Phuket Luxury Villa Market Update Part 1

In spite of recent political issues in Bangkok and a worsening of global financial downturn, the upscale luxury villa segment outperformed the broader Phuket property market in 2008.
As we move into 2009, take-up rates are expected to soften with a "wait and see" attitude prevailing among many potential buyers. The following is a compilation of recently completed market research on trends and performance of upscale villa developments, those with units priced at 65 million baht and above. In this week's column we will examine some general trends in the market. Next week we will continue with a more in-depth looks at some of the factors influencing supply and demand in this important market segment.
Destination Overview: Phuket is one of Asia's premier destinations and is well regarded among villa purchasers. The market has shown steady growth in both visitor arrivals and real estate values over the past decade. This is expected to continue over the upcoming decade as accessibility and hospitality offerings continue to improve.
Market Outlook/Trends

-The luxury villa sector continues to outperform the property market in general.

-Global financial turmoil and political worries in Thailand have impacted fourth quarter villa sales in 2008 and may also result in a slow start in the first quarter of 2009.

-For purchasers – investors or developers with capital – there will be opportunities to benefit from any temporary softening.

-Our medium term outlook for Phuket's luxury villa market remains positive.

-Branded developments continue to enter the market, with additional product coming on-line.

-Tight credit conditions may cause project delays and a slowing of sales pace in the near term.

-Availability of coastal land in prime west coast areas of Phuket continues to shrink, pushing new developments to the north and east in search of ocean views.

-Luxury villa supply remains strong, with over 300 units priced over 65 million baht in the market. However, new supply is limited.
Forward Outlook

-As availability of prime land continues to shrink, smaller "boutique" developments will become increasingly common.

-The marina market will continue to develop along Phuket's east coast.

-Upcoming luxury supply includes some prestigious branded newcomers to Phuket.

-Evolving sectors in the tourism industry continue to introduce a new set of potential investors to the real estate market.

-Infrastructure development continues to support high-end tourism and luxury residential projects.
In economic terms, we expect Phuket to continue to show healthy transaction rates in the 65-million-baht plus range, as the island has the advantage of attracting buyers seeking high-quality villas. Because so many buyers are from abroad, the vast majority of purchases are cash based, so access to credit or debt servicing are not issues among this group.
Furthermore, current and upcoming supply in the luxury segment is limited and few undeveloped prime ocean front sites remain; factors which will continue to stimulate demand among potential purchasers.
As such, our medium-term outlook on the Phuket market remains positive.
In recent months, Thailand has been buffeted by the combination of global financial turmoil and local political upheaval, both of which have shaken confidence in the Phuket property market. No market has immunity from such events and it is likely that we will see some short-term effects in terms of on-going development progress and new launches, as well as a slowdown in sales pace.

Phuket is a premier destination in its own right and, perhaps arguably, constitutes a distinct residential market in the Thai context as well. During the recent closure of the two Bangkok airports, Phuket remained open for business and was useful to some as an alternative air transport hub. This shows the growing significance of the island and reflects a certain measure of separation from issues faced in other parts of the country.
Given the diminishing supply of west coast land with sea views in southern and central parts of the island, there are new areas to watch in the luxury villa segment. These include the following:
East Coast: Developers seeking out new areas with sea views have moved into locations along Phuket's east coast. With high-profile projects including Jumeirah Private Island, Taj Exotica and The Yamu, the east coast with its unique views of Phang Nga Bay is a developing story in the Phuket property market.
Mai Khao: As beachfront land has become scarce elsewhere on Phuket, Mai Khao has become an attractive location for developers. The Anantara Phuket recently opened on Mai Khao beach, joining the established JW Marriott and Sala properties. This area is poised to be a significant destination, with increasing critical mass to the hotel pipeline including properties from Holiday Inn, Outrigger and Renaissance.
Greater Phuket: The lack of beachfront real estate on Phuket itself – as well as the availability of larger land parcels for high-end resort development and large mixed-use projects along Natai Beach in Thai Muang and even closer to Phuket in Takua Thung's tambon Khok Kloi – has resulted in a trend towards high-end development and premium hotels in southern Phang Nga.

Examples of this include Aleenta and Sava Natai, while the announcement of the Raffles villa project has cemented this area as one to watch.
In next week's column we will look at some of the socio-economic and political trends influencing supply and demand in the market for luxury villas.