Investment case study: investing in early presales in a resort destination

Nov. 10, 2024

In this entry to our series of investment case breakdowns, we will take a closer look at a topic that is paradoxically straightforward and well understood on one hand, and somewhat controversial on another. Let’s talk about buying real estate on early presale and let’s dissect a real-life case to see the inner workings of it.

One of our clients - let’s call him Mr. V - is a habitual investor, who uses our counsel to notify him of any particularly interesting new projects in Thailand (you can do that too, by taking advantage of our ‘off-plan and early launch access’ service, via filling in a form on our main page or just messaging us and asking). And, late last year, something extremely interesting popped on our radar - The Standard Phuket Bangtao Residences were about to start their presales.

The presales

Let’s get definitions out of the way.

‘Presales’ in real estate is a term for the process of properties being sold before they are fully constructed or completed, in many cases before the construction even starts. A property like that would be called a presale property, an off-plan property or just a presale.

For simplicity we will not leave out the built-to-order scenario, which is common with villas, when the house is only built after the buyer signs the sales and purchase agreement.

In literal sense ‘presale’ is supposed to mean something being sold before it’s officially available for sale, but in practice that would be called ‘closed presale’ and the term ‘presale’ itself covers the entire period until the project is completed.

In most cases, developers start selling their projects before the construction starts . The prices are at their lowest at the start of the sales (partially to keep up with the market growth, but mostly to encourage early buyers).

So why go for presales? We will likely have another article on off-plan vs completed (stay tuned!), but we will cover the basics briefly here.

Pros:

• What is the most relevant for the purposes of this feature: prices are at their lowest at sales launch and increase gradually as the project starts and continues construction.

  👉 SUNWAY says:

  An obvious implication for the last point (wanting to attract early buyers) would be that the developers use buyer’s cash to build their project. While a fair assumption in our cynical world, most proper big developers get bank financing for their projects and don’t rely on buyer’s money for actual operations. However, even the big listed companies (especially the big listed companies, even) care about their cash flow and absorption rates. Hence the lower prices.

• You get the first pick of the units. In Thailand presale culture is very strong, so most good projects end up 90%+ sold out by the time of handover. The best units, understandably, sell first. So, even if you get a good deal on the last remaining units (which is often the case, as the developer is interested to stop spending money on marketing and sales of an almost-sold-out project), those tend not to be the cream of the crop.

• Real estate prices grow over time, so your investment will appreciate in price by the time it’s finished. Prices also tend to grow at the highest rate in the period from presales start until breaking ground.

• You get an installment plan for the duration of the construction (important if you want to flip the unit, especially if the payment schedule is favorable).

• In most cases you can resell the unit before the handover if you chose so. Since it’s done before the project is completed and title deed is issued, it’s done via reassignment of contract - which means you don’t pay the usual taxes on the sale; since it’s done before you paid 100% of the price, it means amplified ROI.

Cons

• Off-plan purchases in general carry certain risks: whether the project will be completed on time (or at all), whether the specs will match what is promised. This can and should be mitigated by choosing a reliable developer.
• You don’t see the product before you buy it, so you have to go off specification, showrooms, marketing materials and developer track record.
• Things can happen before completion, delaying it, or adversely impacting the project.
• The earlier you buy the longer you will have to wait to move in or start renting out the property.

The appeal is simple: you choose a good project by a reputable developer to make risks negligible and commit a portion of price early; in exchange you get the best price, installment payment plan that doesn’t tie up 100% of the price right away, and an opportunity to ‘flip’ the property even before completion via reassigment.

As always, the key is choosing the right project.

The project

The Standard Phuket Bangtao Residences is one of the most intriguing Phuket launches of the last several years. It’s a luxury branded residence project located in a prime location in Bangtao area. And it got everything going for it.

In branded residences game, the brand is the key, and The Standard is a perfect one - strong, evocative and, most importantly, selective in who they give the usage rights to. They already entered Thailand with The Standard hotel in Bangkok, located in the iconic Mahanakhon building.

The Standard, Bangkok Mahanakhon

But The Standard Phuket marks their first residences in the Kingdom.

The project is located right next to Boat Avenue and the entrance to Laguna Phuket. If you are at least a bit familiar with the area, you know how good this address is. Boat Avenue is an extremely popular shopping and dining district, arguably the biggest hotspot of northern Phuket. Laguna is an integrated resort area by Banyan Tree - an entire district with 7 hotels, golf course, restaurants, spa, retail gallery, high-end residential projects and more. Laguna had been under development since the 80s and basically kickstarted the development of Bangtao, so most of the area developed around it - especially near its entrance, where The Standard’s plot is.

The developer of the project is Boavista Lifestyle Residences - residential and resort development arm of Central Group, one of the biggest Thai conglomerates.

