Today, InvestM@N will introduce you to a passive investment opportunity which could be the answer for risk-averse investors. Time Sharing Project is investment in real estate development projects, especially those registered as condominiums. You can find these kinds of projects in popular tourist destinations such as Pattaya, Hua Hin and Khao Yai. The investment idea is fairly simple. Investors purchase units in the project, at the sametime, giving the project management the right to rent the units or run them as part of hotel set-up. In return, the investors would have the right to use the units while also standing to receive yield in which the projects guarantee payout to investors. the rate of return or yield to investors. Vary by projects, the rate of return usually ranges from 5% onwards to 10%, given the period of 5 years to 15 years of contract. The nature of this investment is very similar to saving money in banks for interest, where return on investment is decent for acceptable risk. The only difference is the units in which investors will own with the limited amount to use, normally 20 days annually. Some projects would offer 30 days to sweeten the deal. Nevertheless, in reality might not sound as good as the advertisement. At the end of the day, there is no actual truth in “100% guarantee on return”. There have been several cases in the past where projects were unable to fulfil their obligations.
Promises cannot be met by the project management, for example, both disclosed and not disclosed, an advertisement to bring about a well-known hotel chain to manage the project which fails to materialize in reality. The quality of service deteriorates as time passes while being charged with an increasing common area fee.
Some projects even try to lure investors by offering high return rates like 7-8% during the first 3 years, renewing every 3 years. However, issues arise when the renewal of the contract due, for example, an agreement to lower down the return rate, extra burden of public property maintenance, depreciation and miscellaneous cost to be responsible by the investors. Suddenly, you may find that the yield is less than 3% minusing all the extra costs which were not agreed upon purchase.
Investment policies and expectation
Investing in Time Sharing is another opportunity for investors. Investors must determine the enter and exit strategy under the expectation of reasonable return. Factors that must be considered before investing are:
Direct rate of return (%) as stated in the project proposal, term of contract including; period, options and term of contract extension.
- How many days are you eligible to use the units? How many for weekdays and weekends?
- The credibility of the development company who owns the project. A good reputation firm can have a positive impact on the project value when investors wish to sell for profit. Quality is also ensured by the project. Numerous problems may occur under the management of the company without credibility, not to mention prices which may fluctuate. Investors have to be careful because many developers can be tricky and unfaithful with tactics in an attempt to take advantage of the investors during the period of the contract.
- What are the costs that incur for investors? Investors have to be careful before entering into a contract to protect themselves from any additional cost which might be charged upon them later on such as cleaning fees, electricity bills and miscellaneous costs.
- Administrative expenses such as annual common area expenses, insurance expenses which is mandatory if the project is a condominium type project. What expenses to be covered by the management?
- Be extra careful on the conditions and terms about exiting the time sharing program. The best condition for investors is to be able to exit the program in order to sell for profit. An ideal contract must not stop investors from leaving the program with consequences. Moreover, the change of ownership should not result in lesser benefit for the new owner. The contracts which prevent investors from exiting the program immediately are not suitable for investment.
Every investment contains risks. Time sharing investment is suitable for investors who wish to invest long-term and are looking for more than just the monetary value of investment but also the leisure and lifestyle. Having a place that you can visit during the weekend away from cities while making some income out of it. It is important to look at the growth rate of projects’ prices within the area. The demand and supply can help you predict if the prices you are paying today will appreciate in the future. Lastly, do not forget to make sure the credibility of the owner or developer. The bigger the names, the more reliable and trustworthy they are going to be.
