TL:DR #6 How Human Irrationality to Risk Assessment Jeopardises Property Investment Outcome

Recent reports of high-value legal issues with substantial property developments [1] which affect multiple investors and stakeholders in Thailand, reflects some of the irrationality that humans apply to their decision making, the extent to which they rely upon the ‘pack’ or preceding investor judgment, and the ease with which unsupported confidence can destroy value.

Ananda Development, a SET-listed company, was recently reported as planning to appeal the verdict of the Central Administrative Court which revoked a notification document to allow the construction or modification of “Ashton Asoke”, a joint venture with Mitsui Fudosan, a Japanese developer [2]. The issue at the heart of the case was apparently, without seeing the detail of the case itself, whether or not the access road was of sufficient width and length in relation to the plot of the project. According to the report, there were 578 families involved as owners or occupiers of the project, affected by the ruling.

Some questions which arise in the mind of the naturally inquisitive:

Did each of those 578 families conduct an independent survey of the developer’s construction, to assess if there would be compliance with the building control act?

Did they compare results, and pool their information in such an assessment?

Or, did all 578 families rely upon the developer and its legal compliance measures to ensure such risk didn’t manifest itself in the future?

This matter is not concluded in terms of liability or fault – there are still appeals available. However, at this stage, it is worth wondering to what extent there are detailed external assessments of compliance beyond the actors involved in developing a project. A single condominium unit owner may not see the “value” in paying for legal services to assess the compliance of a listed company’s development implementation, especially if such a company has a good reputation and track record. Why feed those lawyers with due diligence fees?

However, a “collective pooled resource” approach to independent verification and checks of compliance would be economically and legally sensible. The main encumbrance to this solution to further reduce buyer/investor risk is the classic co-ordination problem which creates information asymmetry between investors [3] – they don’t know each other, are often kept separate by property agents and sales teams during the buying and property delivery waiting period, and may be directed to a ‘repeat work’ legal service provider engaged on a very narrow scope to simply process paperwork to effect the transfer of title, without extensive due diligence into the project.

Will investors, or will agents who might value their fiduciary duties to investors/buyers, ever consider creating a pooled collective due diligence verification process? Or is it easier to just let the risk run unchecked?

If 100 families used law firm and independent surveyor company A, 100 – firm B, 100 – firm C, 100 firm D, 100 l- firm E and 78 -firm F, mathematically speaking, there ought to be a far higher probability of detecting some potential non-compliance risk relating to a road, than 578 families mostly using one ‘process agent’ style legal service provider to simply affect the obligations under the sale and purchase agreement and to transfer title.

In another case relating to a project not yet started by Eastern Star Real Estate Plc known as “The Quintara Sync Yen Akat”, the construction permit issuance has been suspended based on complaints regarding the width of the road in front of the project, after the developer had already submitted an Environment Impact Assessment report and received approval, and after the conducting of two public hearings [4].

In this case, the permission provided by the Mass Rail Transit Authority to use one of its plots for an entrance and exit was challenged by the Central Administrative Court. Therefore, the developer had apparently relied, on the facts of the media reports at least, on state agencies to be reliable, certain, and act legally in their decision making. In a case such as this, the stakeholders that could potentially suffer damage would be any pre-sale investors, shareholders and third-party stakeholders relating to the developer, suppliers such as the main contractor and sub-contractors who may have believed they were to embark on work for a major project, all of their employees or who may remain unemployed.

To what extent could due diligence have prevented or not prevented this issue. We don’t know how much due diligence was invested into assessing beyond any blanket approvals, the scope and legitimacy of the rights of the MRTA to permit use. We also do not know, without being privy to the case facts and evidence, to what extent it is permissible to simply rely on the face of permission granted even if it does or does not seem doubtfully issued.

The issues in these cases relate to simple property matters – access, but the social, political, and legal issues arising from this simplicity are complex. Complex issues are not yet resolvable, at this level, by artificial intelligence or automated ‘checking systems’. However, for the certainty of investors and the market, a state agency decision even if always subject to judicial review, should be reliable and underpinned by clear compensation if it isn’t. It would seem irrational for a state agency to issue such a momentous decision if this could perhaps not be within its remit to do so.

Media reports also referred to a case back in 2014, under which the Supreme Court Administrative Case ordered the Bangkok Metropolitan Authority to demolish the upper levels of a project alleging breach of the Building Control Act, again in relation to the width of roads and the permitted building height rights [5].

With the cost of demolishment estimated at 200m THB, and to date there apparently having been no demolition, it is worth considering who stands to win and lose from proceeding dogmatically with the order, or whether there can be a transparent and just outcome that doesn’t ignore the balance and trade-off of rights with regards to the stakeholders. Clearly, there is some reticence to demolish after an apparent 7 year plus delay.

Humans are irrational, but the extent and degree to which they are, and whether a ‘trend of irrationality’ means the Efficient Market Hypothesis [6] and its application is still very much subject to challenge when viewed through the lens of observance relating to Irrational Exuberance [7] – volatility of markets driven by risk-takers with insufficient knowledge and acting for behaviourally deficient reasons, or Narrative Economics [8] under which a ‘narrative’ of phenomena such as the value of a crypto coin or digital asset, can drive a market in a highly volatile manner, thereby creating a large gap between winners and losers, some of whom may have thought they were following a rational crowd, including rational ‘investment professionals’.

This irrationality and its effects it is very much apparent in the real estate sector in various guises. The existence of a road, the use of a land plot, the difference between a road width of 8m and 10m, can all be materially substantial in a positive or negative outcome for thousands of private investors, and in relation to public entities, the ‘market’ – i.e. private and state-held investments and funds. The better the system is for establishing the legitimacy of decisions, the better the rationality applied to checking, double-checking, and independently verifying private party actions and state agency power and decisions, the more likely fewer people, that is irrational humans, will be damaged.

Hughes Krupica’s team has strong expertise in real estate matters, including due diligence, corporate governance of real estate enterprises, opinions on state agency power and decisions, opinions on the interpretation of law and regulations.

Further information can be viewed here:

[1] Credit to James Pitchon, an “Amatuer Property Observer at Home”, and previously Executive Director at CBRE (Thailand) Co. Ltd for 28 years, for his inspiration to analyse recent reports through his sharing of valuable market information on Linked In. James Pitchon’s Linked In Profile and postings can be found here:

[2] Kanaka Katharangsiporn Ananda to appeal court’s condo ruling (Bangkok Post Online 3 August 2021 See ) last accessed 6th August 2021

[3] Michael Schillig Corporate Insolvency Law for the 21st Century: State Imposed or Market-Based (Journal of Corporate Law Studies 14(1) see: ) pp.1-38

[4] Kanaka Katharangsiporn Soi Yen Akat project faces complaint (Bangkok Post Online 6 August 2021 see: ) last accessed 6 August 2021

[5] Editorial Bangkok Post Permit U-Turn a Costly Error (Bangkok Post Online 3 August 2021 see: ) last accessed 6 August 2021

[6] Colin Read The Efficient Market Hypothesists: Bachelier, Samuelson, Fama, Ross, Tobin, and Shiller (Palgrave Macmillan 2013)

[7] Robert J Shiller Irrational Exuberance (Princeton 3rd Ed. 2015)

[8] Robert J Shiller Narrative Economics (Princeton 2019)

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