6 ways to avoid being defrauded in a property investment

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As today’s local Phuket property news is soured by the story of a development ‘scheme’ resulting in losses for investors and third parties, the perception of real estate may be besmirched with negativity, all the while honest families who have elected to take their own risk on the market by developing their land banks, working with architects, designers and contractors to try and provide good solid homes or investment properties, suffer the commercial shockwaves as the inevitable output of publicised property development failure.


I personally know very bright, educated successful businesspeople who have suffered fraud in property markets and I have as much respect for them as I do for people who have never lost on investments.

I have no feelings of ‘this could never happen to me’. Some frauds are seriously difficult to detect, cause embarrassment to the victims which perpetuates or extends the fraud, and unfortunately frauds are a natural result of the freedom available to those that conduct business in any market, regardless of the amount of regulation that exists.

Where there are rules, rules are broken. As a humble student of balance, subjective and objective criteria, theoretical analysis of legal systems and regulation, I believe in pre-emptive investment protection or to use a more common description ‘being cautious’.

Therefore, all those who are currently considering diverting all their monies away from property into the exciting world of blockchain and cryptocurrencies, kindly consider the following as guiding principle for navigating the property market with a certain degree of respect:

1. Winning the Last Game Doesn’t Mean You Win the Next Game

Anyone that understands sport will understand the heading. If a private developer has completed 1 or more projects prior, it does not mean that they will successfully complete the next project, or even start it. It is, however, natural to read into the credibility of a developer if they have completed a project well before. However, this should not be taken as any form of implied guarantee of future performance.

Developers can lose money by speculating on other businesses, diverting funds, get into trouble with moneylenders or even reputable but unsympathetic financial institutions. They can also die with no succession plan in place.

The very simple solution to this logical set of facts is to (a) consider buying something that is already built to limit risk or (b) when buying off the plan, demand better payment terms allocating a large percentage of payment to the final payment and review contract and risk carefully.

2. Choose Experienced Lawyers, not the Cheapest Lawyers

Here are some characterised liberally interpreted sound bites close to statements I have heard over and over again over the last 15 years. If you can’t see any issue with these statements, then as many a con artist has said – “you deserve to lose your money.”

“The agent who stands to make commission from the sale recommended the law firm and I chose that law firm without checking their credentials”

“I contacted three law firms and chose the fastest responder which was the cheapest”

“I used the same law firm that represented all of the other buyers before me”

“I used the same law firm that represents the developer”

“I used a law firm because they said they were ‘well connected’”

“I used a law firm because they had some foreigners”

“I used a law firm because they didn’t have any foreigners”

“My lawyer said he studied in my home country for 12 months and understood me”

“My lawyer was polite to my spouse / girlfriend / boyfriend so I felt comfortable with using them”

“The law firm I chose told me that all land is safe it is issued by a Government Department and can never be ‘taken back’”

“My law firm said not to worry that the developer has a huge mortgage or loan and that it is normal for developers to borrow money to develop property. He/She said there was no need to look at the loan agreement or ask the developer about the relationship with the bank as that would be considered ‘rude’”.

“I used a Bangkok Law firm because Bangkok is big. Bangkok is a city. People in Bangkok are cool. I like tall buildings in central business districts – better advice comes from there.”

“I used a Phuket law firm because the parties are based in Phuket.”

“I used a law firm that has the same logo as a law firm that has over 10,000 lawyers around the world, because surely all of the lawyers are good – like the burgers in a fast food chain are also always delicious wherever you buy them.”

I could go on for a few pages more…

3. After you Have Chosen Lawyers, Listen to Them

Let’s say you used a good set of criteria to appoint legal advisers. Then you obtained their advice and you didn’t like it. So you proceeded to ignore them. This is tantamount to choosing a car for its safety features and then disabling all of those safety features before braving the death-filled roads of Thailand.

