Show Me the Money
The property market in Phuket is an entirely unique and rare, endangered species. For the duration of the real estate boom of the past six years, its growth has been driven almost entirely by cash. Finding similar models, though they do exist, is hard. It's a true idiosyncrasy, even within other markets in Thailand. While Bangkok, Hua Hin or Pattya, for example, are driven more from the domestic market along with some foreign investment, our island is a virtual cash cow when it comes buying villas, condos or lifestyle investments.
With the market softening over the past 12 months, together with a spate of new projects entering the arena, new options are emerging for buyers. Fundamentally, banks in Thailand are not allowed to loan money to foreigners. Over the years this regulation has plagued the market, especially for buyers looking for investment-grade properties.
Overseas hot spots such as London, Australia and even Hong Kong and Singapore allow the leveraging of units with the ability to obtain financing. For resort properties in Spain, in areas such as Costa del Sol, buyers have the ability to secure financing over a relatively long term with a small down payment.
The winds of change have finally arrived with Bangkok Bank out of Singapore offering foreigners the ability to finance freehold condominium units. There are some restrictions, including an age limit of 65 and that terms not exceed 20 years. Loans may be secured in only three currencies, which are euros, US dollars and Singapore dollars. Applicable interest rates depend upon the relevant currency. Security for the loan will be on the condominium title.
Since loans for condominium units will be secured on title, only 49% of the freehold units in a development will be open to this type of loan. Leasehold condominiums are not eligible as they lack title documents required by the bank to for security. Processing of documentation at an early stage may be done though domestic branches of the bank, but the final processing approval will be with Bangkok Bank's Singapore office. There are a number of requirements in documentation so it's best to check with the bank on the exact supporting information.
While this is a positive move, it addresses only the condominium market and not the luxury villa developments so prevalent in Phuket. Seasoned speculators in property anywhere in the world look to get most from their money, and leveraging up property with manageable debt is simply a good use of funds that allows investors to spread risk across a wider range of properties within their own portfolios.
No foreign-buyer financing is yet on offer for the somewhat ailing leasehold and villa products in the market. With some notable exceptions, including Laguna Phuket's successful Dusit-hotel managed projects and a handful of developer self-financed offers, there is little diversity or choice except to part with the entire purchase price of that new dream house in paradise.
While Bangkok Bank's offering is a breath of fresh air, in order to attract a larger and more diverse base of customers from abroad Phuket needs more financing options. New initiatives are often borne as a knee-jerk reaction – perhaps a downturn coupled together with rising inflation will cause financial institutions and the government to place less restrictions on foreigners obtaining loans, and recognize the important part property plays in attracting international investment.
Our industry, along with tourism, is a bright spot on a cloudy horizon and there's potentially a much wider audience interested to invest in Phuket. As for now, when buying that next piece of paradise, you'll still be asked: "Show me the money."