Can Investors Still Make Money In The Jomtien/pattaya Real Estate Market Even During A Downturn ?

[KhunTao]

(I will also post this in the Pattaya forum)

The theory is as follows:

a) 1st price list, pre-constuction

Typically, when a developer first launches a new condominium project, it attempts to generate a buzz by offering subsidized “1^st price list” pricing. This 1^st pre-construction pricing at which the condominium is positioned into the market place could possibly be at par with, or even lower than, the projected building costs, whereby the developer hopes to more than make up for initial loss-leaders by selling other units, at a later stage in the development cycle, at significantly higher prices. For low rise units (i.e. up to 7 floors), depending on the quality of materials and finishing, construction prices (excluding land, finance costs, marketing costs, etc…) should be in the Bt.17,500 – 27,500 range (rough estimates). Typically, developers launch projects and start selling well before securing environmental approval and a construction license, sometimes as long as a full year in advance.

Possible capital gains

There is therefore a theoretical opportunity, for a 1^st price list buyer, to realize significant capital gains, to be realized through re-sales at a later stage in the development cycle of the project. As a rule of thumb (in my opinion), such investment could be worthwhile from a risk/reward perspective if the buyer is able to project a capital appreciation of at least 50% in local currency terms (i.e. Baht) during the lifetime of the development cycle of the particular project.

c) Wholesale discounts at the developer and/or agent level ?

In addition, some developers will entertain the concept of a further volume discount (over and above the 1^st price list), in the region of 5-15%, in case the buyer considers buying 5 or more units. Typically, developers will pay real estate agents 3% of the value of units sold as a reward for their marketing efforts. In certain extreme cases (unpopular projects on the dark side of Sukhumvit, for example), more desperate developers will pay a considerably higher commission, sometimes up to 10%-15%. Therefore, the 1^st price list buyer can assist the developer with justifying such a volume discount by approaching the developer directly, instead of through a real estate agent. In case the developer is unwilling to monetize the benefit of a 1^st price list buyer coming to him directly, certain real estate agents are willing to rebate part of their sales commission back to such 1^st price list buyer, in case of volume purchases. For example, in case of the purchase of 5 units, it should be possible to agree with the real estate agent that 50% of the real estate agent´s commission is rebated back to the 1^st price list buyer. Again, this is theory, I have not tested it yet.

d) Project completion risk

As no ESCROW a/c mechanism is practiced in the Jomtien/Pattaya market yet (that I am aware of ….), the 1^st price list buyer´s money is typically allocated by the developer towards the project´s costs. In other words, in case the developer fails to complete the project, the 1^st price list buyer is left with an unsecured claim on a defaulted developer. This real risk highlights the need for the 1^st price list buyer to pick projects sponsored by reputable, proven developers with a solid track record of delivery in the chosen market. A 1^st price list buyer will have to do his due diligence on previous projects completed, the developer´s standing in the real estate community, the level of maintenance and security applied to its existing projects, the developer´s track record as to completion on schedule, etc… Whilst such due diligence certainly mitigates the risk of non-completion of a project, it does not eliminate it. Hence, the high risk profile of such 1^st price list purchases and the associated need for high projected returns on capital invested. It should be noted that certain well established developers (think Major, Raimon Land, Noble, etc..) work with approximately 30% of customers´ funds and 70% bank financing, therewith reducing the 1^st price list buyer´s exposure.

e) Return on investment

Assuming a 50% appreciation of the asset during a two and a half year development cycle, and an evenly spread payment schedule during the development cycle (say 25% upfront, 25% upon completion and evenly spread payments during the two and a half year cycle), a 1^st price list buyer can look forward to annualized returns on actual capital invested of around 25-30% in local currency, a yield possibly further enhanced by a possible volume discount upfront.

This is the theory …. I am wondering whether it still makes sense in today´s reality in Jomtien/Pattaya in particular and in Thailand in general, given the ongoing political crisis, lower arrival figures for tourism and the strong possibility of the local currency depreciating vis-à-vis convertible currencies during the next coming years.

Please let me have your views ….

