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Bangkok Post

PROPERTY FOCUS

FRIDAY, OCTOBER 29, 2010

Soft in the middle, healthy elsewhere Very high and low ends of the market showing the best prospects in Phuket. By Alasdair Forbes

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endors in Phuket used to sell T-shirts complaining about problems elsewhere in the world that had clobbered tourist arrivals into the country: They read: ‘‘9/11, Gulf War, Tsunami, Sars, Bird Flu! What next?’’ That question has been forcibly answered in the past 12 months: ‘‘Global Financial Crisis, Icelandic Volcano, Red Shirt Violence.’’ The list is now too long to fit on a T-shirt. Iceland’s Eyjafjallajkull settled down eventually, as did Thailand’s red shirts, and these are not now seen as a factor affecting property sales (though either may erupt again in the future). The effects of the global financial crisis, though longer-lasting, are also abating, according to property people in Phuket. So far, however, the optimism seems confined to the very high and very low ends of the market. In the middle — properties priced from 10-40 million baht — there is little in the way of sales, except to a limited Thai market. Most of the Thai action is down at the bottom end, where starter homes at 2-3 million baht sell as soon as they come on the market. Airport arrival figures show that Asia is leading the global tourism recovery, and Thailand is no exception. The Tourism and Sports Ministry reports that arrivals in Thailand in the first half of this year were up by 13.7% from the same period a year earlier, led by Europe (up 15.9%) and East Asia (12.9%). All of this feeds into property. Three current trends are discernible: First, almost all the action is at the high end, what Bill Barnett of the Phuketbased consultancy C9 Hotelworks refers to as ‘‘ultra villas’’; second, resales are leading the charge — buyers want to touch what they buy, so off-plan projects are still very hard to sell; and third, property attached to hotel resorts is desirable — there is comfort in having efficient management in place, and in the rental returns, typically guaranteed at 5-7% a year for the first five years. So there is still caution, but wallets are being opened again. ‘‘Phuket’s luxury real estate market has caught a US$76-million tailwind in trading this year,’’ wrote Mr Barnett in his company’s Phuket Luxury Villa Market Update Mid-Year Edition 2010. ‘‘Transactions in the first eight months of the year of 14 ultravilla properties have been spurred by a growing appetite of the rich and famous to ‘supersize me’. ‘‘Topping the board in the outer limits of the market has been a marquee sale of the Beyond Villa on Natai Beach [in Phangnga, just north of Phuket] for a reported $24 million.’’ Nick Anthony, managing director of Indigo Real Estate, which deals almost exclusively with high-end property, puts a higher figure on the tailwind: $100 million. This, he says, is being fuelled ‘‘by the near sell-out of Amanpuri phase 3 villas that are already under construction and [being] fast-tracked with minimum design changes and customisation, plus a couple of headline luxury transactions for well-designed, spacious property above $10 million. ‘‘The apartment market and midmarket remains tough and discounting is

Villa Chan Grajang, above Phuket’s trendy Surin Beach, is for sale at US$8.4 million — on a per-square-metre basis that’s cheap compared with a high-end condo in Bangkok. ALASDAIR FORBES

not having a quick impact although the tide is turning and a shift in sentiment is already apparent.’’ Richard Lusted of Siam Real Estate works mainly in the midmarket and agrees it’s tough. ‘‘The current property market in Phuket is still very slow. We have many lookers but few buyers. The heady days pre-tsunami have not returned as yet and we see foresee property sales remaining slow for at least another year or so. ‘‘We believe this is due to the continuing world recession, buyer caution, exchange rates, inability to sell property at home, and lack of Thai financing for foreigners. Two years ago the majority of our sales were off-plan but now few buyers want to take a risk with a partcompleted project and prefer to buy a villa or apartment in a completed project.’’

