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Groundhog Day

Category: , Posted:08 Sep 2007 | 12:00 pm

Those of us involved in the property business in Phuket over the past six years know that it's been a bit of a wild roller coaster ride, with its ups, downs and in-betweens. But each year as the rains come and our seasonal market dips to its annual lows, out come the doomsayers with their tired old question: "Is this the end for the Phuket real estate market?"

It's been a phenomenon as steady as clockwork and might be compared with the groundhog coming out at the end of winter and giving the thumbs up or down for an early spring. Luckily, we live in a climate of endless summers and to the best of my knowledge there are no groundhogs on this island. Hence, in assessing the market we have to look at something more solid than a furry animal that spends it's winters underground.

During the past six years, Phuket has experienced spectacular double-digit capital appreciation within the property sector. Despite 9/11, SARS, bird flu, land scandals, a tsunami and a coup d'etat, prices have continued to rise. Tourism recovered from a post-tsunami low and was close to 80% last year.

Depending on the source one uses for statistics, tourist arrivals in Phuket soared to four to five million people in 2006, and year-to-date figures show continued impressive growth for 2007. In a property market dominated by foreign buyers, the holiday market provides as good a barometer as any for real estate forecasts.

According to the independent Agency for Real Estate Affairs, the Bangkok property market in 2007 is projected to be worth 145 billion baht. In 2006, Raimon Land's Research team, in its Focus publication, valued the condominium market in Phuket alone to be worth 20 billion baht. Realistically, if we are looking at the total property market, including not only condominiums but also villas, homes, apartments, retail space and land plots, the total market value could easily exceed 40 billion baht.

To provide some scale to the market, consider the government figures that show the total spent on books and newspapers in the entire country at 60 million baht, though (bizarrely) the fastest-growing enterprise in the entire Kingdom is amulets, which were fueled by the recent Jatukam Ramathep craze. The Kaisikon Bank Research Center has estimated this market at more than 50 billion baht a year, with the amulets now trading regularly on eBay in the US and Europe.

But getting back to property, from an investment standpoint property in Phuket is a golden child in Thai real estate circles. It continues to be dominated by overseas investors who cannot obtain local financing, which means we do not have the speculative domestic market that one finds in Bangkok, Hua Hin or Pattaya.Most projects continue to be built by smaller developers and what is under construction in most cases has been sold already and paid for with no bank leveraging. In the worst case scenario of a meltdown either within Thailand or the region, as in 1997, there would not be significant bank foreclosures, so prices would not retreat on a catastrophic scale (as in 1997) and it would be a soft landing.

As the market in time would pick up again, the price base in a market such as Phuket would far exceed those in leveraged domestic markets.As for the national economy, the SET (Stock Exchange of Thailand) remains one of the best buys in the region. In the mid-1990s, the exchange traded up over 1,500 points, but today, with all the growth over the past few years, it's trading at less than half of that mark. It's an astonishing fact when comparing it with other major indices in the region and should provide confidence for investors in the upside potential here.

But in the words of Jerry McGuire, "We live in a cynical world." It's the same world where businesses used to make annual business plans that were carved in stone. Today, with technology, we live in a fast-food frenzy of information and reactions. Markets can be made or unmade overnight. We now look at CNN, BBC or the Internet and make long-ranging decisions with a few keystrokes on the computer.

At face value and by the numbers, the Phuket property market looks set for a continued run of prosperity, though, as we all know, business cycles do not run to a set schedule. Certainly from a developing market perspective, the island has grown and will continue to see supply and demand lines blur in the coming years.As for the groundhogs, let's see what the high season will bring.

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