ARTICLES OF LAW --- Caution required

ARTICLES OF LAW
By BHAG SINGH

Things to look out for when buying a plot of land in a foreign country.

VARIOUS organisations are involved in selling plots of land in foreign countries and many people are excited about buying such land. The advertisements are well displayed and the advantages of the purchases are highlighted.

Phrases like prime freehold land, absence of taxes, existence of a trusted land registry system, an increasing population, exciting forthcoming events and expectation of multiple-fold growth in value in the future are used to prompt purchase of such land.

Of course, this comes as music to the ears of those who dream of acquiring a landed property in a foreign country. This is especially so when the land is sold in parcels that appear to be affordable to a broader section of the population, which may otherwise find the cost of property prohibitive.

A reader, who is interested in such a purchase, wants to know if it would be safe to buy such land. This is especially so when it is in a faraway country. He would like to know the aspects that should be looked into.

Land is an asset that appreciates as a general rule, but there are exceptions. The important question that one needs to ask is whether such plots of land will appreciate in the short term.

Unless the interested individual is living in the said country or for some reason has occasion to be present there on a regular basis, he will have to rely on the company that is selling the land. He has to rely on visuals, printed material and electronic presentations on the screen. This does not always give a complete picture.

It is necessary to be cautious when purchasing such property in a foreign country. Apart from knowing the exact location, it would be prudent to be aware of all the detailed terms and conditions, and what the purchaser would be getting in reality.

An experience

A reader related his experience when he responded to one such advertisement. Of course, his experience will differ from that of others, but nevertheless it highlights the need for caution.

Upon arriving for the presentation, he was offered refreshments followed by a very encouraging conversation about how the land had appreciated. He was told he could expect the lot to appreciate by four times within four to five years.

This was followed by a power point presentation showing the beautiful landscape where the lots of land are, the name of the marketing company and other companies in its group or which are associated with it, and the companies' involvement in different activities related to development.

The reader was then told that he was required to pay an initial deposit of 10%, with the balance to be paid several days or a few weeks later when the company’s lawyers have drawn up the contract.

When a request was made to review a copy of the contract, it was not available but the potential purchaser was told that the contract was a mere “standard contract” which would be prepared by their lawyers.

Standard contract

Whilst there may be individuals who can afford to take extreme risks, it would be unwise to enter into a transaction without knowing the detailed terms and conditions which could turn out to be most unfavourable.

A purchaser should, at the time of the payment of the deposit, find out whether he would get his deposit back if the terms in the contract are not acceptable to him. It would also be relevant to know whether the deposit is to be paid to the vendor or a stakeholder.

If the objective of the purchaser is to use the land to construct a house, there should be an assurance that if the category of the land use needs to be changed and planning approvals need to be obtained, this obligation will be fulfilled. It is necessary to know the cost of such approvals.

It may be attractive to see the word “freehold” as it implies perpetual ownership. However, a land which is freehold but unconverted for use for housing or building and without the necessary planning approvals may be of much lesser value.

If, however, the land is being purchased merely for the purpose of investment in the hope that it will appreciate over the years, the returns will greatly depend on the change of category and zoning approvals that can be obtained.

In such a case, it is necessary to know what will happen at that stage. Will the purchaser have to find his own buyer or are there other options or mandatory buy-back provisions?

If so, what guarantee is there that the vendor will exercise that option and if so, what is the formula that would be used to determine the price. Unless there are adequate safeguards, the purchaser of a plot could well find himself having little say with regard to the sale or the price.

Regulation

With regard to the regulation of sale of such property, there exist provisions in the Valuers, Appraisers and Estate Agent Act 1981 when such properties are sold. This must be done through a registered estate agent.

However, section 22C(2) of the same Act provides that notwithstanding this requirement, an owner of any land, building or interest therein may sell or rent, or offer to sell or rent, such land, building and interest.

Such provisions aside, the fact remains that the rights of the purchaser will be based on the contract he entered into. Other local legislations regulating sale of land or property in the country will not protect him.

In most cases, the purchaser could be buying a piece of unconverted land or “raw land” as it is sometimes referred to. Having paid in full, he has to wait for several years before he can see any progress being made.

This is not to say that those who sell the land will not keep their part of the bargain. But over half a decade, many things can happen and a person who has put in his hard-earned money needs to protect himself and be mindful of the risks involved.