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6 ways to avoid being defrauded in a property investment

The Thaiger

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By Desmond Hughes

As today’s local Phuket property news is soured by the story of a development ‘scheme’ resulting in losses for investors and third parties, the perception of real estate may be besmirched with negativity, all the while honest families who have elected to take their own risk on the market by developing their land banks, working with architects, designers and contractors to try and provide good solid homes or investment properties, suffer the commercial shockwaves as the inevitable output of publicised property development failure.

I personally know very bright, educated successful businesspeople who have suffered fraud in property markets and I have as much respect for them as I do for people who have never lost on investments.

I have no feelings of ‘this could never happen to me’. Some frauds are seriously difficult to detect, cause embarrassment to the victims which perpetuates or extends the fraud, and unfortunately frauds are a natural result of the freedom available to those that conduct business in any market, regardless of the amount of regulation that exists.

Where there are rules, rules are broken. As a humble student of balance, subjective and objective criteria, theoretical analysis of legal systems and regulation, I believe in pre-emptive investment protection or to use a more common description ‘being cautious’.

Therefore, all those who are currently considering diverting all their monies away from property into the exciting world of blockchain and cryptocurrencies, kindly consider the following as guiding principle for navigating the property market with a certain degree of respect:

1. Winning the Last Game Doesn’t Mean You Win the Next Game

Anyone that understands sport will understand the heading. If a private developer has completed 1 or more projects prior, it does not mean that they will successfully complete the next project, or even start it. It is, however, natural to read into the credibility of a developer if they have completed a project well before. However, this should not be taken as any form of implied guarantee of future performance.

Developers can lose money by speculating on other businesses, diverting funds, get into trouble with moneylenders or even reputable but unsympathetic financial institutions. They can also die with no succession plan in place.

The very simple solution to this logical set of facts is to (a) consider buying something that is already built to limit risk or (b) when buying off the plan, demand better payment terms allocating a large percentage of payment to the final payment and review contract and risk carefully.

2. Choose Experienced Lawyers, not the Cheapest Lawyers

Here are some characterised liberally interpreted sound bites close to statements I have heard over and over again over the last 15 years. If you can’t see any issue with these statements, then as many a con artist has said – “you deserve to lose your money.”

“The agent who stands to make commission from the sale recommended the law firm and I chose that law firm without checking their credentials”

“I contacted three law firms and chose the fastest responder which was the cheapest”

“I used the same law firm that represented all of the other buyers before me”

“I used the same law firm that represents the developer”

“I used a law firm because they said they were ‘well connected’”

“I used a law firm because they had some foreigners”

“I used a law firm because they didn’t have any foreigners”

“My lawyer said he studied in my home country for 12 months and understood me”

“My lawyer was polite to my spouse / girlfriend / boyfriend so I felt comfortable with using them”

“The law firm I chose told me that all land is safe it is issued by a Government Department and can never be ‘taken back’”

“My law firm said not to worry that the developer has a huge mortgage or loan and that it is normal for developers to borrow money to develop property. He/She said there was no need to look at the loan agreement or ask the developer about the relationship with the bank as that would be considered ‘rude’”.

“I used a Bangkok Law firm because Bangkok is big. Bangkok is a city. People in Bangkok are cool. I like tall buildings in central business districts – better advice comes from there.”

“I used a Phuket law firm because the parties are based in Phuket.”

“I used a law firm that has the same logo as a law firm that has over 10,000 lawyers around the world, because surely all of the lawyers are good – like the burgers in a fast food chain are also always delicious wherever you buy them.”

I could go on for a few pages more…

3. After you Have Chosen Lawyers, Listen to Them

Let’s say you used a good set of criteria to appoint legal advisers. Then you obtained their advice and you didn’t like it. So you proceeded to ignore them. This is tantamount to choosing a car for its safety features and then disabling all of those safety features before braving the death-filled roads of Thailand.

