The Winds of Change
At long last the year that wouldn't go away is nearly over and the halls of commerce for Phuket property resound with a collective sigh. As we enter the last year of the decade, it feels akin to hitting a reset button on some magical electronic device, and a clean storyboard will suddenly appear.
The 1990s marked the birth of the pool villa resort, after the style of Amanpuri and Banyan Tree. For most of the 2000s, the allure of resort-grade property in a tropical location, with fairly short travel time to the capitals of the region, was irresistible.
Few publicly listed Thai companies – with the exception of Laguna Hotels and Resorts, Land and Houses and later Charn Issara – took part in the developing market. The landscape was marked by small entrepreneurs. It became almost a gold rush atmosphere, involving mostly foreign businessmen or joint venture partnerships. Demand far out-stripped supply.
Capital appreciation grew year on year at well over 20 per cent, and looking back at the most successful enterprises, the initial buyers often made better returns then the developers themselves. With debt unavailable, one of the main methods of raising money was taking land on contract, going to the market with an appealing design and marketing materials, and then gathering presales to fund construction.
It's interesting to note that, in most cases, the formula worked. In my my nine years on Phuket I can come up with fewer then 12 projects that failed and defaulted. However, times changed. The burgeoning market was beset by events including the bird flu, the tsunami, Thaksin, the coup, the foreign business act scare, and ultimately the global financial crisis and the violent political demonstrations, including closure of Suvarnabhumi airport.
Nothing moves in straight lines. What was more the atmosphere of an emerging market has now moved higher in the cycle and matured. Resales and rentals have now edged into the market place in a significant way, displacing off-plan sales, and many other Asian destinations such as Bali, Vietnam and Malaysia have targeted the bonanza of holiday and retirement homes.
At the same time, the mid market for apartments and condos saw a swing, with flattening of demand, and a number of local and Bangkok based developers moved into the fray with successful models such as Two Villas, Erawana and Baan Thai Surin Hill.
The early profile of developers is changing because buyers in the current market are often looking to mitigate development risk and are seeking out completed units or developers who are building projects irrespective of sales pace. An ability to obtain bank financing is now a necessity and there appears to be a changing of the guard in the industry.
Despite the shift in developers, Phuket remains predominantly dependant on foreign buyers, which could be viewed as a plus or a minus. Pricing per square metre places Hua Hin and Pattaya in an enviable position, containing speculation by local buyers. This has created good fundamentals. Although the Bangkok market sprang back in the third and fourth quarters with domestic transactions, the relatively small number of these on the island could confound a healthy market mix.
Changes to the Escrow Act, revision of the Condominium Juristic Act and signals from Finance Minister Korn Chatikavanij, who is listening to the Joint Foreign Chambers of Commerce on increasing initial leasehold terms from 30 years to 50, are all positive news for the market. As for the slowdown of the economy, I have personally met three different Thai financial institutions over the past few months looking to get into lucrative end user financing for foreign buyers.
As I fly into Phuket, I am always amazed at how much green space there is, despite the frenzy of building over the past few decades. In many respects it's similar to the island I moved to a number of years ago. But the winds of change are surely sweeping through the island's property industry.