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4 Jan 2008

Real Estate and Construction

Escrow Account Act, B.E….: Long-Awaited Hope for Homebuyers’ Benefit (Current Issue No.2023)

คะแนนเฉลี่ย

It has been more than 10 years now since the escrow account concept was mentioned in . In essence, the escrow account system could help restore homebuyers' confidence and build up the image of property developers. There have been many cases where homebuyers were affected by the fact that property developers did not act in compliance with sales agreements, resulting in delays in residential projects and substandard housing. In the worst cases, cash-strapped developers left projects uncompleted, which caused homebuyers to lose a great deal of money and ended up lodging lawsuits against defaulting developers. In the latest developments, the National Legislative Assembly (NLA) resolved to pass the Escrow Account Act, B.E…., on December 21, 2007. The law that will come into effect within 90 days after publication in the Royal Gazette is quite crucial to restoring homebuyers' confidence.

KASIKORN RESEARCH CENTER (KResearch) is of the view that the Escrow Account Act, B.E…, will be a major tool to enhance consumer protection. Under the new escrow account system, down-payments, plus accrued interest, that homebuyers have remitted in deposit on home purchases will be secured; if problems arise with property developers that obstruct the delivery of a home, the buyers' money will not be lost. In addition, consumers will also be guaranteed of quality housing and the system will decrease the number of civil actions in court for both parties' benefit.

From KResearch's perspective, once the Escrow Account Act, B.E…, comes into effect, it will be a boost to the image of the real estate industry. To be more specific, the system will help prevent property developers from relying on customers' down payments for developing their projects or misusing their money. This is quite risky for homebuyers. Additionally, it will help prevent the real estate industry from overheating. When it comes to new property projects, developers will become more prudent about cost management and investment-related policies, e.g., the period of construction. They will have to meet project completion deadlines as stipulated in sales contracts. In cases of delays, homebuyers will be able to claim restitution per the terms and conditions of the sales contract.

However, the Escrow Account Act may affect new and small real estate entrepreneurs because they will face more difficulty in entering the market. Now real estate development companies will have to be better prepared in terms of capital, which differs from the past where they used buyers' deposits and down payments to finance construction. If this Act is enforced, monies remitted will be kept in an escrow account where developers shall not have access until they have fulfilled their responsibilities per sales contracts. Entrepreneurs will have to be more careful in liquidity management. This may increase their financial costs and force entrepreneurs to pass on these higher costs to consumers, depending on their financial strength.

Moreover, the Bank of Thailand will allow commercial banks to act as the trustee in the interests of both contract partners per the Escrow Account Act, which should enable financial institutions to earn more income. Their liaison will earn income from fees on account opening, services attendant to escrow accounts and other expenses that are designated in the service contract. Another benefit for financial institutions will be that they can offer housing loans or other financial products to contract partners (homebuyers). Some homebuyers will not have been previous customers of the financial institutions, so acting as the trustee might be helpful toward expanding their customer base for housing loans and other products to this customer group in the future.

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Real Estate and Construction