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Developer promises and the ‘rental guarantee’

The Thaiger

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Developer promises and the ‘rental guarantee’ | The Thaiger
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According to a recent report from CBRE, more than 80% of Phuket condo sales offered rental guarantees in reported sales in the first six months of 2018. The report says that most of these condo sales were for properties less than 5.5 million baht.

The CBRE report also noted that there were 458 condos and 56 villas sold in the same period.

The Thaiger, who keeps in contact with many of the island’s property developers, spoke to three developers of unconnected current projects which reported 180+ sales – that’s just three developments. Speaking to a leading, reputable real estate seller in the region, they reported just over 70 signed deals during the same period. They also said that sales in the luxury villa market were, by their estimates, well in excess of the figures quoted in the CBRE report.

Seeking information from CBRE, clarifying the numbers quoted in their report, we received replies about the trends they’ve identified in the local Phuket market. James Pitchon is the Executive Director – Head of Research, Consulting, Global Workplace Solutions, Thailand for CBRE.

“The resort condominium market is now driven by buyers of affordable, investment-oriented products that offer rental management programs and/or guaranteed returns rather than buyers looking for a just a holiday home. Sales of entry-level products accounted for over 80% of the total sales, with limited sales in the high-end segment. However, there were a few exceptions such as the Residences at Sheraton Phuket Grand Bay where the developer was able to sell higher priced product “

James also backed up the recent CBRE report, and the trends, indicating a slowdown in the top end of the market.

“The luxury villa market continued to move at a slow pace with most sales at the lower end of the market but one unit was sold in Andara Signature Villa, a hotel managed property, for more than 200 million baht.”

The reality is that there is no centralised reporting system in place to prepare accurate property sales information in Phuket. James didn’t divulge how CBRE gathered their statistics.

The ‘elephant in the room’ mentioned in the report has been highlighted by an article on thailandproperty.com where the issue of rental guarantees is raising eyebrows in the island’s real estate community.

Developer promises and the 'rental guarantee' | News by The Thaiger

The rental return guarantee schemes are where developers ‘guarantee’ a return of, say, 10% of the purchase price for 5 or ten years, or even more. The guarantees are often made as monthly payments.

Some of the more ‘optimistic’, published, rental guarantees currently on offer include a 10% return for 10 years.

“Turnkey investment – Receive your rent every month”.

Another one…”Rental guarantee 10% for 10 years on Freehold, or 15 years on Leasehold”

This offer is very opaque… “Our up to 20-year selective rental agreement generates a fixed annual income of up to 10%, with the option of 5-year buy back program for the investor.”

How can these developers make such offers?

Robert Teulings, the Sales Manager at New Nordic Phuket, says there are several factors that play a role in making New Nordic enable to meet their promises.

“One of the factors being the very active holiday village at Pratamnak Hill in Pattaya which we are still fully operating almost 10 years after development started. We always keep 30% of the area in every building for ourselves for retail and F&B purposes. The team also takes care of condominiums on behalf of owners, some of whom live thousands of kilometers away from the given New Nordic destination. In addition, the F&B department not only caters for New Nordic Group’s own residents and visitors but also for outside clients.

“With these core business ideas and values in mind, we have successfully never missed a payment to any of our clients and are certain we will continue keeping our promises and developing beautiful holiday villages across the globe.”

We have made contact with two other companies making these offers to find out how such generous guarantees can be made and what ‘fine print’ there is in the contracts. At this stage only New Nordic Phuket responded to our request for information. (Here’s their Phuket website HERE.)

Developer promises and the 'rental guarantee' | News by The Thaiger

Desmond Richard Lewis Hughes, from Hughes Krupica Lawyers in Patong, says that ‘guarantees’ should be properly contracted and be open to scrutiny in the due diligence process.

“Anything called a guarantee should be capable of being presented to a bank in and used as security. If a so-called guarantee isn’t capable of that, then really it is at best a promise supported by intention and that intention may be good, bad or indifferent.”

Desmond advises all people being offered a rental guarantee to check the background of the company making the offer.

“If a company with small paid up capital, directors who are not overly concerned about commercial risk and a short history of operations offers a ‘guarantee’, then the guarantee will have little substance compared to say – the guarantee of a public company.”

But despite The Thaiger’s skepticism, the companies selling condos on these conditions are, mostly, keeping up with their ‘guarantee’ with few reports of defaults at this stage.

One agent, who has asked not to be named, but who had sold quite a few properties with these guarantees, said that he’s been pleasantly surprised by the follow-through with key developers honouring contracts and paying out the monthly fee – usually minus costs.

“Each company has their own way of guaranteeing the monthly payments. In some cases a portion of the rental guarantee is built into the sales price. In other cases the developer works hard to rent out the properties and receives a rental return to fund the guarantees. There are many variations as to how it can work. But, so far, most of the schemes are working as promised.”

Phuket’s market, along with its tourism, has evolved and matured quickly over the past decade.

“The Phuket residential resort property market has changed significantly since the global financial crisis of 2008/9. Sales volumes are lower, the type of buyer has changed as has the type of product.” said James Pitchon from CBRE.

“There is still demand for luxury hotels in Phuket, despite becoming a mass market destination, as we have seen from the opening of the Rosewood Phuket last year and the recently announced Mandarin Oriental at Laem Singh Beach due to be to be completed in 2022. However the increase in tourist arrivals has not led to a big increase in demand for residential resort properties.”

Developer promises and the 'rental guarantee' | News by The Thaiger

James Pitchon, Executive Director – Head of Research, Consulting,Global Workplace Solutions, Thailand for CBRE

As always with property purchases, buyers are highly recommended to consult a properly qualified property lawyer and DO YOUR HOMEWORK.

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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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