Property insights from Bill Barnett of c9hotelworks.com
One of the most common mistakes by property developers in hot markets or with premium properties is the misconception that a fast sell-out is good. It’s often hard for real estate sales people whose mantra follow’s the ABC’s (always be closing) to understand the big picture, or more importantly the bottom line.
Property projects remain fairly finite investments and the quantum rules are how much does it cost to build and how much can you sell it for? Recently a project in Phuket in a prime location did a rapid-fire launch of a new development and the result was a quick sell out. Was this really a success? In many ways, given the two year time period it will take to construct and the potential for higher yielding sales the answer is not that black and white.
Looking between the lines, for developers who are cash flow motivated and undertaking multiple ventures, the ability to re-cycle capital is important. You also have to look at the cost of money, be it internal or external financing.
Yet, one of the oldest adages in the world of sales, it’s that it’s always easy to sell cheap. Leaving too much money on the table is never a good idea, and in Thailand where speculation by investment buyers who will flip prior to completion with good levels of profit means the developer has lost out.
How do you avoid the pitfalls of shall we call it premature sell-outs? Undertaking an off market sale to existing clients to gauge demand is one way. Another is to phase the project. Ideally during a development cycle the ability to raise pricing in line with demand remains the tried and trusted way, but if you have already sold out, the price increase have flown out the window along with a great deal of incremental profit that could have bolstered the bottom line.
- Bill Barnett