Avoiding the Hua Hin Farang Building Mafia

[Super Joe]

They would nearly always openly tell her how much they were being paid to build the house by the developer and the difference between that and what the developer was charging the customer was quite often a shocking amount.

So true, as the unscrupulous developers were not content with just making their very high profit on the land plots sold off but they then wanted a 200 -300 % mark up on the actual building cost.

Are property values now somehow related to rebuilding costs then or should that just apply to developers meanwhile you and me as private homeowners sell our houses with 200 - 300% mark-ups on our actual costs. So when a developer takes all the risk investing his lifesavings into a volatile, uncertain business venture for 2 years in order to earn his money... he's obviously 'unscrupulous', yet when we sit on the sofa he provided for the next 2 years before cashing in and doubling our money cos we were fortunate enough to buy property next door to where a golf course suddenely sprung up... we ofcourse fully expect the buyer to cough up our initial 5m Baht, plus another 5m

Really we only did that well out if cos the developer had either established good contacts along the way or had just got lucky. Either way we're saying it's wrong that he is charging 1m a plot for land that he bought for only 0.5m. Yet ok when we sell it for 2m Baht Now if the developer was really shrewd back then and brought another parcel at that same 0.5m Baht/plot for his next phase, then I guess if he charges anything more than what he paid plus a modest mark-up, 0.5m +25%, then he's clearly a charlatan. Me or you might buy that house, that's our money!!

they then wanted a 200 -300 % mark up on the actual building cost.

I think you'd need a +20m Baht property for even 200% to apply, ours is around 60% on 5m houses... but the principal here is that, (leaving the land to one side), if we charged 4m Baht in the construction contract for a house that actually cost 2m Baht to build, then that's simply a construction selling cost that happens to equate to the house build costs plus 100%... it's most definately not a 100% profit 'mark-up' on the building costs. It's not related to the house build cost, nor derived from a calculation with the house build cost. It's made up of part construction profit, part income tax, agents fees, a share of the site infrastructure like wells, electric mains, transformers, drainage, access roads, perimeter walls, part of 3 years of advertising, wages, office accomodation, printing, land office taxes blah blah blah.

SJ

[advocate]

Super Joe

From what I hear you have a well deserved reputation for building quality at a fair price. Unfortunately, you are one of the few.

I agree there is nothing wrong with making a profit.
Profit is not a dirty word.

But, if a person is capable of managing the subtrades, and has the time and inclination, they can save themselves a lot of money.

I agree that not everyone has the skills to do so, especially with the language gap, and many are better off hiring a reputable builder.

Nationality has little to do with competance. Whether you hire a falang or a Thai does not gaurantee a quality build.

[STEVE G]

... it's most definately not a 100% profit 'mark-up' on the building costs.

I agree that in the present economic climate that you would be unlikely to get away with that but in the bad old days a few years ago I came across instances where that was going on. On one developement I came across the plot was sold separately and then you paid for construction and that was what the developer was the marking up on the construction costs. They had endless problems completing houses as the subcontractors would get half way through and realise that they couldn't build a house for so little and dissappear. I could never understand how you could be so greedy as they could have given people a fair deal and still made a healthy profit.

[Super Joe]

Nationality has little to do with competance. Whether you hire a falang or a Thai does not gaurantee a quality build.

Education, qualifications, training and experience has everything to do with it though.. and obviously us 'westerners' were more fortunate than our Thai friends in this department, due to where we were born.

From what I hear you have a well deserved reputation for building quality at a fair price. Unfortunately, you are one of the few.

Whether there were 95 dodgy and 5 decent developers out of every 100 it does not change my point... there are a pool of established, verifiable developers in town that have built easily over 500 houses between them who could quite comfortably satisfy current demand. Hence suggestions that Hua Hin is full of developers who will rip you off is irrelevant... unless you do not do a day's homework and appoint the latter.

... it's most definately not a 100% profit 'mark-up' on the building costs.

I agree that in the present economic climate that you would be unlikely to get away with that but in the bad old days a few years ago I came across instances where that was going on. On one developement I came across the plot was sold separately and then you paid for construction and that was what the developer was the marking up on the construction costs. I could never understand how you could be so greedy as they could have given people a fair deal and still made a healthy profit.

