Koh Samui's Emerging Luxury Market

The island of Samui is rapidly becoming one of the region's most popular options for property investment. In my next two columns, I am going to look at 'the other significant resort island' in Thailand.
The past decade has brought major changes to Samui, where Thai and international investors have funded an accelerated pace of development, building high-end residential product and upscale resorts that have transformed the face of the island.
Difficult global conditions worldwide have resulted in a challenging sales environment in Samui. As a result, it is probable that some short-term effects will be evident in terms of slower development progress, reductions in the number of new product launches as well as a weakening in property transactions and pricing.
However it needs to be acknowledged that current and upcoming supply in the top end of the Samui property market is limited and few prime parcels remain available for future development, factors that will continue to bolster demand in coming years among potential real estate purchasers.
For most developers and purchasers there is always a keen interest in identifying new and emerging areas of development. Based on interviews with local developers and industry resources, these look to be centered into three key areas.
First on the list is Taling Ngam. While developments on Samui have traditionally been clustered along the northern and eastern shores of the island, the lack of remaining prime sites has resulted in a shift to the west of the island. Until recently, the Taling Ngam area was a somewhat overlooked part of the island. Ironically, it is the site of the first luxury resort on the island, the Baan Taling Ngam Resort. Formerly Le Royal Meridien Baan Taling Ngam, the 70-room resort with its 14 luxury villas was successfully sold years ago. Projects in this area now include Magic Beach, the small Headlands villa development, as well as the upcoming Vana Belle Samui Resort and Spa, to be managed by Starwood Luxury Collection.
The second area of interest is in south Samui, the southwestern corner of which has been slow to develop due to its distance from tourist areas and the airport. However, this area has gathered momentum in recent years with several high-end projects, some underway and other rumored to be in the pipeline.
The availability of good-sized parcels, striking elevation and the unspoilt nature of this area have attracted several high end projects. As a result, the Phang Ka Bay area and neighboring Thong Krut are expected to become highly exclusive enclaves as a result. One of the first luxury villa products in this area was the striking Naissance Villas. Upcoming projects include the Conrad Koh Samui and the Park Hyatt Koh Samui, among other luxury developments rumored to be coming.
The third area in not on Samui proper, but on nearby Koh Phangan. As Samui develops apace and land prices rise further, attention is focusing on Koh Phangan, which remains a relative bargain in comparison.
At present development activity on the island is limited and small-scale, but sources indicate that prime sites are in demand and that developers are already actively seeking out potential locations. The island is an interesting contrast to Samui, as it is lightly populated, less developed and has an eco-friendly mindset, which may act to check the scale and quality of developments there in years to come. Current developments are clustered around areas such as Thong Nai Pan and are at the lower end of the pricing spectrum. However, we expect to see some major changes to the island's property market coming up
A critical mass of supply in 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 as a limited supply of prime development sites.
One major issues that will impact the Samui luxury pipeline going forward include tight credit conditions. This is impacting both buyers and developers and 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.
Furthermore, buyers are aware of the increased risk of buying off-plan and may lean towards finished products, further squeezing developer cash flow.
When combined with a reduced number of purchasers, the net result of these factors is likely to be a backlog of existing inventory. As such, new launches will be limited until existing product is absorbed by the market. These issues are compounded by the scarcity of suitable land for development in Samui. The scarcity of prime beachfront and seaview 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. Energy costs have reduced and the price of construction materials has returned to more stable pricing levels. This will provide a boost to projects currently under development, providing some welcome relief to cash squeezed developers.
In my next column I will focus on demand and emerging trends in this key competitor to the Phuket property market.
Bill Barnett is Managing Director of C9 Hotelworks (c9hotelworks.com), a Phuket-based hotel and residential property consulting firm. With more than 20 years' experience in the region, he has played an active role in some of the island's biggest developments.