Hard Promises Meet the Sure Fire Thing
Ever since Eve offered Adam the forbidden fruit and other earthly delights in the Garden of Eden, the promise of material things that appear be too good to be true have stained the history of mankind.
I, like many others, am deluged with those emails assuring vast fortunes of cash, jewels or gold, hidden in someone's shoes, or a bank account with no name, ironically from destitute and war-tom countries within the African continent.
Urban myth would have us imagine that the Nigerian email spam scam makes up a good portion of that nation's GDP. But proving that is as hard as proving that the promises made to many property investors who take the bait on deals that seem irresistible, are genuine.
Of course there is a precursor to this. There is a great divide between established and reputable property developers and those who have crossed over to the dark side of town. You know, the wrong side of the railroad track (not that there is one in Phuket), down some dimly lit soi with snarling dogs and the retort of gunshots in the distance that side.
Today sitting in the back of a taxi, hitting Bangkok's expressway on my way to catch a flight bound for a faraway place, I saw the advertising banner on a new building with attention grabbing bold lettering claiming a '14% guaranteed return'.
Too good to be true? I'm not sure. But there was a temptation to note the telephone number. Unfortunately as the taxi sped away the banner was enveloped by a haze. Yes, we all want a sure thing, it's in our genetic make-up.
Guaranteed returns are often used as an add-on to real estate offerings to attract investment buyers. For developers, increasing sales pace and hitting the market in sprint fashion versus a walk in the park, cry out as elusive sweet spots.
In reality many business promoters who are financially savvy simply look at the cost, price in the returns which are ultimately paid for by the buyers, and with risk mitigated they go into launch mode.
Early return offerings in Phuket have continued to grow, almost as fast as the graying hair I see in the mirror every morning. It used to be that some schemes were vaunted at three or four years, with four percent. Now, like Jack in the Beanstalk, the amounts are increasing and time lines are getting longer.
It's not uncommon to see six years at six per cent in the market these days.
But Asia's resort market is now seeing an ugly truth emerge from units purchased during the boom years. Promised returns are now expiring and property buyers have to be content with revenue splits that fall far short of those guarantees enjoyed in the past and in some cases even suffer losses. Many now need to dig into their own pockets to pay for overhead costs.
Yes, there is capital appreciation in some, but for others who thought the party would never end, they have had a rude awakening. Developer and buyer stress, and rising conflict is hitting many projects.
We all hear from time to time that while the good developers have stuck away funds and have been able to pay the promised returns for others, defaults raise their ugly heads. Investors who thought they had a sure thing have seen the sands of time released into a wind of false promises and watched as it all blew away with nothing left for them to put in the bank.
While Phuket has so many success stories of double digit gains and profitable exits, there exists a broad surplus of residential units which no longer look like a one night stand, rather a long term marriage. There is an upside when you can trade, but for those wanting a steady income on rentals, it remains a challenging market.
That said, those offers continue to mount and in actual fact, they do work for developers. Of course, in so many cases for buyers who did not make informed decisions, it's like waking up after a big night out, in bed with an unappealing bedfellow and no way out of the room.