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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.



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

If you have story ideas, a restaurant to review, an event to cover or an issue to discuss, contact The Thaiger editorial staff.

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Property

The rise of the mixed use retail development

The Thaiger & The Nation

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As our lifeststyles continue to change and morph along with technological and social evolution, so too our living spaces and the locations we choose to live. Behavioural changes among urbanites have led to the rise of mixed-use projects in Southeast Asian countries, according to property experts.

Christian Olofsson, shopping centre & mixed-use director of IKEA/Southeast Asia, told The Nation that the competitive environment in the retail industry precipitated the new format of incorporating non-traditional elements into a retail complex. Development of mixed-use retail properties is growing with the inclusion of residential units, entertainment revenues and healthcare facilities in a single site.

Catering to the needs of today’s consumers and staying relevant is the goal of the re-think among major players, Olofsson said. The new strategy could bring higher return on investment if the developer optimises the opportunity and is able to better meet the needs of modern consumers than are single-use developers.
The concept is less risky as it comes with a greater variety of revenue sources. It can also help average out the land costs by integrating a mix of components with different types of incomes.

Given the positives, IKEA decided to develop a mixed-use project – Mega City – next to Mega Bangna, Olofsson said.

According to a report by the Council of Tall Buildings and Urban Habitat, 451 tall building are listed as under construction globally until 2025, of which a third are mixed-use projects combining hotels, residential units, offices, service apartments and retail outlets. In Southeast Asia, excluding Thailand, 16 mixed-use projects are currently under construction – eight in Malaysia, five locate in Indonesia, and one each in Singapore, Vietnam and the Philippines.

The Council on Tall Buildings and Urban Habitat is the world’s leading institute on the inception, design, construction and operation of tall buildings and future cities around the globe. Founded in 1969 and headquartered at Chicago’s historic Monroe Building, the council is a non-profit organisation with its Asia headquarters at Tongji University in Shanghai, a research office at Iuav University in Venice and an academic office at the Illinois Institute of Technology in Chicago. It facilitates exchanges of the latest technologies for tall buildings through publications, research, events, working groups, web platforms, and an extensive network of international representatives.

James Pitchon, head of Research and Consulting at CBRE Thailand, said it is not possible to develop a single-use project on a large site, citing the likelihood of oversupply in the local market, be it an office or residential project. Developers of large sites need a range of diversified incomes, he added.

Consumers like the convenience of having a range of facilities in one place that are easily accessible in a climate control environment. Having easy-to-reach retail outlets and a hotel in the same complex appeal to office tenants, especially for the convenience of foreign clients and visitors.

Thais are also open to the idea of staying in a condo next to where they work and play, provided it comes with privacy and exclusivity along with the convenience, Pitchon said.

A JLL research said that the growth of mixed-use projects in ASEAN (the Association of Southeast Asian Nations) began to take off amid infrastructure development and changes to consumer behaviours in the region. The association marked its 50th anniversary last year and the region is gearing up for greater growth and investment.

Already powerhouses in the wider region, Southeast Asia’s economies are projected to grow at an annual average of 5 per cent until 2020. The real estate industry stands to benefit as demographics and market size draw further investments, given the manufacturing and logistics advantages. The upgrade in ASEAN infrastructure, especially the advancement of high-speed rail networks, will attract development of mixed-use projects connected to the train stations, as is the case in Japan and Hong Kong, the research said.

Find more than 30,000 properties for sale in Thailand at property.thethaiger.com

SOURCE: The Nation

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Property

Buying off plan? A few things to consider.

Legacy Phuket Gazette

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Many developers offer units and condo “off-plan” for sale at an early stage of the project development, even before the first brick has been laid. The lure is usually a lower price and getting the pick of the best location in the development.

Some of us may not be familiar with the term “off-plan”. Generally speaking, buying off-plan means buying units which exist only on the drawing table, construction of the project may not even have started. Off-plan sales are offered by developers as they often need to sell their product fast by pricing units extremely low in order to achieve fast and valuable finance to proceed with constructing their development.

Purchasing an off-plan unit may have considerable advantages compared to an investment in a completed project. Early birds may benefit from a significantly reduced price, which makes such off-plan purchases extremely interesting from an investment perspective as such units may rise in value during construction, even prior to completion.

