How Singaporeans can detect overseas property investments scams

When it comes to investing in overseas properties, a worry that investors often have is whether the deal is a scam. While those buying Singapore properties can check online for property details (i.e. size, purchase price, etc.) such online information is not available for regional markets like Philippines, Indonesia, Thailand, etc.

In our line of work, we come across many overseas deals. Some are genuine deals, while others appear to be fairly dubious. To help readers make some sense of the overseas property market, we thought of sharing some practical tips that they can use for their own research.

Although there are many things to look out for, here are two key factors that can immediately help investors discern the genuine deals from the potential scams.

Factor 1: Calculation – do the numbers add up?

Recently, we came across an Indonesian project that had planned to sell 900 villas at US$90,000 (about S$117,000) each. However, 200 units were sold at a special pre-launch price of US$30,000 (about S$39,000). This means that this group of early buyers received a steep discount of more than 66%.

Putting things into perspective, a typical renovation in Singapore can already cost more than S$40,000, hence we wanted to find out if it was possible to profitably build a villa in Indonesia for S$39,000.

To do that, construction cost estimates for 2013 Q3 from Rider Levett Bucknall (RLB), a renowned international quantity-surveying firm, were used. Based on the development’s smallest unit of about 60 square metres, construction cost of a villa that size worked out to be between S$40,000 and S$64,000.

This means that at the special price of US$30,000 (about S$39,000), the developer would not be breaking even, let alone earn profits. This also means that if the developer did not sell any more units, they would have problems delivering the 200 units that had already been sold.

Factor 2: Assets – how much does the developer have?

Apart from looking at the figures, another thing we would look at is the assets that the developer holds.

Property development is very capital intensive and many developers often seek out construction loans when they embark on projects. In many South East Asian countries, construction loans, especially for foreign developers, are not easy to come by.

Based on rough estimates, the Indonesian project would cost at least S$36million (assuming that all 900 units are 60 square meter villas that cost S$40,000 each to build). Hence it is reasonable to expect that the developer would have significant paid up capital and/or individuals with sizable personal wealth.

However, checks with ACRA revealed that the company only had a paid up capital of S$300,000 and the company’s key appointment holders were staying in public flats.

Under the Housing & Development Act, the flats would not vest in the Official Assignee in the event of bankruptcy, which means that the directors’ assets could not be sold to repay the debtors should the project fail to materialise.

Conclusion

At this juncture, we must qualify that the Indonesian project cited in this article could be a genuine deal. We would have done more research had we wanted to invest, however we stopped digging for more details after being put off by the two red flags highlighted above.

In conclusion, this article just provides a brief analysis when it comes to assessing overseas deals. More information and research is definitely needed to assess whether a deal is genuine or a scam.

Nonetheless, we hope that this article would prompt readers to give a bit more thought the next time they come across a deal that seems too good to be true.