Whenever a company is selling something, especially something of high value, there is generally a willingness to be flexible on certain issues in order to secure a deal. The extent to which issues can be negotiated with a developer depends largely on three things: the nature of the developer, the stage of completion of the project, and market conditions.
A large, publicly listed property developer often sets prices and sticks to them. In contrast, a small, privately-owned developer is often willing to compromise on virtually any issue to make a sale. For a financially strong property developer, the odd deal might not be important, while for a small developer the next sale could effectively make or break the project.
With regard to the stage of completion of a project, developers are often willing to be flexible when a project is first launched in order to sell the first few units and get the ball rolling. Indeed, special incentives are often used to encourage initial purchasers. Alternatively, a developer might be more flexible towards the end of a project when the units remaining tend not to have the best view or location. Sometimes a developer wants to unload the remaining units so that a “sold out” sign can be turned into a public relations event or press release.
Market conditions obviously influence a developer’s willingness to negotiate; while poor market conditions and periods of slow sales have a tendency to encourage promotions, special payment terms or lower prices, a hot property market or a successful project launch often leads to reduced flexibility and increasing prices.
However, when approaching the purchase of an off-plan property, purchasers should be aware that published prices, terms and conditions are not always set in stone, despite initial appearances, and many issues are indeed open to negotiation if approached in the right manner, under the right circumstances.
This chapter discusses 9 potential topics for negotiation with off-plan developers. It might also be used as a checklist for potential negotiations. However, before approaching negotiations with a developer, due to the fact that negotiations take place against the backdrop of changing market conditions and the stage of completion of a project, it is important to do your homework. Therefore, at a minimum, it is helpful to find out the following information:
• How many units or the percentage of units that have already been sold?
• When was the project launched (and therefore how long has the development been selling)?
• What is the feel of the sales office: is it a hive of activity or is it empty except for one bored salesperson reading a newspaper in the corner?
• Are sales targets and expectations being met?
• Ask local lawyers if the project is selling well.
• Ask property agents if the developer is generally flexible on terms.
The more information you have to start with, the better you will be able to assess your position in potential negotiations.
To successfully negotiate with a developer, it must be understood that the issue of pricing from the developer’s perspective is typically an issue of maintaining consistency. If a developer separately negotiates the purchase price with each customer, customers will get upset if they find out a neighbour bought their property at a lower price. By engaging in direct negotiations on purchase price, a developer opens himself to potential conflict and affects their reputation for fairness. Lack of consistency in pricing also tends to encourage further negotiations.
Thus, in order to negotiate on price, it is often necessary to give the developer a legitimate reason (or excuse), which can be used in good faith to justify a price difference to other customers if the issue is raised. One valid method is the purchase of more than one property (or as referred to by investors as the purchase of multiple units). Developers are habitually open to price negotiations when they can sell more than one unit at the same time. While this is a strategy that is generally not open to most property purchasers, if you know a friend or relative who is also looking to buy property, it is often possible to negotiate a discount together.
Another way to provide a legitimate reason to the developer for discounting the price is to modify the payment terms in a way that is beneficial to the developer. For instance, “if you discount the price by 5%, then I will increase the first payment from 15% to 45%” . At the early stages of a project, smaller, less well-funded developers will obviously be more receptive to this approach than larger, well-funded companies.
If you are not an investor seeking to purchase multiple properties and you are not willing to pay more of the purchase price in advance, it might still be possible to negotiate on price with a developer if the market is flat, sales are slow, or if you are among the first or last buyers. It might also be possible to compare the attributes of various properties within the same development and make a lower offer for a property that has less spectacular views or is further away from amenities or closer to communal areas (and noise) .
Another method is to perform market research and present it in such a way that it can reasonably justify the developer’s acceptance of a lower price. For instance, after researching comparable developments you might realise that other developments are asking 80,000 Baht (US$ 2,650) per square metre, while the project of interest is priced at 100,000 Baht (US$ 3,300) per square metre for no reason that you are able to discern. If a competitor of the developer is carrying out a special promotion or offering a special discount on another project, this might be another tool to use for negotiating a discount.
A developer will then attempt to justify the higher price by explaining the different features, materials or superior location; however, approaching a price negotiation based on sound research and actual comparables is hard to refute.
However, as already noted, due to the issue of consistency and the reluctance of developers to engage in direct price negotiations, it is often better to obtain “discounts” surreptitiously or indirectly via other means, such as free furniture packages, upgrades, higher rental returns, or by having the developer cover travel or accommodation related costs.
2. Furniture packages
Furniture packages are perhaps the most obvious starting point for negotiations with a developer. In fact, property developers often put together furniture packages for the very purpose of using them as marketing tools or concessions to be used in negotiations.
Furniture packages are often used by a developer in combination with a time limit; for instance, “free furniture packages for purchasers paying reservation deposits before the end of the month”. Alternatively, furniture packages are used to facilitate initial sales, for example, “the first five buyers receive free furniture packages”.
However, such sales tools can easily be hijacked and can be used with equal effectiveness by purchasers not qualifying according to the developer’s terms. For example, “we will pay a deposit today if you include a free furniture package”. Perhaps more effective: “we have narrowed our choice down to two off-plan developments. If you include a furniture package, we will choose this one and pay a deposit today”.
Bear in mind that there are often different furniture packages at different price levels with different material specifications. This lends itself to the negotiation of specific items within a furniture package, such as outdoor furniture for the pool deck and sala, a full range of kitchen equipment and appliances, or a complete rent-ready furniture package including towels and linen.
This is an excerpt from the new book “The Essential Guide to Buying Property in Thailand” – available at www.amazon.com