Life stirs again in Phuket property industry
This appeared in The Nation, Bangkok.
It’s been a rough couple of years for property developers in Phuket. Twelve months ago some of those based on the island were talking about taking a year’s sabbatical. Others abandoned their offices to spend time improving their golf game while they waited for the dust from the Global Financial Crisis to settle and for customers and banks to emerge from their economic bomb shelters.
Now, although Europe and the US are still staggering from the effects of the crisis (take a look at the Sterling and Euro exchange rates against the baht), the property market in Phuket seems to be getting back on track, at both the high end and the low end.
Partly this is because healthy Thai banks now seem to be poking their heads back out into the tropical sunshine. One recent recipient of a major loan was Chris Gordon, developer of The Village, Coconut Island, a high-end villa resort project on an island a couple of minutes off the coast of Phuket.
All but five of the 44 villas in the first phase, ranging in price from B20m up to B45 million baht, have sold. Now, thanks to a 700-million-baht loan from the state-owned Islamic Bank of Thailand, Gordon is ploughing ahead with Phase 2, consisting of 78 two-bedroom pool villas and 116 studio suites sited among waterways and next to a six-hole golf course, with a deserted beach on Phang Nga Bay just a couple of minutes’ walk away.
On the other coast of the island, close to desirable Bangtao Beach, units at Mandala Condominium have been selling well – ten in the past three months at prices from B17.5 million to B33 million. Duane Lennie of sales agents Indigo Real Estate comments, “Mandala is a prime example of how developers [can] adapt to attract foreign buyers in Phuket’s changing market place.
“The old days when a [high-end] development could sell a major part of its inventory off-plan before building started are over. Buyers are now demanding developers with a track record and financial liquidity, offering quality, finished product with value pricing.”
Mandala, he points out, has introductory prices set at B64,000 per square meter, a considerable discount from comparable projects in the area, which are priced between B80,000 and B100,000 a square meter. “Flexible financing” also plays a role in getting the buyers in.
Local property consultant and commentator Bill Barnett, of C9 Hotelworks, notes that, further down the scale, off-plan developments in Phuket have, in contrast, come roaring back. “What’s stunningly different that signals recovery is the launches in the first quarter of this year, such as The Light, Supalai, Phumundra, Eva Beach, The Quays and Regent Bangtao.”
“This is all price-sensitive – B1.8 million and up – which shows that Thais are now buying off-plan. This is positive news, as Phuket real estate is now entering the mainstream of the wider Thai property market, with more diversity and less reliance on foreign demand.”
The Bangkok-based editor of Property Report Asia magazine, Andrew Batt, agrees. “Thai buyers are buying. The drop-off in interest from foreign buyers has been largely compensated [in Bangkok] by interest from confident Thais with, it seems, money to invest. Developers at the lower end of the market certainly don’t seem to be having too many problems selling, at least in Bangkok.”
This, it appears, is also becoming true of Phuket. Off-plan projects at the low end are more attractive to banks, since most are aimed at Thais. So the banks can lend to the developer, and then lend again, in the form of mortgages, to the buyers. Projects aimed at foreigners lack the second half of that equation, as foreigners are unable to get Thai mortgages.
So how did The Village – aimed squarely at foreign buyers – manage to get its hefty loan? Gordon says that it took a while to get, and “it wasn’t a cheap loan. But it’s over eight years, with an 18-month interest and capital repayment holiday.”
The bank had a remit from the government to get back into the lending market, he says, but he also points out that The Village was free of borrowings, has a clear land title, a stock of existing buildings and resort facilities including restaurants, bars and swimming pools, and a history of successful sales. “So they’re not risking themselves on a greenfield site.”
Batt stresses that the banks are still being very selective. “For sure, they will be very wary of lending to smaller developers with little or no record of success in the sector.”
As to the other end of the equation, the buyer markets, Batt says, “The demand at the high end, I’m told, is coming mainly from elsewhere in [East Asia]. Places like China and South Korea, for example, are new on the radar whereas Hong Kong and Singapore have always been there.
Gordon is not at all convinced that Koreans are potential buyers yet. “Along with Taiwan, they were hit harder by the Global Financial Crisis than anyone else in Asia.” In Phuket, Korean tourists are coming back, but no home buyers.
He agrees, however, that there is potential in China, from expatriates, particularly the growing numbers in Shanghai, and from China’s increasing number of multi-millionaires. “But they’re all very new in the market compared with the [expatriates] who’ve been living in Hong Kong for generations, or foreigners who’ve been in Singapore since World War II.”
Looking further afield, Batt says, “Thailand is seeing increasing interest from buyers in the Middle East and India, whereas generally speaking levels of interest from Europe and North America are [still] declining.”
Again, Gordon’s sense differs from this view, too. After the collapse in Dubai – once a good market for Phuket property – he dismisses the Middle East for now, though he does see potential in India.
He also believes there is still a solid market in Europe, with the exception of the UK, which he describes as “a lame duck”. He explains, “I think Europe still has the greatest potential, simply in terms of the numbers [of wealthy people].
“Once people realise that property and stock markets across the world have mostly stabilised, they say to themselves, ‘Okay, I’m worth ?8 million now instead of ?10 million but I can still live the dream, even if I have to downsize from a one-million property to an 800,000 property.”
There are still casualties at the high end in Phuket, with cranes standing idle on some developments and, in one case, the CEO of a development company being arrested for alleged fraud in an ugly fight with disgruntled buyers.
The market still has a long way to go before it emulates the boom of four or five years ago but, Barnett says, “It’s an upswing and a positive sign, though [so far] it’s an escalator ride versus a high-speed elevator ride back to the top.”
Gordon remarks, “It’s more like a travelator – you know, the moving walkway that goes up at an angle of five degrees. But that’s certainly better than climbing the stairs, and the pace is growing by the day.”
© Alasdair Forbes 2010