diligence in Thailand for you.

Depending on the property in particular, the real estate agent and/or the lawyer will also undertake some degree of due diligence for you. However, it should be noted that this is not mandatory by Thai law. Rather, it is simply a matter of additional security that investors should pay attention to so they can be sure their investment is safe.

Serious problems are uncommon, so you are unlikely to have any unpleasant surprises if you do go ahead without due diligence in Thailand. Considering the potential risks of not doing so, however, means it is advisable to be on the safe side.


Financial due diligence

When undertaking due diligence on real estate, there are several aspects that need to be investigated.


Market Analysis

When investing in property, potential earnings and future profits are often the main incentives for the investment.

You, or somebody else, should investigate the factors that drive the property market where you are investing. These include factors such as vacancy rates, unit turn rate, labor costs, and market rents.

Looking into these yourself will help ensure you are armed with the accurate figures. From there, you can then draw up financial projections that will help you plan when it comes to your investment.


Historical Analysis

One of the most important aspects to look at doing due diligence in Thailand is the history of the property itself.

In some cases, for example, the seller might claim impressive figures when it comes to revenue and other metrics. In order to help ensure your investment is secure, it is a good idea to check the history of these figures yourself. It is easy to imagine how a seller might be less than honest when it comes to their property, or even just mistaken.

Rent Roll and Vendor Contracts

If the property has tenants, then these contracts should also be checked. This will help you determine how reliable this income will be once you have invested in the property. It can also help identify any potential issues that could be problematic for you in the future.

You should also examine any vendor contracts that might be associated with the property:

  • Are there contracts that can have a significant impact on your income?
  • If there are, can they be cancelled or changed?
  • If not, it may be necessary to look elsewhere.


Legal due diligence

Another essential part of due diligence in Thailand that should not be missed is legal due diligence.


Title Deed Ownership

The title deeds will no doubt have the seller’s name on them. However, it should not be taken at face value that they are indeed the rightful owner of the property in question. At some point in the past, there could have been a discrepancy regarding the transfer of land. If there is such a discrepancy that is discovered at a later point it could mean a challenge to your right to own the land.


Land Regulations

Many plots of land will have limitations on how they can be developed and this is often the case with coastal plots that have limitations such as how tall a building can be. You might also be restricted in terms of how you are permitted to use the land, including limitations on residential, commercial, or residential use.

There are also potential environmental limitations that can have an impact on how you can use the land and its value.


Land Dimensions

When investing in lands it is also necessary to be sure of exactly what property you will have rights over. Land plots have boundaries, and those boundaries are shared with other plots of land, and also sometimes natural boundaries such as rives and ocean front.

Boundaries are typically confirmed by surveys, and you should ensure that the property you invest in, is fully surveyed so you can be sure of the exact dimensions of the land.

If you are interested in investing in Thailand, visit our lands for sale in Koh Samui.

Physical Due Diligence

The overall condition of a property is something else that should be a consideration when doing due diligence in Thailand.


Building condition

Physical due diligence will typically involve looking into the actual condition of physical constructions on the property.

They will check for defects regarding the building and in many cases, specialists of several fields may be required to participate in the inspection. This will help provide a more complete inspection, reducing the likelihood that a flaw will be missed.

A full inspection by experts is important because problems could otherwise be easily missed. When problems are identified, they can also be evaluated in terms of how much it will cost the buyer to fix it. The buyer will often then ask for the value to be deducted from the selling price if they still wish to proceed.


Environmental Factors

Some properties will have been exposed to chemicals and other similar issues in the past.

This could be down to how the property was used in the past, or it might be other factors like pollution in the local groundwater. Either way, these factors are often not easy to detect, meaning an investor might go ahead with an investment oblivious to the problems with the property. In the more severe cases, it might even be that the property is unusable for some time at least.