Avoiding the Hua Hin Farang Building Mafia

[Super Joe]

How do you know that 99% of developments in town were following your pricing model ?

It's not my pricing model at all, it's basic economics... your selling price includes all your costs +OH&P associated with producing that product. You've suggested the difference between the Thai building contractors order and the sales price is all profit... and I've listed a number of costs that are also incurred in producing that product. Sure it may not include A/C's, kitchens etc if that is not their model, but the directly associated costs can't simply be ignored when they don't suit.

SJ

[splitlid]

This thread is getting stupid.
A building company in the uk will make 50% ish on a new build in a boom environment.
20-25% in a recession. And 30-35% on average.
Standard.
Suggesting that that they make 2.whatever% is just.........

[STEVE G]

Suggesting that that they make 2.whatever% is just.........

It came from here and is an average for the top 100 construction companies in 2011:
http://www.theconstructionindex.co.uk/m ... anies/2011

Here's similar figures for the top 20 UK house builders:
http://www.theconstructionindex.co.uk/m ... lders/2011

[BaaBaa.]

We had the wild idea of asking people who'd already bought on our soi and previous projects if they were happy.

It's a bit maverick I know.

[splitlid]

Suggesting that that they make 2.whatever% is just.........

It came from here and is an average for the top 100 construction companies in 2011:
http://www.theconstructionindex.co.uk/m ... anies/2011

Here's similar figures for the top 20 UK house builders:
http://www.theconstructionindex.co.uk/m ... lders/2011

Sorry Steve, i am in no way saying that your figures are incorrect, but i am saying that they are irrelevent to the discussion.
The discussion has been about developers profit/mark up on a house. NOT, a companys yearly profit after it has paid all its otter costs/debts/morgages/loans etc, relating to the companies running.
IT IS however, a good example that development companies are not making quite as much money as some would suggest.

[chopsticks]

The discussion has been about developers profit/mark up on a house..........

Exactly, and about the 200-300 % mark-ups by some developers who do little other than
sub-contract everything to a Thai builder.

[johnnyk]

Housebuilders in Canada have told me they aim for 15% profit.

[splitlid]

The discussion has been about developers profit/mark up on a house..........

Exactly, and about the 200-300 % mark-ups by some developers who do little other than
sub-contract everything to a Thai builder.

yes it is, but if say a house cost 2m baht to build by a Thai builder, then some developers are charging 6m or 8m baht for the house? plus land, plus infrastructure,plus plus. so a house which cost 2m to build is being sold maybe for 8m or 10m?
if thats so then there must be alot of empty houses out there.

[dtaai-maai]

I think the thing that upsets me about the title of the thread is that it tars all western builders with the same brush and this is definitely not the case.

I think this is the crux of the matter, and I think that's what SJ started out trying to point out.

It's all got a bit bogged down now in the question of what constitutes a fair profit margin.

Speaking as someone who no longer owns property anywhere and has no construction or entrepreneurial skills whatsoever, I imagine something is worth whatever the buyer is prepared to pay for it.

Having observed the whole scene for quite a few years now, I think there has been (and probably still are) a lot of farang buyers paying unnecessarily high prices through ignorance and lack of basic research, and that has helped push prices up. But on the other hand, if I had a product that people were prepared to buy for, say 8 million baht, I can't honestly see myself saying "Hmm, that seems a bit unfair to me, I'll only ask 4".

[MrPlum]

if I had a product that people were prepared to buy for, say 8 million baht, I can't honestly see myself saying "Hmm, that seems a bit unfair to me, I'll only ask 4".

I think this is a common misunderstanding about pricing in a capitalist system. For some products it is 'COST +' and for others 'whatever the market will bear'.

[STEVE G]

But on the other hand, if I had a product that people were prepared to buy for, say 8 million baht, I can't honestly see myself saying "Hmm, that seems a bit unfair to me, I'll only ask 4."

