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Phuket Faces Rising Competition in Region

By on Jul 19, 2010 in Property News

Written by Aliwassa Pathnadabutr, Manging Director of CB Richrd Ellis Thailand and published on The Nation dated 19 July 2010

Following the political crisis in May, the Bangkok market seems to be back on track in project sales. However, what is happening in the southern resort markets such as Phuket is not as clear to the market,

At present, the majority of transactions in Phuket are concentrated in the lower-end, for example, inland condominiums with easy access to the beach. This affordable market segment continues to generate consistent demand from locals and foreigners with limited budget.

On the other hand, there is a market gap for mid-range products. With a combination of the fragile global recovery and Thai politics, there is a need to re-assess market trends. Buyers’ profile and demand for resort properties have evolved in terms of product requirements and budget. There is a gap for mid-priced quality properties with smaller unit sizes.

In the high-end villa market, there will always be ongoing demand for prime ocean-front properties, but there is also a supply limitation due to lack of prime sites. Prime ocaean-front land prices have held up firmly during the past two years. A recent transaction of a 40-rai ocean-front site near Amanpuri reportedly sold at Bt18 million per rai (a price not far off form peak prices in 2007) clearly demonstrates this.

Product in the new cycle will evolve based on these changing market factors.

In terms of buyers’ profile, Hong Kong and Singapore remain the key markets. Buyers from UK and Europe formed a significat portion of the market, but the pool of buyers from these markets has reduced with weaker European currencies and the global crisis.

The group of active foreign buyers in Phuket are those well acquainted with Thailand. Foreigners new to the market tend to hold off investments for now due tho the uncertain political climate.

On the development side, Thai developers are playing a more active role in Phuket, Many already have strategic land holdings in Phuket and they will be the driving force for resort-market development in the next few years.

With the right fundamentals, Phuket has continued to hold firm on prices driven by limited supply and maintained its leading resort market position backed by its enduring appeal amongst investors. But although the market has shown resilience to politics and gradual improvement in residential sales as global markets recover, we should also look at what regional neighbours are doing.

Bali is one of Phuket’s growing competitors with a direct foreign tourist arrival of 2.2 million in 2009. However, Phuket remains the bigger value market as supply of residential projects in bali is mord limited and there are fewer large-scal projects and choices for purchasers.

Vietnam also has an emerging coastal market in Da Nang and Nha Trang. Development in Da Nang began in early 2000 and currently has an active second home market mainly driven by local buyers. Prices in Da Nang are not for off from Phuket, but with a product quality that is still not comparable.

Lastly, Cambodia’s coastline offers significant potential with superior beach quality and natural resources compared to Thailand on private islands such as Koh Rong. Pioneering investors entering the market now will enjoy entry prices and significant long-term capital gain.

While these resort markets have a hill to climb before reaching Phuket’s status, Thailand should not underestimate their potential. One area Thailand lags behind is in foreign investment policies and ownership structrue. Vietnam offers 50-to 70-year lease terms, Malaysia newly emerging market like Cambodia is offering 99 years. Phuket undoubtedly has an enduring appeal, but it should continually develop to keep in line with the competition.

Aliwassa has been the Managing Director οf CBRE Thailand for a number of years. As a Thai national, Aliwassa is extremely knowledgeable about the sale of property in Thailand, specifically large scale high value condominium developments largely in Bangkok.

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