Steve, I wasn't saying that a developer ha never made 100% profit... I was saying that obtaining the Thai builders price and making a calculation with the selling cost does not equate in any way to a mark-up on the building costs. A developer, just as you or me as private homeowners would be, are fully entitled to ask whatever the market values the property at. If that's 1x, 2x or 10x what I paid for it, that principle still applies.

How much were all the enabling/infrastructure and other associated costs I mentioned above work out at, without knowing them you would not know if they were making 50%, 100% or 200% per build. Which was the point I was making.

Steve, you've answered your own point more or less when you say... "I agree that in the present economic climate that you would be unlikely to"... the fact that developers are not earning money today but spending what they aren't in previous years, how do you define what are fair prices or not?? If I said to you you had to take your whole life savings out of the bank and put it into 'x' business... and that that business might last 1, 2, 3 years and then it stops overnight... would you be prepared to do that on your current rate?

SJ

[chopsticks]

How much were all the enabling/infrastructure and other associated costs I mentioned above work out at, without knowing them you would not know if they were making 50%, 100% or 200% per build. Which was the point I was making.
SJ

Irrelevant as those costs were already factored into some developers land plot selling prices.
Building costs with a high 200-300 % mark-ups were being applied to constructing just the houses alone (ie. materials & labour) during the 'boom' years on some developments by some (not all) developers.

[Super Joe]

Irrelevant as those costs were already factored into some developers land plot selling prices. Building costs with a high 200-300 % mark-ups were being applied to constructing just the houses alone (ie. materials & labour) during the 'boom' years on some developments by some (not all) developers.

Eh!?... since when are agents fees on the construction contract value factored into land plot prices? or corporation taxes & land office taxes on construction income been factored into land prices?... or advertising/staff/office overheads been factored in totality into land selling prices?... finance costs?... Everything outside the house building costs of the Thai contractor aren't simply factored into the land prices, that's not how it works.

Someone couldn't possibly know how much was being made on the house building costs without the developers cost details, I know I wouldn't have a clue and it's what I do for a living. Listen, when you see a property price of 6m Baht and it's broken down as 1.5m for the land and 4.5m for the building... the determining factor behind that split is often taxes. The figures can't be relied on to make any accurate calculation of profit on one element or the other.

The point was made that the Thai contractor said he was paid (leaving the land to one side) 'x' to build the house but the house was sold for 'y', well if we sold our houses (again land aside) for double that, ie: 100% added again... we'd lose money!! The Thai contractor charges us 1.3m to build the house then we spend 1.4m on the pool, kitchen, landscaping, furniture, air-con, elec/water meters, gates & fences, architect, agents fees, taxes on construction etc. So a 108% 'uplift' on the contractors house building price gives me 1% profit on the construction works. A 200% 'uplift' gives 44% profit on construction costs.

So our construction costs for a house are say 2.7m, if I add say 250% for this 200-300% mark-up then that works out 2.7m + 6.75m (250%) + 1m (land) = 10.5m Baht. We sell them for 4.5m. Give us one example of a property under 15m Baht that's had 300% mark-up added to the construction costs....

SJ

[STEVE G]

I was saying that obtaining the Thai builders price and making a calculation with the selling cost does not equate in any way to a mark-up on the building costs.

I came across a case where a developer was charging 15,000 bt a square meter for pure construction cost, nothing more and paying half that on to Thai subcontractors. Every one is entitled to make a fair profit but I would say that was going beyond that. I work in the airline industry where companies make around 5% on multi-billion dollar turnovers if they're lucky and I shouldn't think that the average Thai building company makes much more than that.
I've just had a look and the average profit margin for the 100 largest UK construction companies was 2.9% in 2011.

[chopsticks]

The point was made that the Thai contractor said he was paid (leaving the land to one side) 'x' to build the house but the house was sold for 'y', well if we sold our houses (again land aside) for double that, ie: 100% added again... we'd lose money!! The Thai contractor charges us 1.3m to build the house then we spend 1.4m on the pool, kitchen, landscaping, furniture, air-con, elec/water meters, gates & fences, architect, agents fees, taxes on construction etc. So a 108% 'uplift' on the contractors house building price gives me 1% profit on the construction works. A 200% 'uplift' gives 44% profit on construction costs.

SJ

That's where your comparison was irrelevant though, as you were referring to a completed house where you've spent an additional 1.4m on "the pool, kitchen, landscaping, furniture, air-con, elec/water meters, gates & fences, architect, agents fees, taxes on construction etc."