[KhunTao]

Apologies, my line spacing seems to be off. New attempt:

(I will also post this in the Pattaya forum)

The theory is as follows:

a) 1st price list, pre-constuction

Typically, when a developer first launches a new condominium project, it attempts to generate a buzz by offering subsidized "1^st price list" pricing. This 1^st pre-construction pricing at which the condominium is positioned into the market place could possibly be at par with, or even lower than, the projected building costs, whereby the developer hopes to more than make up for initial loss-leaders by selling other units, at a later stage in the development cycle, at significantly higher prices. For low rise units (i.e. up to 7 floors), depending on the quality of materials and finishing, construction prices (excluding land, finance costs, marketing costs, etc…) should be in the Bt.17,500 – 27,500 range (rough estimates). Typically, developers launch projects and start selling well before securing environmental approval and a construction license, sometimes as long as a full year in advance.

Possible capital gains

There is therefore a theoretical opportunity, for a 1^st price list buyer, to realize significant capital gains, to be realized through re-sales at a later stage in the development cycle of the project. As a rule of thumb (in my opinion), such investment could be worthwhile from a risk/reward perspective if the buyer is able to project a capital appreciation of at least 50% in local currency terms (i.e. Baht) during the lifetime of the development cycle of the particular project.

c) Wholesale discounts at the developer and/or agent level ?

In addition, some developers will entertain the concept of a further volume discount (over and above the 1^st price list), in the region of 5-15%, in case the buyer considers buying 5 or more units. Typically, developers will pay real estate agents 3% of the value of units sold as a reward for their marketing efforts. In certain extreme cases (unpopular projects on the dark side of Sukhumvit, for example), more desperate developers will pay a considerably higher commission, sometimes up to 10%-15%. Therefore, the 1^st price list buyer can assist the developer with justifying such a volume discount by approaching the developer directly, instead of through a real estate agent. In case the developer is unwilling to monetize the benefit of a 1^st price list buyer coming to him directly, certain real estate agents are willing to rebate part of their sales commission back to such 1^st price list buyer, in case of volume purchases. For example, in case of the purchase of 5 units, it should be possible to agree with the real estate agent that 50% of the real estate agent´s commission is rebated back to the 1^st price list buyer. Again, this is theory, I have not tested it yet.

d) Project completion risk

As no ESCROW a/c mechanism is practiced in the Jomtien/Pattaya market yet (that I am aware of ….), the 1^st price list buyer´s money is typically allocated by the developer towards the project´s costs. In other words, in case the developer fails to complete the project, the 1^st price list buyer is left with an unsecured claim on a defaulted developer. This real risk highlights the need for the 1^st price list buyer to pick projects sponsored by reputable, proven developers with a solid track record of delivery in the chosen market. A 1^st price list buyer will have to do his due diligence on previous projects completed, the developer´s standing in the real estate community, the level of maintenance and security applied to its existing projects, the developer´s track record as to completion on schedule, etc… Whilst such due diligence certainly mitigates the risk of non-completion of a project, it does not eliminate it. Hence, the high risk profile of such 1^st price list purchases and the associated need for high projected returns on capital invested. It should be noted that certain well established developers (think Major, Raimon Land, Noble, etc..) work with approximately 30% of customers´ funds and 70% bank financing, therewith reducing the 1^st price list buyer´s exposure.

e) Return on investment

Assuming a 50% appreciation of the asset during a two and a half year development cycle, and an evenly spread payment schedule during the development cycle (say 25% upfront, 25% upon completion and evenly spread payments during the two and a half year cycle), a 1^st price list buyer can look forward to annualized returns on actual capital invested of around 25-30% in local currency, a yield possibly further enhanced by a possible volume discount upfront.

This is the theory …. I am wondering whether it still makes sense in today´s reality in Jomtien/Pattaya in particular and in Thailand in general, given the ongoing political crisis, lower arrival figures for tourism and the strong possibility of the local currency depreciating vis-à-vis convertible currencies during the next coming years.

Please let me have your views ….

[Gary A]

Anyone who buys pre-construction in Thailand would have a much better chance to make money gambling in a casino.

[KhunTao]

I somewhat share your "casino" thinking. For example, we can point at a hugely successful project (form the point of view of early investors), say for example "Sanctuary in Wong Amat", and observe that 1st price list buyers have realized absurd returns on their deposits made through re-sales to the Russian market in a relatively short period of time (about 9 months), however that is like pointing to someone that has just won the jackpot in a casino and say "look, it´s easy, I can do that" .......

