Guaranteed yield or guaranteed returns are offered by real estate developers to attract investors that are looking for a hassle-free and zero involvement property investment in Thailand. They typically involve a fixed percentage return on the selling price of the property, which is paid over a set duration, this can be anywhere from 3 to 10 years and may range from 3% up to 10% return per annum.
The question most buyers ask us is, how are these returns possible?
Guaranteed returns particularly in Thailand have been around for many years and there are a number of great projects that have successfully delivered on their rental guarantee agreements and given their investors some pretty impressive returns, along with capital appreciation.
The property and projects are priced and built in a similar format so they can run and professionally operated as any hotel. These typically come in the form of smaller units, designed to maximize space for the holiday marker (short-term stays) and general tourists that are visiting. They include hotel front-desk for check-in and check-out, concierge services and on-site restaurants, gym and pool facilities ensuring they are on par or even a better overall experience than some of the hotel offered in those locations.
These rental returns are calculated by identifying the average daily rates in comparable surrounding properties, taking into account the different high and low tourist seasons coupled with typical occupancies numbers and the expected ROI is factored into the developers offering.
They are typically paid out on a yearly basis after a full years rental is complete and the actual rental revenue is collected by the developer or hotel managed partner.
When selecting a project with a guaranteed returns there are a few core points to be aware of, while decision making:
- What is actually included in the guarantee?
Some developer give an accurate NET price that you will receive (please note it does not include the 5-15% tax you need to pay to receive the income outside the country
It may also not include any maintenance fees paid annually or the utility bills charged per usage that any tenants or holiday makers staying at the property will incur over the course of their stay.
Also you should be aware that some developers require the purchase of furniture packs which are not always included into the price that the guaranteed returns is offered on.
Please make sure you check what is and is not included in the rental guarantee as in some cases the actual received figure can be slightly lower than the percentages shown on the marketing materials.
2) Who is the operator?
It is important to do your research and ensure that the developer or the hotel appointed partner is an experienced operator that has a proven track record in running resort in order to deliver on the offered guaranteed rental return.
We (FazWaz) have a rental guarantee calculation and projections for nearly all projects available that help give you the assurance of realistic projections, in order to highlight the return is more than achievable.
3) Is the rental guaranteed just built into the sales price?
Most developers have not built the rental guarantee into the price of the property, although a number of developers do retain some funds (profits) to ensure they can deliver on the guarantee and pay the investors the money as agreed in the sales contract.
4) What is the payment schedule of the returns?
Be sure to read the fine print regarding the payment schedule of guaranteed returns. Some of the holiday markets in Thailand are seasonal meaning that returns will be strong during the peak/high season however this may mean the full percentage of returns can only be achieved and therefor paid annually.
Do banks or financial institution guarantee the guaranteed rental returns offered by developers?
When banks finance real estate projects in Thailand they are only responsible for financing the actual build costs, construction and completion of the project. Therefore any agreement on guaranteed rental returns, property management or maintenance and additional services offered to the property owners or to future tenant is solely the responsibility of the developer to deliver on them.
This is one particular reason that developers select hotel brands or hotel management companies to take-over and manage the building after the completion and handover. Doing so ensures the day-to-day operations of running a hotel are in the hands of experienced providers.
Many developers do come from hospitality background so have the expertise to deliver on their rental guarantees by operate their development in the same way many international hotel brands would.