4. Examine the Fundamental of the Project and Conduct a Real Strengths and Weaknesses Analysis

Think about the following…

  • Type of developer – public company listed on the Stock Exchange versus private developer
  • Private developer – financially sound, happy to disclose financial status, good sets of clean audited accounts, good reputation
  • Marketing strategy – style over substance or a mixture of both
  • Land legality – check the entire history of the land from when it first came into existence. 60 to 90 years or so of documents isn’t a long time in the history of the Universe. Check them all.
  • Understand what legal compliance actually means. Obtaining “EIA approval” just means approval to do something subject to complying with laws. It is the complying with laws part that needs to be checked, not the existence of the conditional approval. “EIA Approved” doesn’t mean “We are compliant with all the laws”. My wife approved me going out with friends for a late night, and she set some conditions such as getting home at a reasonable hour. Whether I met those conditions or not is a matter of review and inspection.
  • Don’t accept shoddy contracts. If the contracts aren’t good, it means there is poor judgment on the part of the developer as to which service provider to use. Similarly they may exercise poor judgment on the carpenters; plumbers; electricians; structural engineers and project management team. Try and look at the whole package.
  • Developers who don’t negotiate are either so good they don’t need to, or so bad they hide behind a wall of ‘no’. Some public companies can’t change their contracts – because they need Board of Director and committee approval to do so. However, some companies hide behind this and some private developers take an inflexible approach to negotiating changes. Choose changes to contracts carefully, only points you really need for comfort and security, but don’t take an off-the-shelf product with defects. Contracts also, like any product, can become aged and past their sell-by-date. Developers cutting and pasting contracts from 2005 aren’t confidence-inspiring organisations.

5. You Will be Punished for Arrogance

Most of my clients are far wealthier than me and I have no shame in that having risen from the metaphorical ashes of a working class family to make my own way in life aided by student grants and part time jobs before obtaining my qualifications and penetrating elite walls and ceilings on my own terms.

I am in a service business, and therefore I must serve those that can afford to pay for knowledge and know how they do not possess, or support for resource they cannot muster. Many such clients freely admit their wealth came from inheritance, from a healthy dose of luck in selling a business at the right time – dot.com boomers being a case in point, or from their own hard and constant graft.

However they came by their money, they do not deserve to be unfairly cheated out of it. Such people do not possess a Midas Touch. They are fallible. The smart ones admit that and behave accordingly.

I offer my respect to those that recognise their own successes and capacity for failure and catastrophe. Those people wearing sunglasses on a cloudy day who won’t make eye contact while they drop their children off at school because you clearly aren’t in their perceived ‘ life club’ are prime targets for life readjustment lessons but I still pity them when they lose, even financially. Life has a strange unfairness about it but many who think they are cheating life are rewarded exponentially in kind.

Don’t be arrogant. Don’t think people with less wealth than you know less. Such persons may have studied far harder than you and have read more books. Think about why they did that. Then pay to get some advice before you make a decision, not during the litigation or dispute process.

6. In Business, Timing is Everything

If a sales person is rushing you to make a decision, is it do you a favour? Is it because they are your “bestest bestest friend” and after two dinners with you and searching for aligned topics of interest suddenly you have ‘connected’ and therefore you must go along for the ride, at their pace and behest.

It does no harm to retain some cynicism about timing. Yes, if the market is hot and rising, being quick to buy makes sense. That is what commodities trading is all about and some have studied that which is different to property by a long stretch but still has some similar principles in terms of profit and leverage.

Unlike damaged grain, if your property target purchase is rushed, you might not be insured against the losses, you may wish you had taken more time to conduct a survey and there may be no ‘association of damaged property investors’ to call upon to help you out.

Contractors and Developers who need you to buy ‘now’ most likely need ‘cash now’ which isn’t a good sign. Yes, professional property developers and agents do not like dawdlers, time-wasters, tire kickers, property viewing tourists and the like – these people costs professionals a lot of wasted time and resource and hinder the effective mechanics of an efficient property market. However, these people exist in many markets and there are strategies for uncovering the charlatan mystery shopper buyers.

Rushing someone to make a life decision isn’t a good idea.

Plan the timing of your transaction with your advisers, and don’t be swept along the road to a court case at a pace far faster than a court case would be conducted.

At wakes or funerals, it often isn’t appropriate to make jokes or be jolly, or to refer to certain topics that relate to living life when someone dear has passed away.

