High End, High Hopes: Luxury Homes Still Doing Well

IF YOU BELIEVE the newspapers and TV networks, the whole world is in a blue funk, hunkering down clutching its money to its chest and hoping to hang onto it until the global “Hamburger Crash” goes away and life returns to normal.

Confidence is on the floor, no one is borrowing anything. No one is buying anything. People are especially not buying expensive luxuries such as holiday homes on exotic tropical islands. Or are they?

In Phuket, according to those in the property industry, this is only partly true. The middle of the property market, from B10 million up to B40 million, has been soft for some time, starting with nervousness about the Thai government’s less-than-welcoming attitude to foreigners buying homes and controlling land.

The nervousness soared as the People’s Alliance for Democracy forced the collapse of government after government, briefly occupied Phuket International Airport and then besieged Suvarnabhumi airport in Bangkok.

And then, of course, there was the massive fallout from the sub-prime mess. Many buyers in the middle of Phuket’s property market headed for the fallout shelter.

But the high end of the market is, it seems, still relatively strong. Bill Barnett, managing director of property consulting firm C9 Hotelworks, noted in his January 2009 Phuket Luxury Villa Market report that this sector “continues to outperform the market”, and he believes this is more than a temporary phenomenon.

He explained, “We expect Phuket to continue to show healthy transaction rates in the B65-million-plus range, as the island has the advantage of attracting a higher quality of buyer. The vast majority of these villa purchases are cash-based so access to credit or debt servicing is not an issue among this group.

“Furthermore, current and upcoming supply in the luxury segment is limited and few undeveloped prime oceanfront sites remain; factors which will continue to stimulate demand among potential purchasers.”

Claude Baltes is Resort Director of the West Sands development on Mai Khao Beach, which features condominiums and 112 villas. At the very top end are two beachfront villas priced at B80 million; one of these sold just a few months ago to a mainland Chinese buyer.

For such people, Baltes said, “it’s not a big investment. If it goes wrong, it’s not a very big problem.” Nothing will go wrong, he stressed; the project is owned by Sir Terence Leahy, CEO of Tesco – a name that inspires confidence not only in buyers but also in banks and institutional investors.

Both Baltes and Barnett point out that Phuket has no real rivals in Asia, and continues to raise the bar. “It’s a small island but there’s nothing to compare with it,” said Baltes. Barnett pointed to planned expansion of the airport, the boom in the boating market and increasing numbers of what he calls “super tourists”, for whom Phuket is an increasingly attractive destination.

“These individuals are conspicuous consumers of extremely high-end products. Phuket is positioning itself to be attractive to the extremely wealthy with the addition of a planned private airport. Furthermore, recent upgrades to the marina sector mean that mega-yachts can presently be accommodated at three local marinas.”

Andrew Street, CEO of Phuket developer Tawan Properties, has also noted the bifurcation between middle and high-end attitudes – and sales. “Our mid-market buyers tend to be mid-career professionals, often working overseas and planning ahead for early retirement,” he explained.

“This segment is experiencing significant inactivity, for reasons related to the global economy. It has not dried up completely, however; there is a trickle of committed buyers, driven by having ready cash who no longer trust ‘normal’ financial products. There are also those who are taking an investment decision, knowing that they can buy completed properties which they know will increase greatly in value in the next two to five years.”

The operative word is liquidity. “The availability of cash among buyers is what is driving continued interest and commitment when it comes to our high-end villas. Buyers with cash reserves do not need to turn to the banking system for loans. They are actively looking and buying top-end dream homes.”

Ian Henry, CEO of Campbell Kane (Thailand) Ltd, which will open the unique Yamu hotel this year, followed soon after by a surrounding swathe of high-end villas, expressed relief that Thailand now appears to have a more stable government.

The Yamu was recently named in a list of 12 “Hottest Hotels for 2009”, published on the website of The Times of London. It also received a mention in the New York Times‘ Destinations of the Year, published on January 11. Phuket was tagged as the luxury destination. It is firmly on the world map.

“[In December] we saw our strongest month for two years,’ said Henry, “with more than 10 new active serious inquiries for US$5-million villas, four of them looking to negotiate contracts in the next few weeks. Compared with 2007 and 2008, during which the greatest problem we had was Thai political instability, this is a significant turnaround for us.

“I would have to say that political uncertainty with no end in sight was a major issue. What we are seeing now is real hope that the worst is behind us. The pent-up desire for buying luxury property in Phuket is now being turned into action.

“Of course, people are looking for deals and, within reason – a few percent – discounts may be available but [like the high-end buyers] many developers are also debt-free and know that if they have a good product the sales will gradually come, especially as Phuket is largely unaffected [by politics]. There is still plenty of money around.

“Phuket is unique. What the island’s Governor and Bill Barnett (the property guv’nor) are talking about is Phuket 2.0. Phuket is maturing and we are seeing more luxury developments and more quality food, shopping and tourism outlets.

“In this respect Phuket is 15 years ahead of all the other regional alternatives (excluding, potentially, Bali) and from an investment perspective this makes it a very attractive for buyers in the luxury sector. Over the coming few years, with comparatively few opportunities to invest [in other ways] there is a significant opportunity [in high-end property] for capital gain.

“As the infrastructure and tourism facilities continue to improve the Phuket brand will continue to rise and real estate values will generate strong returns, especially with properties attached to major service and infrastructures such as hotels.”

Tara Sudlow, MD of property agents Phuket Realty & Associates, has seen the same scenario, with mid-range property sales slowing but the high end continuing to be more robust. “World events have certainly had an impact on our local market. Our lower and mid-range markets have been affected from the credit crunch back in buyers’ home countries.

“The high end continues to enjoy movement, as the buyers are generally cash-rich and not in need of financing. They view the asset as viable in the longer term [especially] given the shortage of high-end locations remaining. The ever improving infrastructure and services Phuket enjoys are another drawcard for the world’s wealthy.

“Phuket has experienced every conceivable world issue, both natural to man-made, and always bounces back with greater vigour. Thailand relies greatly on tourism, so the government can be expected to continue to support tourism to Phuket, and to help boost living standards.

“The savvy property investor sees this and recognises Phuket as one of the world’s safest bets.”

David Simister, Chairman of major agency CBRE (Thailand), is cautious. “The market is very quiet at the moment. There was no ‘high season’ for property sales in the fourth quarter of 2008. People are putting in offers, but they are looking for discounts.

“In the short term, things will be very slow. In the medium term they will improve. We won’t know when that is until we see indications that it has already started.

“We can expect to see a number of projects stop or even collapse, especially those that have large amounts of debt to service. Some people may also defer construction in the expectation that the cost of materials will fall.”

But, he added, “Quality always counts. Branding will continue to be very important.”

First, however, confidence in world and Thai economics needs to be restored, he said. “Barack Obama, globally, and Abhisit Vejjajiva in Thailand offer a chance for global and local economies to start the recovery process.”

Tawan’s Street agrees that restoration of faith in the global economic system is crucial. “The key to a turnaround is increased confidence in the world economy,” he said. “In the professional, managerial and business owner sectors, this is likely to happen earlier than for everyone else, which, happily, is the sector we attract most buyers from.”

Messrs Obama and Abhisit, over to you.

This article will appear in the February 2009 issue of Property Report Thailand magazine

© Copyright Alasdair Forbes, 2009

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