New Escrow Account Law (for Protection Of Condo & Other Prop Buyers)

[trajan]

interesting article in The Nation (Money & Investment section) this morning.....

Escrow law enforcement will help protect buyers' rights

Published on Mar 18, 2008

In what could work as a big step towards advancing the property industry, the enforcement of the Escrow Account law will protect the rights of residential property buyers.

The law will also go a long way in preventing companies which do not have a solid financial standing from starting a project and fraudulently seeking money from the unsuspecting public.

In the past ten years, many businesses including three property organisations have tried to push the enforcement of the Escrow Account law. On December 21, 2007, the National Legislative Assembly (NLA) passed the bill and it is expected to come into force this year. It is waiting for the His Majesty The King's endorsement and will later be announced in the royal gazette. Ninety days after that, the law will come into force.

By the time the Escrow Account law received approval from the NLA, it had already become a talking point for both property developers and consumers.

The objective of the law is not to set barriers for reputable property developers or new players. Rather, it aims to stop property developers without proper credibility from channelising down payments made by customers towards cash flow for developing the projects.

However, looking back at the baht crash in 1997, it was a liquidity crunch that brought the property industry to its knees. The industry passed its woes on to customers who had already reserved property but got neither the house they paid for, nor a refund on money paid. Many lawsuits still continue.

From the buyer's point of view, the law makes buying property a no-risk proposition. They will get what they paid for. On the other hand, consumers will have fewer options and that could drive up prices. For developers, the advantage is that they will compete only with professional players though all developers will have to ensure a good financial backing.

An escrow account is likely to increase consumers' confidence and stimulate spending in the sector. However, the service fee will drive up developers' expenses. The manpower required to manage the account will also add to costs as will the auditors' fee for generating project reports which have to be sent to the Bank of Thailand. Big players are likely to gain an advantage over small developers.

"From now on, only developers with strong financial support and professional human resource management systems will survive," Suang Chaisurote, director of Quality House, said.

He said the law would help solve a huge problem, especially in the condominium sector, where most developers use down payments from customers as cash flow for construction.

Meanwhile, Suang sees the law having little effect on low-rise projects because of the norm of finishing the construction before selling.

The added cost of escrow-account-related expenses will increase the total cost of the project, which will most likely be passed on to the buyer. Property developers are also likely to concentrate on build-by-order projects to avoid risking oversupply.

The only way for small and medium developers to compete will be to find their own niche rather than compete in the mainstream with the big developers.

Property reporters

The Nation

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[quiksilva]

I have been looking forward to this for some time now!

[MrPaddy]

I have not.

[GuestHouse]

From the buyer's point of view, the law makes buying property a no-risk proposition.

These things seldom do exactly what it says on the box.

[quiksilva]

You would have to pay for it but if handled well it should certainly eliminate much of the risk.

It will mean a whole new set of terms to be negotiated, i.e. under what conditions the money can be released.

For example:

The money would only be released upon the execution of a document that states that the property is being delivered complete and in a condition that is to the buyer's total satisfaction.

Of course it's likely to be much more detailed than that with many further definitions of the vague terms I mentioned, but if used on this basis, I can definitely see how it will help to infuse confidence into the process.

Edited March 18, 2008 by quiksilva