A Failure to Launch
Taking a turn on the Internet today, I cautiously glanced at the global pendulum of our seesaw world in the Anxiety Index of advertising giant JWT. We live in anxious times and trying to find the meeting point between market reality and sentiment street is a bit like expecting to find a real-life "pole" at either end of the world. I still can't quite make sense of it: are we in a V or a W recovery – or something akin to the outline of a stuttering crocodile?
As for property in Phuket – as we head towards midyear, one thing is certain: the market is currently being defined by a failure to launch new projects. Based on resort-grade property the only significant new entry this year has been QI for The Quarter, located in Surin. Speaking to a number of high-end developers who are currently in the planning stage, most are looking towards 2010 in anticipation of a market recovery.
At a recent investment conference in Singapore, one of the top business ideas was selling t-shirts emblazoned with the words: “I Survived 2009”. Much of the current market woe on Phuket stems from the fact that as much as 80 per cent of mid-market to high-end property is targeted at foreign buyers. Going back into recent history, that market volume actually flattened 24 months ago with the threat of a revision to the Foreign Business Act, followed by the coup that saw former Prime Minister Thaksin Shinawatra removed from office.
While Phuket's property boom can be traced back to the period beginning in 2003, supply saw the biggest growth over the past few years, at a time when the sub-prime fiasco was hitting the world and black October caught business asleep at the wheel. Seeing new supply slow to a halt is actually not a bad thing, because it allows a return to stronger fundamentals with excess product being absorbed at a significantly slower sales pace.
With capital flight still seeing money move from Asia back to the US and Europe, currency has played a strong part in reduced transaction levels. Strong source markets for property investment, such as the UK and Australia, have seen severe currency depreciation, prompting property buyers to remain on the side-lines. Phuket still has limited interest from domestic buyers, but it does not have the highly speculative nature of, say, Bangkok or Hua Hin. So the over-reliance on international buyers remains.
Looking at when and where the market will see an upswing remains guesswork, at least for the moment. Since most buyers are foreigners who have purchased on a cash basis it's doubtful that we will see a large-scale downward trend in property prices resulting from buyer defaults and bank repossessions. Yet generating an upswing would require spurring offshore demand. The government has still shown no clear movement on critical items such as extending the base 30-year term for leasehold property or revising the foreign condo-ownership threshold of 49 per cent. The unavailability of debt or mortgages for foreign buyers remains the market's sleeping giant, and he's still sound asleep.
So depending on where you sit at the moment, we are either treading water or on a long, slow rise. There will be no short – term instant fixes for the market. The market mix has to become more segmented, new growth areas need to be identified and certainly some government intervention is required to see a return to improved trading.
For now the expectation is for more transactions on the resale market, growth in both long-term and holiday rentals and limited new-product launches for the remainder of the year.
Greater Phuket appears on the third Friday of each month.