Deferred Payment Coming of Age
Phuket's property sales are reminiscent of an emergency-room scene from a television medical drama. The patient (in this case, property sales) continues to flat-line while all eyes turn to the experienced doctor who rushes in. The unspoken question on every face is "what do we do next?"
Then come the hackneyed jolts from a defibrillator that seems sure to kick new life into an expiring heart.
Unfortunately real life is tougher than the surreal world of the tube and that doctor is just an actor who may pop up as a lawyer, a killer or even worse in next year's line-up.
In the United States, one of the weird new "must-have" gadgets is a consumer-grade defibrillator – more commonly referred to as "the paddles'. While I trust my wife, I'm not sure I want to give her any such device just yet.
Phuket resort-grade property remains, for the moment, firmly entrenched in – or shall we say dependant upon – the overseas market. In the heydays, cash flowed and all was good. Then came the currency hits to the pound and the euro and the whole financial crisis erupted. In came the bad days and… well, the property scene became a bit like a casting call for a part nobody wanted. It was not unlike asking NBA superstar LeBron James to play community theatre back in Cleveland after he jumped ship to Miami. I believe the smoldering embers of team jerseys burned by fans are still warm from that one.
When growing numbers of units sold over the boom years began to be handed over to buyers, all of a sudden the resale market shifted gears from a slow walk to a fast sprint. In 2009, resales are believed to have represented 50 per cent of the market. This year, they are taking the lion's share.
While the search for new markets threatens to become a fanciful quest, property sellers and agents are prepared to embrace anything that will give them an edge.
Deferred-payment schemes by developers, agents and even individual sellers are mushrooming. While most are still in the region of five year terms and 50 per cent of principal, an increasing number of transactions are seeing terms as a part of the deal.
It's interesting that Thailand has yet to see wide use of interest-absorption schemes (IAS). Wind the clock back a few years and IAS operations were a key component of the property industry in Singapore.
For those new to the concept, an example may involve a purchaser making a down payment of, say, 20 per cent or the total price. No further payments are due until the property is completed, at which time the loan becomes effective, despite the documentation having been done at the time of initial purchase. Interest is paid over this period by the developer.
Of course, these schemes fuel speculative buying, and in September 2009 the Monetary Authority of Singapore outlawed IAS schemes in the island state.
Malaysia has recently been trying to attract both domestic and overseas interest in property, especially in its condo sector – where leveraging is available to foreigners – and these types of developer-initiated incentives are cropping up. It's perhaps only a matter of time until Thailand gets a taste of them.
For now; the grey financial market looks like becoming more and more prominent in foreign-buyer-dependant destinations such as Phuket and Koh Samui.
The unfortunate part of this situation is the role that is not being played by banks and the Thai government. There appear to be no credible moves towards formal, regulated lending to the overseas market. So resort-grade property remains a largely leasehold-driven sector.
Perhaps a new growth sector will be selling those hand paddles to property agents looking to add a little "wow" to their sales pitch.