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Hotel Investors Money Up In Flames

Category: Real estate, Posted:13 Feb 2013 | 09:09 am

This week's fire which substantially damaged the Nai Yang Peninsular resort development is a sad reminder of the potential downside risk of investing into over-heated property markets.
Launched in the mid 2000's as the NaiYang Peninsular Phuket, the project consisted of a condo hotel and villas. In 2006 a management agreement was announced with the global Hyatt chain, under their Regency brand.
The Thai-based developer of the project Phuket Peninsula Co., Ltd. at the time had another hospitality led property in Koh Samui, the Samui Peninsula (now operating as the Q Signature Samui) under a different company structure. It was also engaged in timeshare sales in Samui through a well-known international affiliation.
At that time Phuket unit buyers were offered leasehold units with a cumulative term of 90 years and 12% guaranteed return for five years (60% of the purchase price). Reportedly a number of sales were made on this basis.
Over the next few years despite being near completion and the fact that Hyatt appointed a General Manager and started pre-opening work, the development encountered financial difficulties. Eventually Hyatt exited from the project.
Enter the Thai-listed leasing company Mida Assets PLC which according to documents filed with the Stock Exchange of Thailand (SET) had a secured interest in the project and a dispute between a Director of Phuket Peninsular Co., Ltd and Mida triggered an extended legal case. A similar case took place in Koh Samui and an impending bank default created more complications. Years passed as various court actions between the parties came and went.
A few weeks ago we contacted the company office of Mida who said that court action between the parties had been settled and plans were set to be announced shortly about the future of the Phuket and Samui projects.
Another set-back was encountered last year when the high-profile investigation by Thailand's Department of National Parks, Wildlife and Plant Conservation into Sirinath National Park included the property in media reports as which had possibly encroached into public land. There remains no final outcome to this investigation.
At this juncture it's unclear if what has been classified as an accidental fire of the main resort building will be able to be rebuilt and restored. Based on information obtained from Mida, the future of the project looks to be with them going forward.
For many of the unit investors who have paid for units since 2006, the seven year itch of uncertainty looks not to be resolved any time soon.
While I can thankfully count on all my fingers and toes the number of estate and project defaults on the island over the past 12 years, there is little satisfaction for purchasers who have lost or tied up their investments.
While Phuket, like Bali and other resort markets are continuing to see a cycle up in their real estate sector, it's a good time to take a reality check that when a buying trend heats up, investment schemes which seem to good to be true, typically are exactly that. Double digit guaranteed returns over a sustained period in a hotel-led residential project should be a warning sign to potential purchasers.
Likewise there is a vast difference between experienced hotel asset owners and property developers who neither have the financial backing nor experience to execute this type of project. Increasingly global hotel brands are shying away from projects which are overly dependent on residential sales. That given there are quality mixed use projects here like Amanpuri, Trisara and Banyan Tree, which has demonstrated sustained returns and capital appreciation.
Over the years I have received a continued chain of mail from buyers in these types of investment schemes which have gone off the rails. My best advice remains to carefully engage in learning the market, obtaining sound legal advice, mitigating risk by buying from experienced developers with strong financial backing and understanding that these types of investments are not premised on quick over-market returns but a long term outlook.

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