Koh Samui Update – Part 2

In the last column I talked about the fundamental historical growth of the market along keying in on important issues such as airlift capacity, infrastructure and tourism numbers. This now sets the stage for a more detailed look at the islands real estate market. Historically Koh Samui has traded both land and developed product at a lower level then Phuket. As a comparative at the extreme high end of the market there has been little or no reported transactions above the 65 million Baht mark, except at the Four Seasons estate. Whereas in Phuket annual cumulative transactions at that level are in the double digits.
In analyzing the significant amount of new product launched or in the planning stage and its cooresponding pricing, it's not possible to base demand on historical trading figures. As is the market practice its key when looking at supply and demand to look into transactional figures in order to see absorption or take up rates of existing supply. Uniquely the product coming into the market looks to be based on induced demand and projected market growth only. In a nutshell if one were to describe the state of the market, untested would be the best terminology.
Much has been written in the past on the development curve and maturation of the real estate market and certainly there have been hurdles with the FBA (foreign business act) scare, land and title challenges, a high profile court case and a large development selling units which ultimately defaulted on contracts. As in many early market places, over the years a more sophisticated level of investor have entered into projects including high profile Thai and international firms and for the most part there is a regained sense of security and restoration of image for Koh Samui's property trade. In all fairness we here have equally had our own share of similar issues over the past 5-6 years of the boom economy so it's a natural progression to see a shake out as growth continues in any relatively new real estate economy.
The lions share of projects underway are aimed mainly at overseas investors and typically on condos such as Infinity and Chaweng Sila in the 17-35 million baht range up to luxury villas including Dhevatara Cove, Baan Rim Talay, Napa, Samujana, Naissance, and Magic Beach with pricing from 60-125 million Baht. In the case of non branded villas these tend to have larger plot sizes and built up areas and are aimed at the primary or secondary residential market with a good amount of product now entering at the 100 plus million Baht level. As to the existing market size of non resort projects there are just over 30 presently.
As in Phuket internationally branded mixed use hotel projects continue to be the darlings of the developers with Four Seasons Estates, W Retreat and Residences and Conrad Resort and Spa now all selling. Selling prices of these ranges from 44 million Baht for the Conrad, with Four Seasons averaging 130 million Baht and the top W Retreat 5 bedroom villas a whopping 190 million Baht (it should be noted that a typical 3 bedroom villas at the W Retreat average 120 million Baht. Other similar products selling on expected yields are Karma Samui and The Sea.
Other brands coming into the market are Banyan Tree and deals that are yet to be confirmed are for St. Regis, Intercontinenal, Starwood Luxury Collection, Shangri La, Armani and Park Hyatt. While all of these will not doubt materialized it does indicate that it's conceivable that the hotel managed villa product will undergo large increases in supply over the short to medium term. Given that Samui has it's constraints in attracting a large share of year round or part time high residents, the gearing of lifestyle investment product is a logical approach and will no doubt gain momentum. Also there is poised to be freestanding and conversions of rental pool operations of residential only projects with owners looking to up ongoing returns once these projects have been handed over. As in Phuket the non traditional villa and condo market is poised long term to be a key competitor of the mainstream hotel supply.
Looking at shifts in locations certainly Chaweng, Lamai and Bo Phut are moving into a saturation phase. Fast development on the northern side's Mae Nam which is home to the W Retreat is seeing traction. This leaves the western and southern areas including Bang Kao and Tong Krut offering larger tracts of development land. As in Bali and now Phuket shifts in geographic shifts are inevitable and there will be a similar movement in Koh Samui over the coming year. All is all Koh Samui is building up an impressive list of projects, brands and tourism infrastructure that will be competing with Phuket for a very long time in both the leisure and property market. While both share a common island based home, it's certainly a positive direction that our neighbor is staking out in becoming a larger regional and global player.