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Developer promises and the ‘rental guarantee’

The Thaiger

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Developer promises and the ‘rental guarantee’ | The Thaiger

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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Phang Nga

Hong Kong property tzars team up for new Phang Nga development “Aquella”

Bill Barnett

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Hong Kong property tzars team up for new Phang Nga development “Aquella” | The Thaiger

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Two of Hong Kong’s leading entrepreneurs Allan Zeman and Richard Li are developing a mixed-use project in Thai Muang, Phang Nga named Aquella.

The initial phase of the development includes a par 72, 18 hole golf course, resort pool villa residences with two to four bedroom unit configurations back of a massive land site that offers over 2.5 kilometres of white sand beach.

Previously, the approximate 1,000 rai site was the home of the Thai Muang golf course. After acquisition the course was closed, and the master planned Pinetree project that was to contain a marina and luxury Park Hyatt hotel stopped when land zoning issues changed in Southern Phang Nga.

Today, the new golf course has been reconfigured and Zeman’s Paradise Group who developed Kamala’s posh Andara ultra villa resort in Phuket are collaborating with Li’s Pacific Century Premium Developments (PCPD) group.

South West Phang Nga hosted some of Asia’s most significant luxury villa sales in the mid 2000’s given it’s close access to Phuket International Airport, over the Sarasin Bridge.

Changes in the zoning regime stunted the area’s growth over the past decade but a new wave of interest has been born in projects such as Charn Issara’s Baba Beach Club.

Land prices in Koh Pilai and Koh Kloy have sharply escalated in recent months on the announcement of a second Greater Phuket airport by Thai aviation authority AoT.

That said, the area has a rich history in demonstrated luxury residential sales in projects such as Aleenta and Sava.

With Phuket bursting as the seams, and prime oceanfront plots limited, the recent transaction of the former greenfield site of the Ritz-Carlton Reserve has indicated positive sentiment.

Hong Kong property tzars team up for new Phang Nga development

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Property

Car and house loans surged in 2018

The Thaiger

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Car and house loans surged in 2018 | The Thaiger

The Bank of Thailand says they’re concerned about the double-digit growth in loans for cars last year. The central bank is now monitoring the trend and will keep track of statistics for the rest of 2019. Their concerns about the Thai mortgage market the year before resulted in new regulations coming into effect this April.

Loans for cars were up nearly 13% in 2019, up from 8% growth in 2017 and much smaller growths in the years before.

They reported that commercial bank auto loans rose to 1.07 trillion baht last year, a rise of 12.6% from the previous 12 months. Defaults on loans has also risen during 2018 but the BoT says the rate is still “manageable” at 1.66%.

The BoT says they will need to continually monitor the business of loans for cars for at least the rest of 2019.

Last year they put the spotlight on property mortgages. The study resulted in more stringent conditions for the loan-to-value ratio, especially for second or subsequent housing loans.

Mortgage lending expanded nearly 8% in 2018, compared to 5.5% in 2017. The more stringent requirements for housing mortgages comes into force on April 1 this year.

Generally, the loan sector for commercial banks rose by 6% last year, again a rise from the previous year where the rise was 4.4%.

But the BoT reports that the profitability of the banking sector remains in positive territory. Interest income is now the main source after the fee-based income of some banks, particularly fund transfer fees, declined.

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Phuket

Kamala’s Twinpalms Montazure poised to welcome guests in July

The Thaiger

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Kamala’s Twinpalms Montazure poised to welcome guests in July | The Thaiger

Set on the golden sands of Kamala Beach, Twinpalms MontAzure will welcome its first guests in July this year.

Already a member of Small Luxury Hotels of the World, the boutique beach hotel offers beautifully appointed Suites, Penthouses and Private Pool Suites.

Suites range in size from 70m2 to Penthouses with private pools and sea views boasting large living spaces of up to 300m2. Guests will also enjoy using a lap pool or an infinity pool offering views of the Andaman sea.

Twinpalms MontAzure will also launch its beachside restaurant and lounge, ‘Shimmer’, with uninterrupted sea views. Shimmer restaurant will serve vibrant and tasty food with an Asian focus, delicious and creative cocktails, and a great wine list, all served with the customary gusto and flair expected from the Twinpalms brand.

Olivier Gibaud, General Manager of Twinpalms Hotels & Resorts says, “With 15 years’ experience refining Twinpalms excellent service standard complemented by a luxurious dining and entertainment quality that sets itself apart from other destinations on the island, we are very excited to bring this knowledge to a new hotel”.

Designed by Martin Palleros, following the original Twinpalms concept and style, of utilising Phuket’s beautiful landscape, Martin has allowed the design to maximize the sea views from most of the Suites and areas within the buildings, whilst also ensuring the preservation of the views of the mountainside from other perspectives.

Resident Manager, Thipwimon Chatchavansilachai says, “For respect for our island location, we will launch with a ‘no single-use plastic’ policy, meaning alternatives to common plastic items such as straws, packages for bathroom amenities and water bottles will be replaced with materials such as bamboo, ceramic and recycled paper.”

“We will continuously find better alternatives in our hotel operations for the preservation of the environment”.

Naturally, guests of Twinpalms MontAzure also have access to the brand’s other dining destinations, taking full advantage of the three beaches Twinpalms has a presence: HQ Beach Lounge – a few steps away on Kamala Beach, Catch Beach Club, Catch Junior and Palm Seaside, located on Bang Tao Beach and the flagship resort, Twinpalms Phuket, is just a few steps from Surin Beach.

Kamala's Twinpalms Montazure poised to welcome guests in July | News by The Thaiger

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