On the other hand, does this negate completely the theory of why it makes sense to buy early in a well-located, well-designed, agressively priced project offered by a developer with a proven track record ?

Perhaps there are alternative ways of realizing a return in the Pattaya/Jomtien real estate market in a bear market that clearly will be our reality for a while to come ... I wil post some other ideas on this with a view towards soliciting informed views and considered opinions.

[BEENTHEREDONETHAT]

Have you read the thread "Ocean 1 Tower project in Jontiem Failed?" That would be only one of many.

Depends on how much risk you are taking for the projected reward. I wouldn't touch it with a ten foot pole.

[LennyW]

Have you read the thread "Ocean 1 Tower project in Jontiem Failed?" That would be only one of many.

Depends on how much risk you are taking for the projected reward. I wouldn't touch it with a ten foot pole.

People are only assuming that Ocean 1 has failed, there is actually no evidence at present to suggest that!

[Crash999]

Anyone who buys pre-construction in Thailand would have a much better chance to make money gambling in a casino.

It's a risk but a calculated one. Some factors are:

- Developer's track-record in delivering what was promised (ie. quality of finishing, quality of common areas, design delivered according to plan, timeliness of completion)

- Location (is it accurately reflected in price)

- Market (saturation level, market potential, barriers to entry)

Also I look for something unique about the unit. Is it a penthouse unit? Have a great view? Something unusual like a garden in the unit or a duplex? Is it associated with a brand? If it's one of many units in the building then it'll be more difficult to stand out when it comes time to sell and there are many other units on the market.

It helps to get to know the developer and get on their VIP list- so when buildings are available you can snag the best units before launch.

I've made a good return in the Thai market. A work colleague of mine (with bigger cojones than I have) made around US$2m from $250k in capital over the past few years but he highly leveraged himself. Not all his units were big wins but others were home runs such as Heights and Sukhothai.

There are risks- the biggest I see are developers overreaching their capability and a macroeconomic turn. The former can be mitigated by a level of due diligence but of course the latter is anyone's guess.

Edited September 15, 2008 by Crash999

[loonodingle]

Have you read the thread "Ocean 1 Tower project in Jontiem Failed?" That would be only one of many.

Depends on how much risk you are taking for the projected reward. I wouldn't touch it with a ten foot pole.

People are only assuming that Ocean 1 has failed, there is actually no evidence at present to suggest that!

Hello!!!!!!!!!!!! go to the site... no work.... all the big signs are gone. Bp has made sure its not spoken about here. Members ........ well they are not here anymore.

I know staff who are no longer on the project and have been told to say it will be finishd in 5 years to relieve the pressure but they have been told its failed.

Just go and asked for yourselves

[Naam]

Anyone who buys pre-construction in Thailand...

nowadays..........................

[ray08]

Perhaps there are alternative ways of realizing a return in the Pattaya/Jomtien real estate market in a bear market that clearly will be our reality for a while to come ... I wil post some other ideas on this with a view towards soliciting informed views and considered opinions.

You say yourself it looks like long term bear market , so why even bother ? also if looking to invest why confine to Pattaya / Jomtien ? My view in answer to your question

is a simple No,

[GuestHouse]

It seems sometimes that people are preprogrammed automatons - There has been easy money in Property back home for decades, there is easy money in Thai property.

If I was the OP I'd be focussing on not loosing money and consolidating what you have.

Condominium developments in Thailand rely on phased payments to the developer. People buy in cheap and hope to sell high before stage payments come in. If turnover slows they risk being left with something that cannot be sold on. If the economy slows they may not have the money to make the stage payments - Result the condo construction falters and goes bust.

Ask yourself - Have sales slowed? Has the economy slowed?

Wait another 10 months and look for some bargain properties being sold by the courts.

[billaaa777]

When ever ask about the real estate market in Pattaya only the skeptics or people who never bought a piece of property in there lives answer. Most of the people that answered your question don't know a thing about the market.

Here is the real answer. Yes, there is real good money to made in Pattaya. The market is tighter now than it has been in the past years, so you need to be more selective in your purchases. I personally would not follow your plan since your ROI is way to low. I have had years where I did over 135 ROI and never lower than 50% ROI.

