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Last Updated: Mar 9th, 2009 - 12:35:58 |
The Escrow Act B.E. 2551 is not yet compulsory but it can be an important tool to protect consumers, build homebuyers' confidence and raise developers' standards.
The act, which took effect on on May 21 this year, covers not only property but also all kinds of assets for which specific delivery schedules exist.
This property-buyer protection law has been more than a decade in the making. The need for better regulation came into sharp focus during the 1997-98 economic crisis, when thousands of consumers lost down-payments on homes that never got built because the developers went broke.
It was common practice during the boom years of the early 1990s for developers to use customers' down-payments as part of their cash flow, in many cases to purchase building materials to keep their projects going.
Under the new law, an escrow agent, not the developer, will collect payments from buyers and will pay to developer in line with construction progress. The agent will ensure that the benefits of each party are properly met.
An escrow account will minimise risk for both buyers and sellers, or payment risk and performance risk. It will also ensure that foreign buyers who may not be familiar with Thai property developers can get units by easing the difficulty of cross-border payments.
Under an escrow agreement, property sellers and buyers need to perform in accordance with the terms and conditions, such as delivery of escrow documents or transfers of money into an escrow account. Both will need to pay a service fee to the escrow agent.
At the same time, the escrow agent will monitor performance by sellers and buyers as specified in the agreement. As a result, if a property developer cannot complete the project or fails to transfer a house to customer, that customer will get the payment back with deposit interest from the escrow agent.
An escrow account will also help prevent developers from breaking contracts, as some did in the past, abandoning unfinished projects and running away with customers' money.
However, an escrow account will result in more expense as the seller and buyer have to pay service fees to the escrow agent. It also could entail more complications and additional time-consuming procedures for both seller and buyer.
The Escrow Act is not complete as related regulations still need to be passed. These include qualifications of escrow agents; remuneration and service fees; account management for contractual parties; periods of time or conditions on transfers of property; regulations on transfers of money out of escrow accounts; and rights, duties and liability of parties and escrow agents.
Ladawan Thanathanit, of the Office of the Consumer Protection Board, said escrow agents would be financial institutions at the initial stage as they are more prepared and their qualifications conform to the requirements.
An escrow agent can also be a trust company or bank with registered capital of a required amount. Applicants must seek permission from the Bank of Thailand and apply to the Fiscal Policy Office for a licence. "This law will help screen out irresponsible developers," she said.
"Developers need to have high liquidity and enough funding for construction as they can't use buyers' money anymore. If a developer agrees to use an escrow account, it can build homebuyers' confidence."
http://www.bangkokpost.com/241108_Business/24Nov2008_biz90.php
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