Koh Samui's Emerging Luxury Market Part 2

In my last column I looked at the emerging luxury property segment in Thailand's other island resort destination, Koh Samui. As a continuation of that, I will review ongoing demand, issues and forecast trends on the island. Having spoken to a range of developers, agents, investors and purchasers, what follows typically represents current market sentiment.
We are seeing a weak start to the year and can expect lower levels of demand to persist throughout 2009, and quite possibly well into 2010. While recent Thai political problems have certainly impacted the property market, this is seen as a short-term issue. Far more pressing for the Samui market is the difficult sales climate, which is evident at present. This is mainly due to a decrease in confidence and liquidity among potential purchasers as a result of tough global financial conditions.
We are seeing a move to moderation, rather than heady optimism, among buyers. 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 to 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, the limited number of transactions that are being made will happen at a discount. An additional challenge to developers is the growth of the resale market, as owners affected by the financial downturn are forced to monetize assets. This will increase competition within the luxury market, as certain resales are being offered at significant discounts. In addition, in the current climate there is a degree of comfort associated with 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, though as of late these forecasts are being pushed into next year.
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.
When compared with Phuket's real estate market, Samui's is still in its infancy. But it is rapidly catching up in terms of product variety and robust pricing levels. The Samui Estates villa project (adjacent to the Four Seasons), was the first large-scale project in Samui priced in excess of THB100m. However, the W Retreat- and Conrad¬branded luxury villa projects are also testing pricing levels in the market, as are a variety of smaller boutique luxury villa developments. With the newness of many of the high-end developments, it remains to be seen how the market tolerates current asking prices.
However, it needs to be acknowledged that current and upcoming supply in the top end of the Samui property market is very limited, and few prime parcels remain available for future development. As such, it is likely that in the medium term, upper-tier property will remain a small but exclusive segment of the wider Samui property market, adding support to the price premium.
Another change is in the location of new upper-tier projects. The bulk of development in Samui has always clustered on the northern and eastern coasts, which have become increasingly built up. As such, with a growing array of high-end developments clustering along the southwest region from Taling Ngam to Thong Krut and the last few remaining coastal parcels in the area being bid up, it appears that Samui is in the process of creating a new luxury enclave.
Looking ahead at new trends, one is a likely change in demographics: due to increased accessibility to key regional and international markets, it is likely that Samui will see a change in the make up of its visitor groups. New direct air routes announced recently will open up access to Samui for high net worth individuals, particularly from Eastern Europe, Russia and China. With the fairly recent large¬scale devaluation of both the pound and the Australian dollar, these markets have seen sharp declines as key markets.
There is a move to smaller boutique developments. The shortage of developable land (or contiguous land parcels) in prime areas has led to an increase in the number of small-scale high-end developments, with 10 or fewer units. An example of such a development is Naissance Villas. While new areas opening up in the less developed south and west of Samui have afforded investors the opportunity to purchase parcels of land suitable for larger projects, the overall shortage of land on the island will not make this trend sustainable.
Always a key issue is the available infrastructure and whether it can keep pace to support the growth of the tourism market. This includes the new terminal at Samui Airport, which became operational in 2007, more than quadrupling handling capacity to 16,000 passengers. This is complemented by planned additional air routes into Samui, which will provide access for new tourism segments. Other works underway include the expansion and improvement of essential access roads, including projects to widen key roadways.
Interesting to note is a shift in the political landscape led by the recent decision to declare Samui a "town" in its own right, as opposed to a sub-district of Surat Thani. This has resulted in some administrative changes that may have positive effects on the island and its future development. The island will now be able to deal directly with the central government in Bangkok, rather than petitioning Surat Thani to do so on its behalf, and ought to have a greater say in its financial affairs and infrastructure planning going forward.
Phuket has already developed a critical mass of good quality marina infrastructure. Samui has very little infrastructure in place for the boating market, though this may be set to change. A public meeting was held in October 2008 to discuss the possibility of building a small public marina on the island. While different locations have been discussed, it appears that the current frontrunner is the Big Buddha area. In addition, it has been suggested that the upcoming Park Hyatt will have yacht berths on a neighboring island.
Lastly, going green on any island is a charged issue. Samui's development has been rapid, and the current pace is not sustainable. As such it has been recognized that certain aspects of infrastructure planning have lagged behind tourism growth, causing stress on natural resources and local culture.
Currently there is a "green island" project underway. The aim of the project (a collaboration between public and private sector interests as well as tourists), is to protect and restore the local environment and local culture as well as to create a tourism business that is sustainable in the long term.

Samui's property market remains a developing story, and most insiders' forecasts for this year see the market remaining challenging going into 2010. How this storyline plays out and whether we see a parallel effect in Phuket remain something to keep our eyes on.