Security from Developer Bankrupcy
Jean Michel wrote recently, asking: What security can I put in place to protect my investment if the developers company goes bankrupt?
Even though you can thoroughly investigate the financial strength and the history of a developer, sometimes even the mighty fall.
The best protection is to pay for what you get and minimize any advances
or deposits made under contract that are not secured. I have explained
how this can work with the builder (See Gazette, July 5-11). It should
be the same with the developer, with the critical component being the
Once you have made a deposit to buy or lease land, it is wise to make a significant payment for the land only at such time and concurrent to the title being transferred or a lease registered.
Similarly, it is wise not to spend money on a building until you own it or have registered lease rights over the land it occupies. If the land were to be foreclosed through a bankruptcy, securing the value of your investment from other creditors can be very difficult. If you have received the title, you are secure.
Or to be precise you are secure with respect to the private components
of the purchase. Any parts of the development that are common property
or developer supplied utilities will still be at risk - this risk can
be minimized if there is a retention component of the land price related
to common are facility completion.
The above payment methods are however not typical in a commercial developer-sales model, which usually involves many progress payments and the final installment paid on transfer of title on completion of the contract, nor is it easy on the buyers cash flow as you must pay for land before you can reasonably expect to occupy a new building. But it is a model increasingly being offered by leading developers in Phuket, and it does significantly reduce your risk if the developer unexpectedly goes bankrupt.