Why Real Estate Due Diligence Thailand Investors Skip Can Backfire
Real estate due diligence Thailand investors need goes well beyond checking a title document — it requires investigating title history and building permit legality, both areas now facing heightened enforcement.Recent news about investigations and enforcement actions by the military government has caused panic among some real estate investors regarding the security of their investments. What led to this situation, and how could it have been avoided?
The most common issues now seeing heightened enforcement under the current military regime concern the legality of:
- Land ownership (or land titles); and
- Land use — specifically, construction on such land.
To avoid potential issues with a property, it should be mandatory for an investor to perform comprehensive due diligence prior to investing. Many well-advised investors do ask competent legal counsel to perform such due diligence, and generally follow that advice. Far too often, however, ill-advised investors instead follow incompetent or non-legal “counsel” — who often have a financial interest in the transaction being contemplated. And then there are those who hear the legal facts from competent counsel but choose to follow the latter anyway. These advisors will tell investors that “the law in Thailand doesn’t matter,” because either “there’s no law on that here” or “they’ll never enforce it.” As recent media reports — and the enforcement actions described above — make clear, this simply isn’t true.
Land Ownership
To avoid being caught up in an official land title investigation, certain issues must be checked before any investment in Thai real estate. It’s important to note that a comprehensive title investigation requires more than simply looking at the title document itself. In fact, all of the land plots currently at issue in Phuket purportedly carry what appear to be legally issued title deeds. Properly examining a title document is only the first step of a multi-step investigation process that requires real legal competence.
What cannot be uncovered by reviewing the title document alone is the title’s history — how it was “upgraded” to its current status. That investigation must be conducted at the relevant land department by someone with the specific competence and knowledge to know what to look for, and what to do if something unexpected turns up. This is done by reviewing the entire relevant title file for the land plot in question.
Issues that can — and unfortunately often do — surface through such an investigation include: an improper underlying document, such as a “flying Sor Kor 1”; other flaws in how the title was issued (issues relating to National Park land being just one of several potential problems, and a significant understatement at that); the land owner not having possessed the land long enough to qualify for the title; or the land area in earlier records not matching the area in later records, among others.
Even where a land title is valid, an investor should also confirm whether the target land can actually serve its intended purpose. Other important issues — separate from the legality of the title itself — that warrant investigation include the legal status of physical and utility access to the land, and the relevant land use laws.
Land Use
The second major issue relates to construction on the land itself. Buildings without any building permit at all are actually uncommon in Phuket. But what about the legality of an existing building permit — and why does that matter?
The relevant law governing the issuance of a building permit is the Building Control Act (1979) (“BCA”). Anyone wishing to construct, modify, or move a structure requires permission to do so. The procedure works as follows: the applicant submits application documents to the local administrative office; the responsible officer schedules a site visit and verifies the documents (such as construction drawings and specifications); and the officer then reviews whether the proposed structure is legally permissible. In certain areas of Thailand, such as Phuket, land use restrictions fall primarily under three laws: (1) the BCA; (2) the City Planning Act (1975); and (3) the National Environmental Control and Maintenance Act (1992).
All of these laws must be complied with — if not, a building permit can be revoked. Legally, a building permit is merely an administrative order, and administrative orders can be revoked either through an appeal or by action of the relevant government administration itself. If the relevant government office finds a problem relating to a point of law or factual suitability, the order may be revoked or amended.
The conditions for revoking an administrative order without an appeal are strict, and the outcome of a revocation depends on whether the original order was lawful or unlawful, as covered in more detail in our building permit revocation article. In other words, revocation of a lawful administrative order entitles the recipient to compensation for resulting damages, while revocation of an unlawful order entitles the recipient to compensation only if they were unaware the order was unlawful.
Conclusion
Real estate investment is usually a long-term, and often significant, commitment. “Slow to enforce” does not mean “no enforcement.” It cannot be repeated often enough: there is law in Thailand, and it does, sooner or later, matter — as the current actions of the military government illustrate.
Thorough real estate due diligence Thailand law effectively demands — covering both title history and building permit legality — is not optional caution but a genuine necessity, since enforcement can reach even properties that appear, on the surface, to hold entirely valid documentation.