Fractional ownership option for Rayong Thailand condos

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Fractional ownership option for Rayong Thailand condos 
Bangkok Post: 21 Jun 2009
source: www.BangkokPost.com

MOVEMENT AT THE HIGH-END

Repackaging fractional ownership for difficult times

Fractional ownership and its better known sibling, time-sharing, are popular ways to enjoy resort property when times are good because people spend more impulsively. But these two products can also do well in more challenging economic times depending on how they are refashioned.

This approach is being used by Jens Brochner Nielsen, the CEO of D2 Real Estate, for the launch of Joy Holidays Home at the Tropical Beach Resort Condominium the company is developing on Mae Rumpeung beach in Rayong.

The difference between this and other fractional and timeshare products is that there is no maintenance fee, which is something prospective buyers will appreciate in economically tough times. Ten buyers will collectively own a unit and have the right to use it 30 days a year. D2 Real Estate will cover the maintenance cost with the rental return it obtains in the remaining two months of the year.

The price is realistic with a one-tenth fractional share of a 45-square-metre unit being 320,000 baht. A two-bedroom unit costs double that at 640,000 baht. All the facilities one would want are available including water sports, private speed boat, butler service and club house.

Mr Nielsen came up with this novel arrangement after noticing that fractional ownership at five-star hotels and resorts actually weighed the owners down with heavy maintenance fees and expensive charges during their stay. The overall cost of ownership sometimes actually works out to be equivalent to the promotional rates of hotel rooms, especially as sold on the internet.

"To be honest, I have studied this in detail and my conclusion is that the maintenance you pay every year plus the cost when you are staying is equal to the price you pay directly without being the owner when there is a special promotion."

This is the sort of burden most people want to avoid in the present cautious mood. Although optimists say the global economic crisis is ebbing, a lot of people have changed their ways, with some clear indications of this being aerobic workouts on the street which shows they are now concentrating on non-material things such as health, family and quality of life.

"The stress factor still weighs people down but they don't have that much money to spend in their free time, so they start concentrating on their health and their families again and start becoming a little more human."

Those who still have some money to spend might want to take their family to the seaside for a relaxing weekend every now and then rather than going on expensive shopping sprees, and it is this group who might find cost-effective fractional ownership of a resort condominium unit a worthwhile expenditure.

Thais with substantial savings are also now becoming more interested in dabbling in the property market with Mr Nielsen pointing out that it is mainly due to the low interest rate of 0.75% that they are getting from their bank deposits.

"It is not very difficult to find a good investment at a good price that yields much better returns and this has got Thai people moving. There is a reasonably big group in Thailand that has savings and counted on their savings yielding 3 to 4%, but they cannot get this today."

However Mr Nielsen added that this is at present only at the level of interest and has yet to translate into a spike in transactions, but a turnaround will come about.

"There is one definite thing and that is Thai people are very, very sceptical and they are very difficult customers to close a deal with, they analyse very, very deeply."

This group is only looking for absolutely the best deal at the best price and in the best location. This has led to secondary and tertiary locations now at a dead stop with absolutely no movement.

He expects there to be more projects starting in the best locations and these would do well, provided the government helps developers by reducing corruption and easing land allocation regulations. However property developed in the less valued locations that is not being sold today will remain on the shelf.

Developers will also be helped by land prices at these top locations remaining at a sensible level because financially troubled owners will be forced to sell some good plots.

"In the next couple of years it will be possible to get land at a reasonable price with this possibly leading to new developments and perhaps triggering more activity."

While Thais are venturing forth into the property market once again, the number of foreign buyers has dwindled dramatically.

"When compared to one and a half years ago, today it is one to 15. That is if you sold 15 properties to foreigners one and a half years ago today you would sell one."

What is exacerbating the situation is the strengthening of the Thai baht with Mr Neilsen mentioning that while the Bank of Thailand is following the right policy, the stronger baht is hurting the property market.

It is unlikely that this situation will improve in the second half of this year, with a more realistic timeframe being a slight turnaround next year. However the government could help the market by showing foreigners that this country has some hidden resources and among these is property. It could vastly improve the economic situation by increasing the current lease term for foreigners from 30 years, legally guaranteed, and doing this would also help the government obtain extra income.

Mr Neilsen perceives the outlook for the Bangkok market to be very mixed, with demand being very weak at the moment while there is overcapacity. In this environment it is strong developers who have a good cost structure and do not need any extra benefits who will thrive, but only if they stick to locating their projects in prime areas.

Developers who prior to the crisis geared projects towards foreigners, who are legally permitted to own up to 49% of the units in a condominium building, were working on a strategy to cover their costs at this point. But this strategy is not working in today's climate and only those willing to accept smaller margins have the chance to succeed.