Why Are You Paying Deposits Without A Guarantee?

[stgrhe]

I have only been living in Thailand since June last year although I have been doing business with the Government here over twenty years. As I and my Thai wife need a house, we are temporarily living in a house belonging to my wife's sister, I have since my arrival surveyed about a hundred housing developments and I have noticed to my surprise that most developers actually ask for money down without giving anything in return!

A solid and fair business arrangement should, in my mind, be based of payments based on performance, i.e. milestone payments and with a final payment after delivery. An advance payment is perfectly ok provided the seller puts up an advance payment guarantee that is proportionally offset by the installments.

Some of the developers I met simply refused the idea of providing a bank guarantee, while some were prepared to agree to one and pay the costs therefore. A bank guarantee is presupposed to be paid by the seller.

Therefore, all this talk of people loosing their deposits is like alien talks to me. I simply don't understand why someone would put in a large deposit on a property that has not even been built without any form of guarantee. I would surely never do that.

[thaiwanderer]

Therefore, all this talk of people loosing their deposits is like alien talks to me. I simply don't understand why someone would put in a large deposit on a property that has not even been built without any form of guarantee. I would surely never do that.

Because they want the property?

Its easy not to lose a deposit - don't pay one - but then you won't get the property either if thats how its being sold.

Escrow is now recognised in thai law - previously it wasn't but could still be arranged.

However why would developers want to use their own money when they can have the buyers bear the entire financial risk for the development?

Times change and developers may be more willing to 'sell' without a deposit - but then they will have less / no money to develop, if they are currently develping at all.

Paying deposits was perfectly acceptable when times were good and buyers 'must have' a particular product and the swirl of real estate alchemy was blowing the ship along. Times are bad for developers now, the swirl remains.

[DonTron]

How do you go about getting a "bank guarantee". What is the Thai word for this?

[stgrhe]

How do you go about getting a "bank guarantee". What is the Thai word for this?

I don't know the Thai work for "bank guarantee", but this is basically what a bank guarantee is when its purpose is to guarantee an advance payment.

1. You as the buyer can nominate the bank you want to have the guarantee opened with but sometime it is more practical to allow the seller to chose his bank. His costs will probably be less and personally I see no reason for feeding the fat cat (the bank) more than nescessary. The buyer should pay all costs for the guarantee since he is the one asking for an advance payment without you as a buyer not getting anything in return, hence the guarantee.

2. The guarantee should specify the terms under which you as the buyer can claim back your advance payment and how it should be paid out.

3. The guarantee, say your advance payment was 30% of the total contract price, should correspond to that amount but gradually and proportionally be reduced as you may the milestone payments.

4. The bank should guarantee repayment, if the conditions are met that is, as if it was their own dept. That is very important.

What is the benefit for the seller: It provides them with cash which they may use to earn money from, i.e. cash management, or he may use the cash to finance the project wholly or partly without having to borrow money from the bank, which is a pure cost.

The benefit for you as the buyer is the you have a proper security for the money you have paid upfront and for which you otherwise would have only a contract to fall back to. Hence, should the developer try to take the money and run, or come into a financial state where he no longer can complete the project, your advance payment is still secured and will be back with mama.

Using a banker's guarantee is common practice in most businesses among major companies. There is an alternative method is which one could opt for a stand-by letter of credit but that would not suit a domestic real estate market.

There are also other forms of banker's, guarantee such as performance bonds and guarantee guarantees, and in the case of buying a condo off plan I sincerely think a performance bond would be appropriate too.