The only piece of advice they did give that was correct was to be cautious of developers in the pre construction phase. I never speculate and you don't have too. There are plenty of exceptional buying opportunities all over. That being said, if you don't know what you're looking at and what its market potential is your are just going to buy the wrong property.

I could you give you so many examples of this, but why bother. Take your time and do extensive research and you will do fine. This board is really not a starting point, and ending point or any point for that matter. The only people that answer you are a bunch of disgruntled losers.

I DON"T WANT TO HEAR IT!

Don't waste your time posting I am a RE agent, or what ever other crap you losers always post after I speak the truth. Just because your poor, stupid, don't take risk, don't understand the RE market, don't know how to make money or what ever other reason you have keep it to yourselves. Because you are WRONG and don't know what your talking about.

For your information, before you start posting your BS, which always happens. I have sold condos three weeks in a row now. It is the season, time to sell condos and make money.

[philstone]

Have you read the thread "Ocean 1 Tower project in Jontiem Failed?" That would be only one of many.

Depends on how much risk you are taking for the projected reward. I wouldn't touch it with a ten foot pole.

People are only assuming that Ocean 1 has failed, there is actually no evidence at present to suggest that!

The are just waiting for a lucky time to start building again. Their have been ghosts seen on the site that is why building has stopped for while.

[philstone]

Don't waste your time posting I am a RE agent, or what ever other crap you losers always post after I speak the truth. Just because your poor, stupid, don't take risk, don't understand the RE market, don't know how to make money or what ever other reason you have keep it to yourselves. Because you are WRONG and don't know what your talking about.

For your information, before you start posting your BS, which always happens. I have sold condos three weeks in a row now. It is the season, time to sell condos and make money.

I think you are a bigger drinker than me. Good lucky with your BS

Bar Girls are honest than RE Pimps

[ray08]

When ever ask about the real estate market in Pattaya only the skeptics or people who never bought a piece of property in there lives answer. Most of the people that answered your question don't know a thing about the market.

Here is the real answer. Yes, there is real good money to made in Pattaya. The market is tighter now than it has been in the past years, so you need to be more selective in your purchases. I personally would not follow your plan since your ROI is way to low. I have had years where I did over 135 ROI and never lower than 50% ROI.

The only piece of advice they did give that was correct was to be cautious of developers in the pre construction phase. I never speculate and you don't have too. There are plenty of exceptional buying opportunities all over. That being said, if you don't know what you're looking at and what its market potential is your are just going to buy the wrong property.

I could you give you so many examples of this, but why bother. Take your time and do extensive research and you will do fine. This board is really not a starting point, and ending point or any point for that matter. The only people that answer you are a bunch of disgruntled losers.

I DON"T WANT TO HEAR IT!

Don't waste your time posting I am a RE agent, or what ever other crap you losers always post after I speak the truth. Just because your poor, stupid, don't take risk, don't understand the RE market, don't know how to make money or what ever other reason you have keep it to yourselves. Because you are WRONG and don't know what your talking about.

For your information, before you start posting your BS, which always happens. I have sold condos three weeks in a row now. It is the season, time to sell condos and make money.

And i just made a fortune in the stock market in the last 3 weeks :D

[prapagorn]

Now have big problem with stock bear market so we do slow down......

and have big problem for exchange ....

sometime can make short gain *-*

but careful *-*

[loonodingle]

Have you read the thread "Ocean 1 Tower project in Jontiem Failed?" That would be only one of many.

Depends on how much risk you are taking for the projected reward. I wouldn't touch it with a ten foot pole.

People are only assuming that Ocean 1 has failed, there is actually no evidence at present to suggest that!

The are just waiting for a lucky time to start building again. Their have been ghosts seen on the site that is why building has stopped for while.

hahaha the partys are over m8.... wake up and smell the coffee..... there is so much <deleted> spouted here. threats to the board owners etc etc ......... Jomtien and the F'kin crooks want washing out to the sea.

You would have to be on YaBa to deal with the german conmen.

But Hey!!!!!!!!!! a lot of you are

What a pile of <deleted> has evolved there.....