Mr Anthony believes, however, that several factors indicate continuous improvement across the range, in the short term at least. ‘‘The lack of land bank moving forward and the lack of new off-plan estates will become a game-changing moment sometime in 2011 and at that point broad market prices will resume an upward trend,’’ he predicts. Meanwhile, high-end projects continue to forge ahead. ‘‘Among the luxury villa products, Sava at Natai Beach is near completion, and has two oceanfront villas that are exquisite and are for sale. Istana, north of Phuket’s Naithon Beach, is about to start a new batch of villas with the show house completing in 2011.’’ This, he says, ‘‘will be one of Phuket’s finest estates when complete’’. In the meantime, he says, there are bargains to be had elsewhere. ‘‘There

are some lovely penthouses on the market at about cost price from 2004-06, which offer good value.’’ Mr Anthony also predicts a boost in five-star resort property targeting the Asian market, ‘‘particularly high-end Indian, global Chinese and top-end Thai buyers. European buyers are still coming and are still buying, despite currency weakness, perhaps given the lack of interest in investing in Europe.’’ Mr Barnett’s research backs up this observation. According to his figures, 189 luxury villas are currently under construction on Phuket in at Natai Beach, with a third of these being part of resorts. Roughly half the non-resort villas are sold, compared with two thirds of the resort properties. ‘‘Pricing leaders are beachfront or are part of hospitality-led residential projects,’’ Mr Barnett writes.

Aliwassa Pathnadabutr, managing director of the property consultant CB Richard Ellis, also sees foreign money coming back into Thailand’s property market, predicting a rise in the ratio of foreign buyers of high-end condominiums from 14% to 20% or 25% by year’s end as the global economy recovers. She notes that luxury condominiums in Bangkok are now priced at up to 300,000 baht a square metre, which she describes as ‘‘reasonable’’. That being the case, Phuket’s ultra villas — on an area basis at least — are positively cheap. For example, given an exchange rate of 30 baht to the dollar, the 2,272-sq m Villa Chan Grajang, currently on the market at $8.4 million, works out at around 112,000 baht per square metre. Although Mr Barnett sees some optimism returning to the new-build market,

‘‘The resale segment [such as Villa Chan Grajang] looks to be market catalyst for the foreseeable horizon as the pipeline remains in flux.’’ However, he adds, ‘‘Growing investor confidence is setting the stage for suspended projects to be rehabilitated and to re-enter the supply stream.’’ Mr Lusted is also pinning his hopes currently on resales. ‘‘Resales are now our bread and butter.’’ However, he adds with the kind of optimism that marks the property industry, ‘‘The future of the Phuket property market is still very bright but it is going to take some time to return.’’ Meanwhile, across the water in Krabi, things are also looking up. This is a much younger market and has seen big ups and downs, with work on several large projects having stopped or even been abandoned. But Robert ‘‘Gus’’ Reynolds, managing director of Krabi Consultants, believes things are looking brighter than they were six months ago at the height of the red shirt upheavals. ‘‘Our real estate sales have been in an uptrend for the past several months, and that should continue barring any future political upheavals.’’ But the ultra villa market is nonexistent in Krabi and would, in any case, be unlikely to sell. Krabi Consultants recently made a statistical survey of its customers coming to look at property in Krabi and found that, of a total of 149 customers, 67% were looking for properties [priced at] less than B10 million — so the pricing points are much lower than in Phuket. Mr Reynolds points to one major development he regards as very promising, the Port Takola Marina. This is being developed by recently retired Vice Adm Dr Suriya Na Nagara and his family. The master plan for the 250-berth marina — designed by Camper & Nicholson of the UK — is being adjusted to finalise the financing and should be completed soon. Mr Reynolds notes, ‘‘The biggest complaint from everyone [I meet] is that there are not enough berths in Phuket. So this is an opportunity.’’ Looking to the future, Mr Barnett notes a couple of government decisions that he believes will have significant effects on the property market: The first is amendments to the Environmental Act announced in July for Phuket, Krabi, Hua Hin and Pattaya. These mandate restrictions on density, building height, increases in open spaces, and IEE approval. ‘‘Most affected will be luxury villas on slopes, oceanfront and ocean-view parcels of land,’’ he says. Also in July, the government announced new Ministerial Regulations under the Town Planning Act, to be implemented the Khok Kloy-Tai Muang area of Phang Nga, an area that includes Natai Beach and some of Greater Phuket’s most expensive residential properties. ‘‘Most significant is the classification of ocean-front areas into ‘Green Zone’, ‘Rural and Agricultural Zone’ or ‘Government use’,’’ Mr Barnett writes. ‘‘Restrictions could affect residential, hotel and other [future] commercial developments including golf courses.’’ Alasdair Forbes is a freelance writer and editor based in Phuket. alasdair.phuket@gmail.com

