Global Mortgage Finance
(Thailand Property and Land Finance Specialists)
Published 1st October 2016 - Off Plan Condo Finance in Thailand
Living on a Tropical Island in the Gulf of Thailand is more than paradise for many of the 70,000 (est.) who live here. Whether it is the quiet Island life or, simply the palm tree soaked coconut shores, it is often considered an epitome of paradise. After living on a relatively small island for an extended period of time, there may however come a time, when that “Island Feeling” sinks in and than at the same time, that “Island Getaway” is needed, even if just to bring a reality check on life. A marketing trip up to the Thai capital Bangkok, which may facilitate interest in the local Samui business, which in turn helps to maintain that lifestyle one maybe accustomed too on our paradise island, is that regular trip away or the norm, for many. It is this market, of regular island flyers that often look to purchase a weekend getaway condo, or business residence during the week, away from the island and for this, a finance option could be useful.
Let’s consider an islander expat who owns a business, a sizeable pool villa as the family home and regularly travels away from the island on business to other provinces, staying in luxury hotels. This type of island flyer has a reasonable expenses budget, may often be subject to numerous condo flyers promoting offers to purchase around the kingdom and sometimes may partake in an acquisition. Popular places of interest for condo getaways tend to be Hua Hin for golfing weekends & Bangkok for business, with the occasional party weekend in Pattaya. The rationale to consider a Condo is simply due to the requirement of being for second use only and not as a primary residence. Bangkok has far more Condo in prime BTS transport location than it does luxury villa, Hua Hin & Pattaya now also feature much resort style condo’s many would consider of a similar standard to that of a hotel, with massive lagoon style pools and waterslides. So either example is perfect for that quick access to the City or that relaxing family weekend away by the Golf course.
On occasions, off-plan projects are tempting particularly since the price Sq.m. is reasonably low and comes with a monthly installment. The only catch with off-plan projects tends to be that finance is not readily available until the project is completed so a reasonable level of financial commitment is required. Why would a lender confirm that finance is available for several million baht if the condo is not yet even off the ground... A lender is likely to prefer waiting until near completion when condo titles are imminent, with completed show units available for inspection and to understand how the project will have its finishing touches. To see a finished, brand new project is far more appealing and likely to generate a higher loan to value ratio, than seeing a partly built project with only artist impressions of the finish. A typical off-plan condo purchase may require an expat buyer to pay 50% of the purchase price over construction (say 2 years) with a final payment of 50% upon completion. This is when the lender may typically step in, to foot the final payment on completion. It is worth to mention that for some developers “completion” is often when the occupancy permit has been granted and building is almost finished, where a lenders “completion” is often when not just the occupancy permit has been granted but also, condo chanote titles are available.
If considering an off-plan condo, it could be useful to understand how a lender may think in the present market and on how present lending criteria operates for completed projects. While a bank or financial institution couldn’t commit just yet to that final balance, an estimate could be used on what other projects are pre-approved for in the area, this can be used as a benchmark to plan budgets. Take for instance a map provided by one lender, which highlights all projects they have pre-approved for finance in Thailand and the amounts for which they can lend relatively easily over a 3-4 week timescale. While this map is by no means complete for every Condo in the kingdom, the lender does generally increase this list from month to month, as new clients and new projects are added. You may find that a lending amount per Sq.m. is provided to make things easy and would be no more than 60% of the lenders valuation in total for the final loan size. The lender will generally tend to lend more for prime (lenders opinion) units in the building so perhaps in a high rise, a floor close to the penthouse may offer up to 60% loan to value (LTV) while a low floor car park view may offer down to 30% LTV. In a low rise (typical 8 floors) you may find the ground floor pool access offers up to 60% LTV and the middle floor, outside car park view comes down to say 40% LTV. This map can be extremely useful to determine an estimate loan size based on comparable projects, which should be available upon your off-plan project completion date so you can budget & plan to cover the final balance.
In order to finance the first 50%, usually payable over construction, it is hard to find a lender who would consider paying this part. The only security a lender may have is your contract to purchase a condo, which in a way offers little liquidity to the lender and is more likely to be considered as unsecured lending. There is no ownership document such as the units title deed and if the developer fails to deliver the project or doesn’t obtain the condo license, the lender is stuck with a contract to purchase nothing….or nothing like what previously agreed upon. A solution to finance the first 50% often comes in the form of the buyer offering other collateral as security.
Re-Finance, Cash Out, Cash Back or Equity Release is a term often used to receive cash in exchange for a property you already own. Let’s consider a client who bought a property for 10M baht and has no debt or mortgage against the property. The ownership is in your name. A bank may value this property at 9M baht (Thailand lender valuations are usually a little low) and you are in need of just 4M baht cash to pay the first 50% of your off-plan condo project. As you have already bought this property outright you have already demonstrated a reasonable amount of financial acumen therefore, you are already considered as reasonably credit worthy to a lender. If the lender was to lend 4M baht, they are likely to either get their money back from the loan installments or worst case, from a property sale should you decide to walk away therefore, it is good business to lend for net interest income if, the property is of good condition and in a lenders preferred area of business and expertise.
I tend to find the types of property suitable for relatively easy finance in Thailand are:
1.Condo’s less than 10 years old and for a lenders valuation of more than 50,000 baht Sq.m.
2.Pool Villa’s of good condition, in prime location and of value 5M baht or more
3.Land which is of good location to develop and particularly if has limited availability for the plot
It is worth to note that all property used for lender collateral would usually need to have a chanote freehold title and is always subject to the lenders final board decision.
At one lender, they offer various flexible forms of finance catering for both Thai and Expat business. Our interest rates tend to range from 8.65% for Condo, Mortgage business, up to around 12% for Land/Villa/House, Kai Faak business. Timescales are from around 2-6 weeks, depending on collateral and timing of the application. They lend up to 60% of their preferred appraisal company valuation.
For further information on how to Finance Property & Condos in Thailand or if you would like a link to the “Thailand Condo Finance Map” pre-approved, feel free to drop me a message on enquiry@globalmortgagefinance.com or call my Thai mobile on 66 (0) 81278 5382 and I will be happy to answer any queries or forward you any relevant information.
Link to Website of Samui Phangan Real Estate Magazine where Published - Link