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In The Shade Of Mixed-Use Property

Category: , Posted:12 Jun 2010 | 11:43 am

The Phuket Gazette.
Glossy ads and promises of investment returns that hit the moon abound. Seduced by an illusion of vacations for life in some tropical paradise, just sit back and have another mojito and settle into an afternoon cabana snooze dreaming of an endless money train.
Throw in alluring service at every whim, and for those at the top a leading global hotel brand that could just be the rim of salt at the top of an oh-so-tasty margarita.
Truth be known, though, in so many cases the honeymoon ends early and property investors metaphorically wake up the next day in some saggy mattress joint to the whirl of an electric fan, covered in exhausted limes with the life squeezed out of them.
Was it all a dream? Is the bar open yet, though it's only 7am? Time for the reality check and indeed hotel-managed investment property has a long history of both being sweet and sour.
The lag between trends in the west or those here in the east continues to be pronounced even in the instant age of all things connected and wired. Moving from the world of developed to developing can often be as plain as the difference between night and day.
Over the past decade, Phuket has somehow by accident or sheer numbers become an innovator in the region for resort-grade property. Back of this, and it's hard to exactly track the origins, but somehow the 50-50 split for rental revenue came into being and has continued through much of the property cycle on the island.
Elsewhere in the world, say Hawaii, condo hotel revenue between property owners and management or developers is split on the bottom line after deducting expenses. Although practices in revenue sharing vary from place to place, and time to time, this is the most widely used method.
Perhaps it's the local lack of trust of operators and how they might inflate expenses or the lack of a better business model, but the prevailing Phuket practice runs counter to how a large portion – though granted not “all” – of the world operates.
With many contracts in Phuket, however, often the “50”is not “50” at all, but subject to deductions such as agent commissions, credit card commissions and reserves for replacements or repairs – and suddenly the “50” becomes much, much lower.
At the other end of the spectrum are overanxious developers using ramped-up promises to sell more units or new developers who simply do not have the experience to look at the long-term implications of sustaining hospitality-led residential projects.
Hotels remain capital-intensive operations and mixed-use villas or condos are no different. Cash calls are frequent and only increase over the lifespan of a property.

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