In my example, (and similar to SteveG's above) but using your scenario it was just the 1.3m being paid to the Thai contractor to build a basic shell of a house that was being resold at 2-300 % mark up with all the other things you've mentioned then being added on to give the final selling price.

[Super Joe]

I was saying that obtaining the Thai builders price and making a calculation with the selling cost does not equate in any way to a mark-up on the building costs.

I came across a case where a developer was charging 15,000 bt a square meter for pure construction cost, nothing more and paying half that on to Thai subcontractors. Every one is entitled to make a fair profit but I would say that was going beyond that. I work in the airline industry where companies make around 5% on multi-billion dollar turnovers if they're lucky and I shouldn't think that the average Thai building company makes much more than that.
I've just had a look and the average profit margin for the 100 largest UK construction companies was 2.9% in 2011.

That sounds about right, and unless a unique one-off situation then that selling rate includes a multitiude of other costs such as I mentioned earlier... agents fees, land office taxes, 30% corporation tax, advertising, financing, architects drgs, office/car/staff/staff taxes, landscaping, elec/water meters, other trades that general contractors often do not do like sandwashing, A/C, kitchens etc. Another item that would not be included in the contrators m2 rate but you have to incorporate into the selling rate is the perimeter walls/fencing/gates which are very expensive in relation to a 7,500B/m2 build... 4 walls round a 120m2 house on a 400m2 plot would equate to 20% of that house build cost. So depending on which of those applied the developer might se 30-60% of that 100% premium.

But your whole train of thought regarding this is that the developer in selling construction, which he's not. The Thai contractor is selling that... at probably 3x the margin that the UK industry you mention gets. A developer is selling property... give me the logic behind why you believe the selling calculation should not be based on something near the market value? Please?

Should a developer take all that risk and invest all that money just to leave excessive equity in the property for us to come along and flip it in 2 months flat? You can't apply modest margins of 5, 10, 15% to your costs when you might only sell 4 or 5 items per year. Developing is nothing like construction, I worked for large contractors since school and it was very low risk, and the firm did not have to risk it's assets every project.

And if me or you buy a rundown flat in our local area for say GBP100k, then spend GBP20k making it look as good as others in the block that are selling for 150k... do we apply 6% that 20k work we did and give it away or do we sell it at the market rate which means a 100% premium?

SJ

[Super Joe]

That's where your comparison was irrelevant though, as you were referring to a completed house where you've spent an additional 1.4m on "the pool, kitchen, landscaping, furniture, air-con, elec/water meters, gates & fences, architect, agents fees, taxes on construction etc."

In my example, (and similar to SteveG's above) but using your scenario it was just the 1.3m being paid to the Thai contractor to build a basic shell of a house that was being resold at 2-300 % mark up with all the other things you've mentioned then being added on to give the final selling price.

So why didn't you say this was a one-off not at all representitive of 99% of the developments in town??

And what you're suggesting here is that there was a developer who was offering a selling rate that did not allow for costs such as land office taxes, 30% corporation tax, who didn't have to pay agents fees, who didn't have ot advertise, pay staff, bills then it's just not credible is it. And if he existed he was certainly a one-off, not representitive of any market anywhere I'd have thought

SJ

[chopsticks]

How do you know that 99% of developments in town were following your pricing model ?
It certainly wasn't the case during the 'boom' years when the reputation of Hua Hin's property developers was sullied as evidenced by all the threads posted on this forum alone.

[hhfarang]

I can tell you that the entire area (4 or 5 square kilometers) where I bought and started building before anyone else did was purchased by two of the worst of the cowboy builders from Europe. I cannot sell my home now because of the "druid ruins" of unfinished developments that surround it that were started by those criminals. They are being sued and one by one the suits are being won but it takes years and there are hundreds of derelict homes or grown up parcels intended to be developments in the neighborhood making it a very undesirable location in which to live.

These same builders are still constructing new developments on or just off of soi 112 and still making money from those who are unwary so all I can say is do your due diligence. Don't just believe what you see in the glossy ads and by all means find out the name of the developer and Google it to see what kind of past reputation he has!

hhfarang out!

[chopsticks]

As always 'Caveat emptor'.

Welcome back HHF have missed your forum contributions

[T.I.G.R.]

I'll second the welcome back HHF....have missed you as well.

[caller]

I think everyone has - stick around HHF!