Legal Matters / Courtesy of Phuket Gazette.
By Kert Stavorn
Planning a property development project in Thailand
Thailand's continuing economic growth and thriving tourist industry have caused a noticeable revival of the property development market, and the steady influx of tourists and investors means there is growing demand for new accommodation and recreational property developments. As such, property development has become an attractive business venture to those with cash to invest.
However, property development is complex process, and unlike some other businesses, involves several intricate steps and solid financial management.
Property development is certainly not for the faint hearted and requires just as much effort, if not more, than any other businesses to yield a healthy turnover. The good news is that with good planning and a healthy dose of hard work, property development can indeed be very profitable for the developer.
This article aims to provide a helpful guide for investors planning to venture into property development projects in Thailand. There are various types of property development so it is essential to identify at the onset the end goal of the project. This is essential because it will help you to identify a host of variables that will influence the viability and direction of the project.
In this article, we will concentrate on property or real estate development as opposed to land development or 'fixer-uppers'. Property or real estate development can be defined as the construction of physical buildings on raw land. It can take the form of residential, commercial, institutional, recreational or industrial projects.
The property development process
In general, a development project can be broken down into five stages. They are, in respective order, inception and feasibility, design, tendering, construction, handover and maintenance.
This article will focus on the first stage, which is crucial, as it will guide the decision making throughout the development and will show early on whether the project is worth the projected time and effort. Moreover, it will provide the strategic framework with which to establish the subsequent development stages.
Project inception
The first thing to do is to evaluate your finances and draw up a budget outline for your project. With this in mind, you can then search for a block of land with potential for development. It is a good idea at this stage to work with a team of consultants to provide you with the needed expertise in data gathering and assessment.
You can either have a development manager who can coordinate the whole process or you can liaise individually with a number of advisers, which may include a lawyer, architect, quantity surveyor, urban planner and estate agent. They will be there to provide you with initial advice on the property and the marketability of any possible development. This is also the stage in which you, together with your advisers, identify your project objectives.
Land investigation
The next stage is to conduct a legal and ground investigation of the land. All issues concerning the land must be ascertained and assessed including ownership, title, encumbrance, easements, zoning laws or ministerial regulations, and land capacity. These are the crucial issues which may affect land acquisition and what or how much you can build on the land. This is also a good time to find out what licensing will be required for your proposed project and whether you will need a property allocation license for the subdivision of separate plots.
Environmental regulation compliance
Environmental regulations are becoming one of the prominent issues facing property developers today. In late 2007, the Office of National Resources and Environmental Policy and Planning issued a new regulation requiring every new property project to plant a tree at least five meters in height and width for every air conditioning unit between 12,000 and 24,000 BTU. Also, a condominium project in Thailand which has more than 79 units or housing projects with a land area of more than 100 rai will need to apply for an Environment Impact Assessment (EIA).Smaller projects may also need to have an Initial Environmental Evaluation (IEE) done.
Project Brief
After ascertaining and evaluating land viability for the development project, you will than need to set up a 'User's Requirement' in the form of a preliminary project brief. This is where you examine and assess what the market wants in that area in order to build something that would sell or lease well. User's Requirements are works in progress and are progressively refined into a detailed project brief throughout the design and tendering stages, so do not be too concerned if you haven't figured out exactly what it is you want to build at the onset.
Feasibility Study
The feasibility study will essentially identify the financial viability of the project and establish the potential for profit in relation to the risks involved. Factors to consider include, among others: time scales, cost for consultants, cost of construction, as well as the likely sale value and the profit margin you to make.
There is a lot of software available today that can help make this part faster, cheaper and easier. A project's success depends on this feasibility study as this is what allows you to make an informed decision.
Project structure
The final step is to outline the project organization and management structure. The players in the project should be identified and their roles delineated. This is important in the development process as it sets out accountabilities and provides a framework in which the players in the organization can work and effectively contribute to achieve the final goal.
Final word
The planning stage of any property development is crucial and requires a lot of hard work and perseverance. Property development is an inherently risky business as capital expenditure is often high and liquidity is, by nature of having property as its main asset, extremely low. Financial management is decisive to the success of a development, and good financial management is in turn dependent upon good planning of the technical aspects of the project. At least with good planning, you will know early on whether to continue on with the project and proceed to the next stage.
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