4. Examine the Fundamental of the Project and Conduct a Real Strengths and Weaknesses Analysis

Think about the following…

  • Type of developer – public company listed on the Stock Exchange versus private developer
  • Private developer – financially sound, happy to disclose financial status, good sets of clean audited accounts, good reputation
  • Marketing strategy – style over substance or a mixture of both
  • Land legality – check the entire history of the land from when it first came into existence. 60 to 90 years or so of documents isn’t a long time in the history of the Universe. Check them all.
  • Understand what legal compliance actually means. Obtaining “EIA approval” just means approval to do something subject to complying with laws. It is the complying with laws part that needs to be checked, not the existence of the conditional approval. “EIA Approved” doesn’t mean “We are compliant with all the laws”. My wife approved me going out with friends for a late night, and she set some conditions such as getting home at a reasonable hour. Whether I met those conditions or not is a matter of review and inspection.
  • Don’t accept shoddy contracts. If the contracts aren’t good, it means there is poor judgment on the part of the developer as to which service provider to use. Similarly they may exercise poor judgment on the carpenters; plumbers; electricians; structural engineers and project management team. Try and look at the whole package.
  • Developers who don’t negotiate are either so good they don’t need to, or so bad they hide behind a wall of ‘no’. Some public companies can’t change their contracts – because they need Board of Director and committee approval to do so. However, some companies hide behind this and some private developers take an inflexible approach to negotiating changes. Choose changes to contracts carefully, only points you really need for comfort and security, but don’t take an off-the-shelf product with defects. Contracts also, like any product, can become aged and past their sell-by-date. Developers cutting and pasting contracts from 2005 aren’t confidence-inspiring organisations.

5. You Will be Punished for Arrogance

Most of my clients are far wealthier than me and I have no shame in that having risen from the metaphorical ashes of a working class family to make my own way in life aided by student grants and part time jobs before obtaining my qualifications and penetrating elite walls and ceilings on my own terms.

I am in a service business, and therefore I must serve those that can afford to pay for knowledge and know how they do not possess, or support for resource they cannot muster. Many such clients freely admit their wealth came from inheritance, from a healthy dose of luck in selling a business at the right time – dot.com boomers being a case in point, or from their own hard and constant graft.

However they came by their money, they do not deserve to be unfairly cheated out of it. Such people do not possess a Midas Touch. They are fallible. The smart ones admit that and behave accordingly.

I offer my respect to those that recognise their own successes and capacity for failure and catastrophe. Those people wearing sunglasses on a cloudy day who won’t make eye contact while they drop their children off at school because you clearly aren’t in their perceived ‘ life club’ are prime targets for life readjustment lessons but I still pity them when they lose, even financially. Life has a strange unfairness about it but many who think they are cheating life are rewarded exponentially in kind.

Don’t be arrogant. Don’t think people with less wealth than you know less. Such persons may have studied far harder than you and have read more books. Think about why they did that. Then pay to get some advice before you make a decision, not during the litigation or dispute process.

6. In Business, Timing is Everything

If a sales person is rushing you to make a decision, is it do you a favour? Is it because they are your “bestest bestest friend” and after two dinners with you and searching for aligned topics of interest suddenly you have ‘connected’ and therefore you must go along for the ride, at their pace and behest.

It does no harm to retain some cynicism about timing. Yes, if the market is hot and rising, being quick to buy makes sense. That is what commodities trading is all about and some have studied that which is different to property by a long stretch but still has some similar principles in terms of profit and leverage.

Unlike damaged grain, if your property target purchase is rushed, you might not be insured against the losses, you may wish you had taken more time to conduct a survey and there may be no ‘association of damaged property investors’ to call upon to help you out.

Contractors and Developers who need you to buy ‘now’ most likely need ‘cash now’ which isn’t a good sign. Yes, professional property developers and agents do not like dawdlers, time-wasters, tire kickers, property viewing tourists and the like – these people costs professionals a lot of wasted time and resource and hinder the effective mechanics of an efficient property market. However, these people exist in many  markets and there are strategies for uncovering the charlatan mystery shopper buyers.

Rushing someone to make a life decision isn’t a good idea.

Plan the timing of your transaction with your advisers, and don’t be swept along the road to a court case at a pace far faster than a court case would be conducted.

At wakes or funerals, it often isn’t appropriate to make jokes or be jolly, or to refer to certain topics that relate to living life when someone dear has passed away.

When property fraud hits the market, it often isn’t fashionable to remind people that there is not just bad in the property market, but a lot of good, for fear of being rebuked as a self-serving property professional. However, the truth of life and humanity is that the world is progressively becoming a better place, Thailand is becoming a better place to do business, and the property market does have more to offer than before. Issues will continue to arise, mistakes will continue to be made, and the bad actors in the market will continue to disrupt progress.

Please stay safe. Please be cautious.

Courtesy: Published at The Thaiger on May 3, 2018 by Desmond Hughes

Thank you for your time, and keep visiting phuketbreeze.com also in future for latest news of Phuket Business, Phuket Tourism and Phuket Events.

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