When property fraud hits the market, it often isn’t fashionable to remind people that there is not just bad in the property market, but a lot of good, for fear of being rebuked as a self-serving property professional. However, the truth of life and humanity is that the world is progressively becoming a better place, Thailand is becoming a better place to do business, and the property market does have more to offer than before. Issues will continue to arise, mistakes will continue to be made, and the bad actors in the market will continue to disrupt progress.

Please stay safe. Please be cautious.

6 ways to avoid being defrauded in a property investment | News by The Thaiger

Desmond Hughes FCIArb
Senior Partner
Bangkok | Phuket
hugheskrupica.com | +66 (0) 828 897 897
Bangkok: +66 (0) 22 872 173
Phuket: +66 (0) 76 608 468

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Property

Thailand’s property market waits for an end to Covid-19

The Thaiger

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Thailand’s property market waits for an end to Covid-19 | The Thaiger

The Coronavirus outbreak poses challenges for Thailand’s property market as potential Chinese condominium buyers remain stranded in China. Meanwhile, some believe that the outbreak may bring opportunities for non-Chinese buyers and in the long-run, the Chinese may be looking for an overseas refuge in the event of these types of emergencies popping up again

Through all this, there will be a certain level of pent up demand for Thai real estate.

Of course, it’s not just the Chinese unable to come and inspect potential buys, the rest of the world is also mostly shut out of Thailand.

Market remains weak

The pandemic is hurting the condominium market as Chinese nationals were accounting for half of the international buyers in Thailand, or 57.6% of the total foreign condo owners in 2018.

Vichai Viratkapan, acting director-general of the Real Estate Information Centre says that 50% of Chinese condo transfers are expected to disappear in the first 2 quarters of this year and the total transfer value by the Chinese will miss the mark of the usual 29 billion baht by about 25% (around 7 billion).

However, since Chinese property buyers only make up 6% of the total international and domestic housing transfers in Thailand, the proportion of total housing transfers in the country is likely to be similar to last year.

Developers looking to sell current stock whilst shelving new projects

CBRE reports that most Thai developers are postponing the launch of new condo projects to focus on clearing existing stock.

“Discounting completed projects to generate quick revenue as a financial lifeboat is the best solution for many of the country’s larger developers whilst the market is in limbo.”

Rathawat Kuvijitrsuwan, head of CBRE Research and Consulting in Thailand believes that, now business is gradually recovering, a few developers have started to launch new condominium projects.

“In the first half of 2020, the Bangkok condominium landscape was gloomy with fewer than 10,000 condominium units launched, which was much lower than the total number of new launches in the past three years of more than 60,000 condominium units per year.”

The Chinese are reluctant to complete transfers

The virus has continued to affect hospitality operators, including hotels and condominiums that service tourists, nationwide. Since China has suspended tours, put restrictions on movement, and locked down cities, home to over millions of people, it also poses a threat to real estate developers as their clients are unable or unwilling to fly.

“Currently multiple off-plan condominium developments are approaching completion, and Chinese clients are unable or unwilling to transfer. Chinese clients who made a reservation in Q4 2019 are requesting a refund and withholding their investment,” said Marciano Bijmohun, Business Development Director at FazWaz Property Group.

He believes every condominium that is in transfer status will see the percentage of non-transfer units rise in the coming months.

“These non-transfer units will cause a big financial hit to developers.”

If a client refuses to transfer, does not comply with the terms and conditions stipulated in the sales and purchase agreement, and decides to release the property, their deposits will be forfeited.

“However, there is some good news, these non-transferred units can be offered with a discount to new clients.”

Also, as China has been susceptible to a few disease outbreaks – from bird flu to the current coronavirus – it may prompt Chinese buyers to look for second homes outside of China.

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Bangkok

Silom Road tops as the most expensive area to buy land in Bangkok

Caitlin Ashworth

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Silom Road tops as the most expensive area to buy land in Bangkok | The Thaiger
PHOTO: Unsplash: Paul Szewczyk

Silom Road, Bangkok’s nightlife district, is the most expensive area to buy land in Bangkok, followed by Phloen Chit Road, according to data the Treasury Department gathered from 2016-2019. The pandemic may have fluctuated the prices, but no data on land value for 2020 has been reported by the department. They also say only asking prices were recorded, so it’s unclear how much the price decreased by during negotiations.