No, but then of course people with any common sense are going to build their own house for 4 million baht and save themselves the other 4 million.
I had a house built by a Thai contractor last year and my partner did the work of the developer by organising all the other services, design, surrounding walls, infrastructure etc. in her spare time for nothing, without any advertising or agency costs or anything else. (Unfortunatly for her, she still has a Honda Wave and not a Bentley, Porshe or Ferrari like certain Hua Hin property developers!)

[Dannie Boy]

The basic principle of supply and demand also comes into the equation. 5 or 6 years ago when the exchange rate was 35% better than today (£ to Baht), the supply wasn't as extensive as it is today, and westerners were "happy" to pay the inflated prices that developers were asking. The exchange rate went belly up, the demand went down at the same time as the supply increased, hence we now have many people looking to offload houses for less (in Thai Baht) than they may have paid a few years back. At the same time developers are now being forced to moderate their premiums so as not to be so out off line with 2nd hand house prices.

Unless and until demand catches up with supply (and/or a dramatic increase to the exchange rate), there will remain downward pressure on prices - good if you're looking to buy, not so good if you're looking to sell.

[Vital Spark]

Steve G: I think it's a bit unfair to say that 'people with any common sense are going to build their own house'. This option is really only viable if the person has a Thai wife. Many people now coming to retire in Hua Hin are farang couples. They don't want the hassle of trying to deal with the red tape and builders. It's impossible if they don't speak the lingo, and the developers can sort out the whole package.

If I was retiring from the UK, having sold my house for perhaps the minimum of 200,000 quid (10 million baht), then I'd buy a ready-made house from a developer. It's a no-brainer. Four million could buy a nice little place with money to spare. Unfortunately, I'm not in that position, but I'd never criticize either the developer for making money, or the buyer for maybe paying what we consider over the odds for the house of their dreams. It's all relative...

VS

[Super Joe]

No, but then of course people with any common sense are going to build their own house for 4 million baht and save themselves the other 4 million.
I had a house built by a Thai contractor last year and my partner did the work of the developer by organising all the other services, design, surrounding walls, infrastructure etc. in her spare time for nothing, without any advertising or agency costs or anything else. (Unfortunatly for her, she still has a Honda Wave and not a Bentley, Porshe or Ferrari like certain Hua Hin property developers!)

Your partner wasn't property developing Steve. Not having to invest your own life savings, market then sell something, does tend to make it an easier exercise. But joking apart, anyone under the impression developing is a similar business to construction is mistaken. Construction is low risk, low investment with returns within your control... hence lower returns. Here's how the chairman of Balfour Beatty, top of Steve's top 100 list, describes their business... "Billability is a good measure of resource utilization, and hence profitability, in what is essentially a billable hours business."

And trying to compare a firm's net profit at the end of a year is pointless when they have already deducted $89m losses from unrelated financial investments, paid out $15m in salaries & bonuses and invested $5m in real estate assets. Construction companies DO NOT apply 'mark-up's' of 5, 10, 15% to their prime costs (materials, labour, sub-contractors) to cover OH&P... they will probably be applying a factor of between 1.35 - 1.45 (35% - 45%). Developers will have maybe 15% finance costs when they tie their money up for several years on a project, construction companies invest their assets and generally earn income. So a construction company takes a Thai contractors price and adds 35-45%, a developer's costs may run in excess of that by an additional 15% (finance) & 15% (risk hedging) = a 65-75% increase above prime costs.


Here's extracts fo two construction industry articles from the US. The top chart discusses typical uplifts to prime costs by construction companies as being 1.43 or 43%. The bottom chart is actual 'average' data showing that house builders, on average have selling prices 100% that of their prime costs...

But as I keep saying this is a completely irrelevant comparison... developers are not selling construction but property, and the world over developers establish prices based around market values

SJ

[STEVE G]

[Mod Edit] comment removed as irrelevant to discussion.