Most of people who'd been to Thailand even once, would be familiar with Central's malls - centralwOrld, Central Embassy, Central Floresta Phuket, Porto de Phuket, Central Festival Pattaya etc. Apart from that Central Group has multiple business line, including retail, hospitality, financial services, F&B and more across Asia and Europe.

The project itself is a boutique, low-rise, low-density development, with spacious units, and The Standard design and service sensibilities. You can read more in our listing. It’s legitimately a great project.

The payment schedule is fairly favorable by Phuket standards:

• Booking deposit: 100,000-300,000 THB (depending on unit type)
• 20% contract payment
• 30% is payable during construction (4 payments, 7.5% each, paid every 3 months after the contract signing)
• 50% payable on handover.

So to sum it up, the project has all the fundamentals in order:

• Prime location alone makes the project attractive.
• The Standard name adds brand recognition, rewards program and design refinement (and an extra layer of quality control).
• Low number of units will make resales and rentals more scarce.
• Big and reputable developer virtually eliminates completion risks.
• Large units with thoughtful, intelligent layouts fit into post-COVID demand for bigger, self-sufficient spaces.
• The project will be completed in late 2026, which means that the buyer gets to lock in the January 2024 price, while paying half of the cost in 2026.

The purchase

Our client ended up buying several units: a 75 sqm 1-bedroom, a ‘smaller’ 100 sqm 2-bedroom and 2 of the bigger 118 sqm 2-bedrooms (like, we said - spacious units). As we brought the client on board very early on, they were able to get one of the first picks of units, getting the good ones (higher floors, as nice a views you can get in a low-rise, no prying eyes, no exterior noise and just the right distance from the facilities).

The purchase had been finalized in February 2024, 6 months before this article is being written.

We don’t generally advise our clients to resell so fast, so for the purpose of appreciation estimates we will use the price increase of the developer stock. We will be the first to admit that this method is far from ideal, but in this case, daresay it is actually valid, since at this point:

• The project is 80% sold out
• All 1-bedrooms in the project are all sold out
• All 100 sqm 2-bedrooms in building A are sold out. 77% of the type in the project overall are sold out; all but 2 on higher (5-7th) floors are sold out.
• Only one 118 sqm 2-bedroom remains in building B

So coming back to the methodology:

1. If units of the same type remains in the project, we tried finding the closest possible match that is still available for sale in the project (same unit type, same floor and position) to use its price as a reference. As the project opened buildings for sale in stages along with price increases, we can’t have a direct side-to-side comparison, but based on the price dynamics, these should be priced the same as purchased units. Note also that, at least in theory, if we assume ourselves to be halfway competent, this approach should underestimate the result, since we actively tried to select the best available units and the remaining units are negatively selected by the market.

1. If no units of the same type remains in the project, we compared the prices per sqm of other units in the same building/same floor and tried to approximate that growth of price per sqm based on that. Note that this admittedly leaves us with a bit of a narrow sample, as in both cases only 1 unit remained in same building/same floor.

As you can see above the numbers are in line with our method considerations: the estimates based on the similar unit prices are lower, the estimates based on the adjacent units price growth are higher. Still on the low end we are looking at 12% annual appreciation, even without accounting for the payment schedule.

If we do, however, account for the payment schedule and the fact that the buyer had only paid 27.5% of the price up to this point (20% contract payment and the first 7.5% installment payment), the things become more interesting: if the buyer decided to resell their units now, they would make a nice 21%+ profit after just 6 months. And at the very least, the 1-bedroom unit would be easy to move in the upcoming high season (since the developer stock of that type is sold out).

👉 SUNWAY says:

You might be thinking: “Guys, why didn’t you advise your client to take more 1-bedrooms instead of those bigger units?”. The devil is in the details, and the full picture stretches in time as well. As we’ve mentioned before, we don’t recommend our clients to sell this early: there is still appreciation to be had during construction, and the bigger units are less likely to end up on resale market. Moreover, the supply still hasn’t caught up with post-COVID demand for bigger units, so there is still lack of big units across the board. This is not to say 1-bedrooms aren’t in demand - looking at The Standard it’s obvious that they are; but for multiple unit purchases, we do suggest a healthy mix of types.

Conclusion

While The Standard Residence Phuket Bang Tao is an outstanding development and figures above reflect that, the basic trend is true for any good project. Like in any investment, the old mantra - "Enter early, have an exit strategy” - holds true. The numbers illustrate why entering on a presale is a no-brainer for a seasoned investor. It’s evident with every big launch - any project worth attention will have the best units gone right at the launch - or even before that, at closed presales for ‘friends and family’ (on a completely unrelated note: we do happen to be good friends with most good developers).

So, understandably, the timing is the key and having early access is a big advantage. Which is why Mr. V has us alerting him on new launches, and which is why his real estate portfolio appreciates very, very nicely.

Talking about new launches: there are some very interesting projects coming up this year we are not allowed to talk about yet. Contact us today to be the first to find out.