Doing Business in Thailand

Are international real estate agencies to be trusted more than small local agents?

You would think that using the service of a reputed international brand of real estate agencies is the guarantee of a safe purchase. Wouldn’t you?

Let me tell you a story that will show you how wrong you would be to think so.

Unfortunately 100 foreign buyers of a failed housing project in Thailand have learnt the hard way that this was not an absolute truth and that the standard of quality of an international brand is not an absolute guarantee from one country to the other.

While many buyers will take comfort from the fact that they are purchasing their property through the services of a well known international real estate agency.

Now  the truth (and most buyers are not aware of this fact) is that international real estate agencies are nothing more than a lose affiliation of independently owned and operated companies using the same brand and the fact that the brand has a worldwide recognition is not a guarantee that the service provided in a given country will be up to the standard of the brand

Even the knowledge that the local branch is operated by the owner of the brand itself is not a guarantee of integrity and uprightness as a group of Hong Kong buyers that have purchased property in Thailand through the agency of an International Real Estate Affiliation (hereinafter referred as “IREA”) have learnt the hard way.

A very unique approach to the business of commercial real estate

Note: No Thai agents or International Real Estate Agencies in Thailand operating in Thailand at the time were involved in the facts described below. Since then IREA has started operation in Thailand but the Thai franchisee who is operating IREA has no involvement as well. To the contrary all the facts reported below were the actions of IREA Hong Kong office

If you visit this IREA website you will see that they claim earnestly to be:

“The best real estate firm in any market” and to provide the “best possible real estate solutions” or“expert local real estate advice” and a “pioneering tradition of global breadth and local depth continues today and sums up The Real Estate Affiliation’s unique approach to the business of commercial real estate”.

While I may concede that those wildly enthusiastic qualificative may apply to most of the affiliates of this IREA they definitively did not apply to their Hong Kong representative but for the fact that those guys indeed had  definitively the most “unique approach to the business of commercial real estate.”

Unfortunately for the Hong Kong buyers the problem was in the flaws of IREA Hong Kong affiliate “unique approach to the business of commercial real estate.”

From lapse of judgment to caracterized misrepresentation of the truth

The first lapse in judgment of the Hong Kong IREA affiliate was to mislead the public to believe that was developing a project in Thailand in co-operation with the project developers.

The IREA Hong Kong affiliate prepared and jointly disseminated with the project developers an advertisement called the “Project Fact Sheet”.

In the top left corner of the document was the Developers’ logo while the top right contained IREA logo and the catch title “First-Time Developer is now proud to present its latest world-class development in co-operation with IREA.”

Not only did IREA Hong Kong affiliates mislead the potential buyers into believing IREA was associated with the Developers, but the IREA Hong Kong Affiliate also advertised the developers as a reliable and experienced developers.

Caracterising the project of a “world class development” was the first and not the last lapse of judgement of IREA.

IREA Hong Kong Affiliate further referred to the “Developers (…) latest world-class development” in the“Project Fact Sheet”, “latest” meaning the “most recent”. The use of the word “latest” in the Project Fact Sheet also mislead potential buyers into believing the Developers had already successfully completed other projects, which was inconsistent with the balance sheets of the companies that showed no activities for the three years preceding the launching of the Projects.

Finally, IREA Hong Kong Affiliate did not have any terms marvelous or dazzling enough to qualify the Projects as “World-Class Development” or the developers “(…), Koh Samui Island’s premier developer of luxury villas“.

Claiming the developers were first in rank among the island developers was also not supported by their financial statements and was another lapse of judgement.

IREA developer’s Due Diligence for International Projects

As if misleading potential buyers to believe the Projects were developed in cooperation with the IREA and making unsubstantiated marketing claims wasn’t enough to fool potential buyers,the IREA Hong Kong affiliate further mislead the buyers to believe the IREA Hong Kong affiliate had performed complete due diligence on the Developers’ Projects.

Among the documents the IREA Hong Kong Affiliate was sending to potential buyers was a two-page fact sheet called “IREA Developer’s Due Diligence for International Projects”.

The simple fact that this two pages fact sheet was included into the bundle of documents remitted to many of the buyers lead those buyers to believe that the projects Developers had been subjected and successfully passed a 21-item due diligence conducted by the IREA Hong Kong affiliate.

Briefly, “Due Diligence” is an investigation or audit of a potential investment that serves to confirm all material facts in regard to the purchase of an asset.

In this particular case, the due diligence form sent by the IREA Hong Kong affiliate  to the potential buyers led them to believe not only that the IREA Hong Kong affiliate  had performed complete due diligence on the Developers and their projects and but that the Developers have successfuly passed said due diligence.

Because of the international reputation of IREA (a multi billion USD operation fully owned by a Public Limited Company quoted on the Nasdac) , the buyers had no reason to doubt The IREA Hong Kong affiliate word on this matter and they relied on the IREA Hong Kong affiliate claims that it had performed due diligence.

Did the IREA Hong Kong affiliate perform due diligence as claimed or not?

While I am not privy to what the IREA Hong Kong affiliate did or did not do, I don’t think they actually bothered to perform any due diligence.

My affirmation is based on the fact that our Firm did an after the facts due diligence and that our findings showed that the Developers’ companies:

(1) had no previous track record and

(2) had been idle for the three years preceding the launching of the Projects.

(3) Did not have the financial capacity necessary to handle the developments of six projects

(4) Did not yet own all the project land

Now all those facts were digged from public records that were available at the time when a IREA Hong Kong is supposed to have done its 21 points due diligence. All the warning signs of the impending catastrophe were available for anyone to find. This is why we believed that IREA Hong Kong never did the allegued 21 points due diligence. The alternative being that they did it but hide the results from their buyers.

Wait there is more to come !!!

You’d think they couldn’t do much worse than lying about the due diligence, but they did.

Around July 2004, just one year after the Projects were first launched, rumors started to spread around that the Developers were in financial trouble and didn’t own the project land, or at least did not own all of the land.

Of course, as soon as buyers started to hear those rumors, they reported them to the IREA Hong Kong Affiliate.

In September of 2004, the IREA Hong Kong Affiliate sent to the buyers a reassuring email stating that:

“The developer cash purchased the land and he is the owner of it. He self-funded the project without any loan in the bank so far.”

This affirmation was, of course, false.

Not only had the Developers never possessed the funds to finance all of their Projects, but they also had already started to borrow money as early as 2003. In 2003, the developers were borrowing money from private persons at an interest rate of 30% per year.

How desperate can a person be for money to agree

Originally posted 2009-07-26 04:18:42.

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3. Buying a Property: The first time developers
4. Buying Property: Comparing Foreign Land Ownership in Asia
5. Thailand Property: Difference between condos and apartments
6. Buying Property: The foreign exchange risk factor
7. Buying Property: Two issues to consider before buying a land
8. Buying Land and House: What and Where to Buy?