The principle behind the rental guarantee option is pretty sound, especially in a city such as Pattaya where the number of tourists coming to the city is increasing year on year. The only question mark relates to the developers’ ability to be able to honour their side of the bargain. This is usual determined by a combination of factors including their management teams and experience, their liquidity and their overall financial strength. For it to be truly successful, the developers need to be strong in all of these departments.
If we look at just four of the developers offering rental guarantees, New Nordic, Heights Holdings, Kingdom Properties and Tudor Group we see that that they are all well established in terms of longevity as developers, however they have had varying degrees of success when it has come to achieving completion targets with only New Nordic consistently completing projects on time.
With regards to financial stability and liquidity, there have been plenty of rumours surrounding three of the four with only New Nordic again coming out with a clean bill of health. It should be stressed that these are purely rumours and we have no evidence of their accuracy but when combined with their failure to meet completion dates, there must be an element of doubt in investors’ minds.
The next issue when determining how good the rental guarantee options are is the strength of the management team and indeed their experience. Again, New Nordic come out of this very well having successfully offered the rental guarantees for over nine years so they have both the experience and the skill to be able to successfully manage such schemes. The other three developers are trying to emulate what New Nordic has already achieved so there is no track record on which we can make an accurate judgement. However, the lack of track record along with the other two factors again points to New Nordic’s reliability and strength.
Another factor connected to the developers’ liquidity and therefore their ability to honour monthly payments is the infrastructure. New Nordic own and also have established connections with reputable tour companies who are in a position to meet minimum occupancy demands. The group also owns other businesses that make their units more attractive such as restaurants, bars, massage shops and convenience shops – they also have a doctor onsite. None of the other developers have the infrastructure in place, at this time, to compete with New Nordic. Once again this emphasises the strength of the group above all others.
So to conclude, all of the rental guarantee options are, on the face of it excellent. We naturally hope that all of the projects are a success but there will inevitably be nagging doubts about any developers that don’t have proven track records. At this stage, purely from an investment point of view, we could only whole heartedly recommend the New Nordic projects for all of the reasons that we have outlined. The others may prove to be equally successful over time but this suggests that there is an increased element of risk.