Arrested development Samui property market starting to mature, but political uncertainty and baht could hold it back. By Alasdair Forbes

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ust as it was making the crucial change — like Phuket 20 years before it — from backpacker destination to something more upmarket, Koh Samui got caught by the double whammy of the global financial crisis and, to a lesser extent, red-shirt violence. John Birt, managing director of Samui Villas & Homes, has seen the fallout. ‘‘The demise of so many estate agents is a fair indicator of the scarcity of deals. [There are] certainly not enough to go around,’’ he says. ‘‘Apart from a few buyers, most are holding back from buying second homes on Samui. This year there have been very few sales transacted.’’ Off-plan developments simply don’t get off the ground. ‘‘[Sales] that have happened are invariably for completed properties. Off-plan sales are a thing of the past and until the confidence levels of the traditional purchaser gets back to the levels of 2007 or 2008, sales will remain sluggish,’’ he says. However, unlike Phuket, where all the action is at the bottom and top of the price range, Mr Birt says it seems most sales on Samui are in the midrange, from 7 million to 60 million baht. This may be a reflection of the overall lower prices on Samui, due to the youth of Koh Samui’s property industry, possibly exacerbated by the relative inconvenience of access to the island. The only ways to Samui are by ferry — slow and inconvenient, often with hours-long queues to get aboard — or through the island’s airport. Domestic flights come in from Bangkok, U-tapao

and Phuket, while regular international services are limited to a handful of Asian cities. The dearth of direct flights can be a deterrent to property buyers and tourists alike, and is a regular complaint heard from people doing business on the island. Samui did see a bounce-back of 19% in tourism in the first half of this year, but this was from a very low base in 2009. Another positive note is the number of new resorts being built. Some 200 rooms are to be added to the high-end sector — a doubling of existing capacity — and the arrival of brands such as Conrad, W and All Seasons demonstrate that there is long-term commitment to the island’s tourism. While the villas-in-resorts combination has been successful for attracting buyers in Phuket, Mr Birt believes that adjustments need to be made before it works on Samui. ‘‘I’m not sure that the hotel-plus-villa developers have got the numbers right. They invariably apply a very large premium to the price for the convenience of having a brand name attached,’’ he says. ‘‘Frankly, there are better deals for larger houses with larger land plots on the beach, fully managed to hotel standards.’’ Meanwhile, the backpacker business that used to be Samui’s tourism staple has moved east, to Koh Phangan, home of the Full Moon Party. Here, there is an even younger property industry. Oliver Way, who runs Phangan Island Property, is optimistic. ‘‘In the past year we have seen a considerable upturn in

the number of buyers and general inquiries. So there does seem to be a little more liquidity in the market.’’ But, he adds, ‘‘The question is, are people now just more comfortable with the world economy, as it’s shifted into this new era, or is there genuinely more disposable money in circulation that people are happy to spend on a second home?’’ He notes that although the money is coming back, the market seems to have shifted away from property purchases for investment. ‘‘We are finding that buyers are just looking to buy enough of a land plot to build their property and build straight away. ‘‘So we have seen strong demand for small land plots of around 800 square metres or less, but with good infrastructure in a mature development where they can see for themselves how the development is being run.’’ Sales he has made recently are at the low end — up to 17 million baht. The main worry, he believes, is the strength of the baht. ‘‘This seems to be the new hurdle that we now need to address. It will affect any potential buyers who have a restricted budget [in a foreign currency] and will especially effect the retirement market who rely on their pensions and investments from the Western world to fund their retirement lifestyles in Thailand.’’ A further continuing constraint on property sales is access. It’s all by boat — and via Koh Samui, making buying a holiday home on Koh Phangan for quick weekend getaways a remote prospect.

K C M Y E

The Sea Samui on Mae Nam beach has been developed by Sinthoranee Property Company and will be operated by Astudo Hotel and Resort Group under its vacation residence brand Le Bayaburi.

Phangan Island Property Bangkok Post Friday 29 October 2010  

Phangan Island Property Bangkok Post Friday 29 October 2010

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