Due Diligence: The Week Before You Pay a Property Deposit

A deposit is the shortest document in a property purchase and the most expensive to undo. On an off-plan unit in Phnom Penh it often runs 20 to 30 percent of the price, wired against a reservation form that took ten minutes to sign. Almost everything worth checking is checkable before that transfer clears, and almost nothing is on the same terms afterwards.

The week before a deposit is the last week the buyer holds all the leverage. Most buyers spend it deciding. The disciplined ones spend it verifying, and they run the same checks every time. That routine is what due diligence looks like done properly.

Why due diligence should be a routine, not a mood

Treated as a one-off, improvised for each purchase and sized to how nervous the buyer feels that month, due diligence is slow, patchy and uneven. The buyer who loves a unit checks the least; the unsure buyer checks at random.

Borrow instead from how institutions release capital: the same files, in the same order, on every deal. A routine fails loudly. When the same checks run every time, the one deal that cannot pass them stands out at once, because it breaks a pattern you have watched clear a dozen times. Diligence on a schedule is cheap. Diligence under a deadline is just hope with paperwork.

The first files: title and counterparty

The week opens with the two questions that decide whether anything else is worth doing: who owns the thing, and who is selling it. Title first. Foreign buyers in Cambodia hold freehold strata title to units from the first floor up under the 2010 co-ownership law, with ground and underground floors excluded and foreign ownership capped at 70 percent of a building's total unit area. Units within 30 kilometres of a national border sit outside the scheme.

A title check confirms the unit qualifies on each count, that the certificate is genuine and unencumbered, and that the registered owner's name matches the passport exactly. That last point looks clerical; it is the difference between a resale that closes in weeks and one that stalls while two documents are reconciled. Then the counterparty: is the seller the registered owner or acting for one, and can they prove it? Is there a mortgage to discharge at transfer? On off-plan, does the developer actually hold the land, and is the project registered under the framework it is sold under? You are not looking for reasons to admire the seller. You are looking for the single fact that would make a careful person walk away, because it is cheapest to find now.

The arithmetic that survives a bad year

Midweek is for the math, done conservatively, on paper, before emotion gets a vote. A unit that only works in a good year is a liability in an asset's clothes. Take the yield the seller quotes and subtract what the quote left out:

• management and co-ownership fees
• vacancy between tenants
• a repair and maintenance allowance
• rental withholding tax, which in Cambodia runs 10 percent for residents and 14 percent for non-residents depending on how ownership is structured

What remains is the net figure, the only one that pays for anything. Then the round trip: a full purchase-and-sale cycle on a mid-market unit commonly eats 7 to 9 percent of value once the 4 percent transfer tax, commission, legal work and vacancy are counted, and that belongs in the model at entry, not as a surprise at exit. The last line of the money check is your own balance sheet: a holding that cannot carry twelve months of costs without a tenant may have to sell in a weak month, and forced sales are where returns disappear.

The building, the developer, and the exit

The back half of the week moves to the physical asset and the way out of it. For a finished unit, this is the survey: the building's state, the health of the co-ownership management, the reserve behind the shared areas, and how the lifts and water pressure actually behave. For off-plan, it is the developer's record, what they delivered, whether on time, and what the payment schedule commits you to before a key changes hands. Cambodia's annual property tax, 0.1 percent of 80 percent of assessed value above a modest threshold, is small enough to confirm in a line and worth confirming.

The week closes where most buyers never begin, at the exit. Who is the next buyer, and what will they want to see? A unit that is easy to buy and hard to sell is a trap that springs slowly. This is why ready, clean-title units on the secondary market sit at the centre of how we work: they pass this routine cleanly and hand the next buyer a file they can trust. The point of the fixed week is not to admire the purchase but to make the eventual sale boring.

A due diligence week costs the same on every deal, while skipping it costs nothing until the day it costs everything. If you would like a second set of eyes on a title or a contract before you place a deposit, our advisors are available, with no pressure either way.