Off Plan Developments for Dummies

Let’s take some time to talk about off-plan developments. What is it and how does it work? I will give you an example of how it can work in Pattaya.

Some people are under the presumption that off-plan projects are fair to all the parties involved. This is not the case. Business in general is not fair. You’ll just have to accept this as a fact. Even life is not fair, but that is a philosophical question we will not get into right now.

A typical scenario is that we have a thai guy that owns a plot of land. This guy is approached by some expats that have an idea. These guys have that in common that they want to make quick money. They are each willing to invest a relatively small amount of money. It could be in the range of just 10 million baht, it could be more, it could be less, all depending on how much they are willing to spend on advertising on these huge roadside billboards. It also depends on how much they intend to spend on the projects showroom.

We have a group of three investors that are called project owners. They own the project. We call them the shareholders. Let’s say they each invest 10 million baht, then that gives us a total of 30 million baht. 1 million US$ and they are in business. As I mentioned it could be slightly more if they really want to make things look beautiful.

Think about it. They each invest just 10 million baht, not even enough to purchase a penthouse unit in their own project. How much can they expect to get in return? This is where things start to get really interesting. 10 million baht can actually return a profit of 300 million baht for each of the investors involved. That’s why they do it. The reward is out of this world. There is an incredible amount of money to be earned basically by just doing some paperwork. It is not hard work. The hard work is done by a contractor.

It is easy, yes. But not all that easy. They need to keep two things in mind. They need to find the right timing and the right location for the project. There is a lot of money involved but there is no reason to be jealous. It was their initiative that got the project launched. It is their idea so they have the right to harvest the rewards if the project is a success.

Where Were We? Oh yes, big money. They want big money. Basically there are two ways to achieve that goal. Either they build a very large project with a 1000 units or more at attractive prices, or they offer few truly luxury units at very high prices. They can choose to target the medium end of the market or the high end of the market, the super luxury market.

A 1000 units in one or two towers, how much is that going to cost to build? The contractor will need about 1 billion baht. This kind of project will have a worth of about 2.5 billion baht. If we subtract 500 million baht for various unexpected expenses, that still leaves the project owners with a profit of 1000 million baht. That gives us a total of 333 million baht to be returned to each of the three project owners involved.

Not bad, eh? Invest 10 million baht and get 330 million baht back a few years later. Well, that will happen if things go according to plan, if most of the units are sold. Who wouldn’t want that? It is better than winning the lottery.

So, there were a thousand units, meaning there were actually a thousand investors involved in the project. Shouldn’t they have the right to get a piece of the pie also? No, life isn’t fair. I told you. The other investors might get a profit of 200,000 baht if they are able to sell their unit. Maybe slightly more if they are willing to wait for a longer period of time. No matter how you look at it, it is not an amount that is gong to change change anybody’s life.

What happens if things go wrong? What happens if the project fails? Who gets to pick up the bill? Well, the three original shareholders have their arses covered. Rest assured they have found ways to protect their wealth. They are not going down with the ship. One way or another somebody’s gotta pay. Who is left to pay the price for a failed project? Guess who?

Ah, finally you guessed it. They people that bought into the project will most likely lose their deposits paid over the years. Is that fair or not? They knew all along what they were getting into. They believed in the project, they believed in the developer. They chose to take a chance.

That’ll be all for today, class dismissed.

Winners and losers in Pattaya

Published 28 November 2016

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