Supply:

The luxury segment in Samui is a relatively recent phenomenon, with a small number of branded developments and high end boutique developments being released in recent years. The upper end of the market comprises a relatively small percentage of the overall market in Samui, which is currently dominated by low to mid range residential products.

Looking ahead, it is evident that the luxury villa pipeline is very limited over the upcoming 12 to 24 months. This is due in part to global financial pressures as well as local factors such a limited supply of prime development sites.

The major issues which will impact the Samui luxury pipeline going forward are:
a) Tight credit conditions, which are impacting both buyers and developers are resulting in a slowdown in transactions and development progress. Local sources have indicated that certain developers are under cash pressure and that in some cases buyers have backed away from planned purchases. This may result in particular developments being shelved or the land sold on to other investors.
b) Furthermore, buyers are cognizant of heightened development risk when buying off-plan and may lean towards finished products, further squeezing developer cash flow.
c) Combined with a reduced number of purchasers, the net result is likely to be a backlog of existing inventory. As such new launches will be limited until existing product is absorbed by the market.
d) These issues are compounded by the scarcity of suitable land for development in Samui. The scarcity of prime beach front and sea view property as well as robust pricing levels could also be a contributing factor to the slowdown in upcoming supply as barriers to entry are high as a result. The result has been a shift to new areas of Samui such as Taling Ngam and Phang Ka.

On a more positive note, inflationary pressures on construction costs are easing as energy costs reduce and materials return to more stable pricing levels. This will provide a boost to projects currently under development and will provide welcome relief to cash squeezed developers.

Demand:

We are seeing a weak start to the year and expect lower levels of demand to persist throughout 2009. This is mainly due to a decrease in confidence and liquidity among potential purchasers as a result of tough global financial conditions.

While recent Thai political problems have certainly impacted the property market, we see this as a short term issue. A far more pressing issue for the Samui market is the difficult sales climate, which is evident at present.

We are seeing a move to moderation, rather than heady optimism among purchasers. There is a gap between the prices offered by developers and owners and what prospective purchasers are willing to offer. This has led to developers being open to negotiation and also to the advent of opportunistic buyers who are hoping to benefit from short term market softening. It is likely that in the long term, prices will recover but in the current climate,
any transactions being done will happen at a substantial discount.

An additional challenge to developers is the increase in the re-sale market, as owners impacted by the financial downturn are forced to monetize assets. This will increase competition within the luxury market as certain re-sales are being offered at significant discounts. In addition on the part of would be buyers, there is a degree of comfort related to buying finished products, which may also impact off-plan sales in an already tight marketplace. However, the Thai Government is offering some support to the local property market, which is timely. Opportunities exist for local investors to gain a foothold in Samui’s tourist industry as they will be
offered Thai Board of Investment (BOI) incentives on an automatic basis if they win bids to buy back
assets in Thailand from troubled foreign companies affected by the financial crisis.

Furthermore, indications are that there may be some signs of recovery towards the end of 2009. Samui’s tourism market has traditionally been an important source of potential villa purchasers and as conditions improve, tourism is expected to strengthen. This combined with the limited current and upcoming supply of prime properties, should provide a solid basis for upward momentum in the Samui property market.