Insider Investment Tips

Insider Investment Tips

Insider Investment Tips

Property investment pro outlines his proven four-point formula for success in Phuket’s real estate market

Phuket presents a relatively safe haven for investors increasingly aware of the credit crunch that has brought many of the traditional property markets under fire.

Currently, about one third of our buyers are investors, while at least another third are end-users looking for both a holiday home and an investment. So when asked which are the best investments in terms of capital appreciation and eventual salability, I tend to use a formula which has almost always proven itself over the past 30 years.

1. Get in early

The potential risk is higher, so equally are the rewards; but if you select well and buy from a developer with a proven track record, the risks should be minimal. However, check out the timeframe for the entire development, and ensure it’s being built in phases that can be completed with minimum disruption and independently of each other. See whether the developer usually brings his development in on time. This is rare in Phuket, so don’t expect it, but it should be finished within a reasonable time. More than six months late without a good reason is unreasonable. See whether there’s a penalty clause for late completion. Remember, though, if the payments hinge on construction milestones — which they should — then running late may not be a disadvantage. The longer it takes to complete, and the less you have laid out, the greater your opportunity for increased profit.

2. Payment terms

If you are thinking of “flipping”, or selling on, prior to completion, and are looking at returns on actual capital invested, then payment terms loaded in favour of the buyer — e.g. low initial payments with larger payments on or nearing completion — will show greater profits.

This can be a dangerous strategy, however, if you are relying on flipping before the final, higher payments become due. Market forces can change, and you should be in a position to be able to make those payments if things do not go to plan, or you could risk losing most of your investment.

Alternatively, if you are cash rich, a payment plan that benefits the seller — e.g. a front-loaded agreement — will probably show a higher return on the actual price of the property. If property prices escalate too much, it might be time to think again. Yet this tends to be the time when most people buy and the so-called experts recommend buying.
Phuket has a long way to go yet, and with very little financing available, it will remain an investor’s paradise for many years to come. But only if investors choose correctly. Phuket has never been a volatile market, even during the tsunami, but it has continued to grow steadily.

If you are taking advice, make certain your agent has an investor base with a consistently good history. If he or she is unable to provide you with one, chances are they haven’t got one. Using an agent isn’t necessarily a guarantee of receiving the best investment advice. A pleasant young guy or a pretty girl may well be able to show you some nice properties, but if it’s investment advice you require, go to an expert with many years experience.

We have some beautiful women working for us, but if their client needs investment advice, they refer them to myself or my partner. Experienced agents are often investors themselves, and their investor friends buy on their tips. I have made far more for my investors than I have for myself, but they have more to spend, so their returns are higher. I have never been an investor in shares. But if I was, I would seek out the best possible experienced advisor who was a player himself. So why not do the same when investing in property?

The best agents should, like the best share dealers, have inside information. Remember the words of Gordon Gekko, played by Michael Douglas in the film Wall Street, when speaking for the first time to the young dealer played by Charlie Sheen: “If you’re not inside, you’re outside!” The difference being that in share dealing inside information is illegal.

3. Location

Note I have hesitated in presenting this obvious consideration first. Nonetheless, in normal circumstances this does remain the most important consideration. If you think you’re in the know or are prepared to trust your friendly agent, an up-and-coming location is more likely to show higher returns, especially in the long term, than a well-established location that may be close to plateauing or reaching its peak. A stunning location, however, in even the most saturated of resorts, will stay in demand.

4. Price

Don’t go by price, and by that I mean low cost. If it’s too cheap, then there’s generally something wrong with it. Neither can you necessarily rely upon the sales blurb. The term “luxury” is used so frequently in Thailand, and sometimes so absurdly, that it has almost become an irrelevance. Only a few months ago a good client of mine bought several condos from me in an off-plan development I’d recommended. Afterwards, though he should have known better, he asked whether he wouldn’t have been better off buying in a particularly cheap development he’d seen, where units were going from as little as 2 million baht. I told him I knew of a housing development where he could buy a house from as little as 800,000 baht, but that didn’t make it a good buy. It was only “cheap” as in low cost, not good value. The condos he did buy have almost doubled in value in less than six months, while the development he referred to is still offering units at the same price “with incentives”. A good rule of thumb is to compare like-for-like developments by the square metre price.

Off plan developments