On Silom Road, land prices per square wa are up to 1 million baht while land on Phloen Chit Road have been reported to cost up to 900,000 per square wa. A square wa is about 4 square metres. Land on Rajadamri Road ranges from 750,000 baht to 900,000 baht per square wa. The cheapest areas to buy land in Bangkok are farmlands in the Bangkhuntian district. Land prices range from 500 baht to 10,000 baht per square wa.

Properties on Silom Road are also the most expensive in Bangkok. The price for a 170 square wa 4 storey office on the road costs around 155 million baht, according to the data. The highest asking price was 7 billion baht for a 37 storey office building on Sathorn Road.

Here are the top 10 most expensive areas to buy land in Bangkok:

1. Silom Road at 700,000 baht to 1 million per square wa

2. Phloen Chit Road at 900,000 baht per square wa

3. Rajadamri Road at 750,000 baht to 900,000 baht per square wa

4. Rama I Road at 400,000 baht to 900,000 baht per square wa

5. Wireless Road at 500,000 baht to 750,000 baht per square wa

6. Sathorn Road at 450,000 baht to 750,000 baht per square wa

7. Yaowarat Road at 700,000 baht per square wa

8. Thaniya Road, Pattanapong Road, Pattanapong II Road at 600,000 per square wa

9. Narathiwas Rajanakarin Road at 280,000 baht to 600,000 baht per square wa

10. Ratchawong Road, Sampeng Road at 550,000 baht per square wa

SOURCE: Nation Thailand

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Thailand

Thai condo developers clearing inventory rather than starting new projects

The Thaiger

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Thai condo developers clearing inventory rather than starting new projects | The Thaiger

“With waves of uncertainty and financial stress crashing into the market from the COVID-19 pandemic, most residential property developers have decided to postpone their plans.”

CBRE, the international property consultants, reports that most Thai developers are postponing the launch of new condo projects to focus on clearing existing stock. Discounting completed projects to generate quick revenue as a financial lifeboat is the best solution for many of the country’s larger developers whilst the market is in limbo.

Rathawat Kuvijitrsuwan, head of CBRE Research and Consulting in Thailand believes that, now business is gradually recovering, a few developers have started to launch new condominium projects.

“In the first half of 2020, the Bangkok condominium landscape was gloomy with fewer than 10,000 condominium units launched, which was much lower than the total number of new launches in the past three years of more than 60,000 condominium units per year.”

Since June, CBRE Research says new condominium projects, along new extensions and future routes of mass transit lines, with starting prices under 2 million baht, and those along existing mass transit lines are usually priced lower than 3 million baht.

“On the other hand, there has been no newly launched condominium in the high-end and above segments this year due to the high level of unsold supply and high land cost in prime locations. Investors have become more cautious in spending a large amount of cash during these uncertain times.”

“Some of the newly launched condominiums have had a good sales rate during their first launch. Most of these projects have been launched with a product and pricing that are mainly targeting large demand from buyers with lower-purchasing power and are located in an attractive location with limited available condominium supply in the area.”

But despite the slowdown of general activity and the current sales and promotions to dispose of excess stock, over 60,000 condos are expected to be completed this year and around 80,000 units each year over the next 2 years.

“With over 140,000 condo waiting to be transferred over the next 2 years, there is a possibility that a large number of booked units could return to such a volatile market as some cash-strapped buyers could decide not to transfer their units.”

“The future of the condominium market depends on the direction that residential developers will take collectively. With the 10 year record low number of newly launched condominium projects, this is the moment for the market to correct its long-standing oversupply and overpricing issues.”

CBRE Research believes that there are still opportunities for developers, including the 4 under-construction mass transit lines that are expected to be completed in 2022, the new Bangkok City Planning that will unlock many new locations for condo development and foreign demand that will come back… eventually.

To find the best range of condos, houses and villas, around Thailand, click HERE.

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