Smart payment plans, typically a minor deposit payment, followed by a 30% first installment and a high final payment upon title transfer, allow buyers to effectively secure a high-value asset for a relatively low initial capital outlay. Furthermore, purchase at an early stage of a project ensures that a buyer can choose the best located units in order to satisfy his individual requirements as well as a future buyer in regard to a resale.

Buying off-plan also offers the chance to “flip” a unit prior to title transfer by way of assignment of the buyer’s rights under his/her sale and purchase agreement, which allows investors to save on transfer fees and taxes that occur from title transfer.

Summarised, such off-plan investment may create a “win-win” situation for both buyer and seller: buyers obtain a low price for a quality product with high resale value and sellers are able to receive fast project finance.

However, in order to secure your investment, due diligence should be ALWAYS be carried out to minimise risks and to prevent you from a worst-case scenario – a total loss of your invested funds. Basically, such due diligence should be conducted by a reliable and reputable law firm, whereby appointment of additional experts, such as a surveyor, might be recommended depending on individual requirements.

The importance of such due diligence, particularly when buying off-plan, in part arises from the fact that extremely important points – such as secured access, lawful title to the project’s land, as well as an
accurate application for the required construction permit or licenses – may not have been accomplished, completed or sufficiently verified by a developer.

Additionally, the financial stability of a developer offering such off-plan sales should always be of concern. In this context, the fullest attention should be paid to the reliability and track record of the developer. A professional real estate agent, representing only well reputed developers and ideally having the financial backing of big investors, can be the first credentials to look for to separate the wheat from the chaff.

Simply put, off-plan buying can be an interesting and promising investment, but extensive market research, awareness for potential risks, comprehensive due diligence as well as consideration of generally accepted risk management is mandatory to find the right product, which seems not only to be a bargain, but also fits with your personal requirements on a safe investment.

Select from over 7,000 properties in Phuket at property.thethaiger.com

This article was written by International Law Office Patong Beach. For any questions you can contact ([email protected]) or call ILO’s office 07 6222 1915.

International Law Office

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Property

Buying property in Thailand – the basics

Legacy Phuket Gazette

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by Kevin Hodges

There are many, MANY properties for sale in Phuket and around Thailand. In a market that has peaks and troughs it’s best to buy in partnership with respected sales agents who know the current market and can help you avoid some of the common pitfalls.

Buying property in Thailand is not straight forward, so you will need sound, professional advice which acts in your best interest. It can be a confusing experience due to laws, regulations, the language barrier and the many choices.

Real estate brokers in Phuket have the largest selection of property, land and long-term rentals – they have sales teams that are both foreign and Thai and can speak a variety of languages. property.thethaiger.com has over 30,000 properties listed in Thailand, over 7,000 in Phuket alone.

With a vast array of properties available, it is important to short list to maximise the use of your time and avoid viewing unsuitable properties by narrowing down choices.

Brokers act as a liaison between the buyer and seller, and the good news is that the buyer pays no broker fee – it is paid by the seller in Thailand. Here’s how it works.

Research

Brokers will work closely with buyers to compile a focused and realistic brief, which takes into account a buyer’s requirements and preferences relating to the budget, style, condition, size and location of the property. They can advise on the different locations and options available.

Short List

A broker will preview and shortlist suitable properties – this saves a buyer valuable time as the broker will only show properties that he or she has first previewed and that meet the buyer’s requirements.

Property Tour

Brokers accompany buyers on viewings to show the shortlisted properties. Once a suitable property has been identified, they provide an objective overview so that you are equipped with the knowledge to make an informed decision.

Negotiation

When the right property is found, the broker will assist both buyer and seller in negotiating a favorable price and terms.

Payment

A reservation agreement and nonrefundable reservation deposit of usually 2 per cent to 5 per cent is placed with the broker in the client’s account. This removes the property from the market, so no one else can buy it prior to the signing of the Sale & Purchase Agreement (SPA). Upon signing the SPA, 30-50 per cent of the price is usually required with the outstanding amount to be paid upon transfer of ownership.

The buyer should, at this time, ask how the seller wishes to receive payment – inside or outside of Thailand – to avoid bringing in funds when payment is required elsewhere. If funds are required in Thailand, a TT3 form must be completed for the amount required.

Conveyancing

Once the price is agreed and the reservation deposit is put down, the broker will introduce you to a reputable lawyer who has experience in property conveyance. The lawyer will use that expertise to ensure that the process runs as smoothly and quickly as possible.

Kevin Hodges – originally printed in Phuket Gazette.

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