If you are interested in branded residences, vacation ownership or fast-emerging adventure tourism, glamping/tented camps, and treehouse market, there is an event you won’t want to miss – AOCAP.
AOCAP 2022 will take place 18-19 October in Singapore at the Fairmont & Swissotel The Stamford.
Bill Barnett of C9 Hotelworks will lead a session focusing on the outdoor industry featuring Karl Plunkett, Owner & Director, Eco Structures Australia, Michael Sagild, Co-Founder & President, Cloud Collective, Aanvi Singhania, Head of Sales & Marketing, Escape Nomade, Louis Thompson, CEO, Nomadic Resorts.
Another session of interest is resort development trends that will dive into the shift to wellness, reinventing all-inclusive, and repurposing of non-performing hotel facilities.
For more information and how to register CLICK
Japan’s upcoming tourism reopening on 11 October has created an onslaught of bookings for the winter season in Asia’s leading alpine destination – Niseko. As the favorable dollar yen exchange rate and the low-interest regime have spurred investors’ interest. C9 Hotelworks takes a closer look at this dynamic marketplace.
Despite the government’s closed border policies shutting down the overseas market for over two years, Niseko’s domestic tourism has been resilient. In Q12022, total visitors to Niseko were 288,670, growing by 14% compared to the same period in 2021.
Niseko’s winter tourism market and high-value foreign segment is connected to the real estate sector. As a result, commercial land prices in 2022 decelerated. This trend was also seen in residential land prices, where growth was 12% in 2022, down from 40% in 2020, and 25% in 2021. Comparing Niseko to other Japanese alpine resort areas, Furano was 18% and Hakuba 17%.
Hanazono, Hirafu, and Niseko Village/ Higashiyama remain the top three destinations in the project pipeline. There remains a strong push for luxury projects outside of the mainstream Hirafu area driven by the lack of prime land and rising prices.
Two factors that may hamper wider destination growth are aging ski facilities and potential changes to the area development and more restrictive zoning by the government.
In C9 Hotelworks opinion the restart of Japan’s tourism sector and favorable dollar yen exchange rate will revitalize the transaction market in the short to medium term, as pent-up demand will induce a market tailwind.
To read and download C9 Hotelworks Niseko Tourism and Property Market review CLICK
As Thailand’s monsoon season continues with what seems to be an endless line-up of thunderstorms and massive rain showers, the real story in Thai real estate is the baht.
The Thai currency is precariously sitting at a 16-year low against the US dollar and has depreciated by nearly twelve percent this year. As the exchange rate hovers near the 38 baht to the dollar marker, the best the market can say is, to expect continued volatility. In other words, it may very well get worse.
Heading down South to the resort-driven real estate sector in Phuket, the mounting global economic and political turmoil has somehow created a sense of calm in the eye of the storm. Tourism which is the leading economic indicator has partially rebounded with broad hotel occupancies in the fifty percent range. More importantly, airlift is on a recovery trajectory as direct international flights are returning, spurred by the upcoming winter schedules in October.
What is perhaps the more notable storyline though is Phuket’s rapid real estate trajectory which has seen an influx of foreign buyers. Winding back to the two-year pandemic era and main market movers were wealthy Thai villas buyers snapping up the stock of luxury properties as second or holiday homes. The period also witnessed an inflow of expatriates from Hong Kong, Singapore, and even from as far away as North America, with the focus being on longer-term property rentals.
Over the past six months, as both Asia and the world have experienced a constant stream of countries reopening to travel, with the latest change of rules in Japan and Hong Kong, real estate on the resort island has gone into high gear.
Looking inside the numbers and analysis by C9 Hotelworks market research, key buyer segments that are leading the pack are end-user buyers who are looking to relocate to Phuket in an unclear worldwide political and economic environment, high-net-worth individuals, and family offices snapping up properties amid growing portfolios and a vibrant luxury and upscale rental market, with demand outpacing supply.
Speaking to leading Thailand online property marketplace Chief Executive Officer Brennan Campbell of FazWaz he says “the current transaction activity has become a feeding frenzy. Month-to-month trading levels are rising faster than the floodwaters in Northeast Thailand.”
And continues with “eyeing the remainder of the year and into 2023, the eventual reopening of Mainland China is expected to supercharge the sector and trends across a broader spectrum that will include institutional and private investors, lifestyle seekers, and families looking to relocate. The latter continues to be driven by a growing number of new international schools under development and ongoing fragmentation into micro-communities across Phuket.”
As we move into the final quarter of 2022, conversations on the ground with island brokers are punctuated on how the ongoing Thai baht exchange rate differential is creating a call to action for buyers and creating more competitive deal tension in transactions. While for sellers, exchange rate mitigation of currency risk has been pushed to the back of the deals given hyper-growth in market prices for their properties.
In the latter months of the year, the annual rainy season will gradually diminish and thunder clouds clear, but for Phuket’s real estate market, the rising migration to the island is expected to continue as property buyers and investors look to shelter in the mounting global storm of uncertainty.
Urban flight and a continuous stream of incoming lifestyle residents to Phuket are dramatically shifting Southeast Asia’s leading resort real estate market landscape. The new island property mantra is dominated by surging demand for single-family homes and larger condominiums.
Phuket has witnessed a sharp change from 2019 when over 9 million tourists sought a place in the sun, highlighted by soaring numbers of Mainland Chinese. At that juncture, entry-level investment properties sprouted up though-out Phuket, mostly in large block condominiums. Many were hotel branded and promised high levels of guaranteed returns.
COVID19 cooled off that trend in short order and even the foreign buyers who have purchased off-plan properties were unable to visit for handovers of completed units. For the island’s brokerage community, the change of faces resulted in a lift in rental demand for villas and an uptick in purchases for completed homes. Thais from Bangkok flocked to Phuket, and expat families from Hong Kong, Singapore, and further afield were lured by a strong lifestyle community of international schools, hospitals, marinas, golf courses, and the promise of slower, outdoor-oriented living.
Today nowhere epitomizes the change in real estate demand than the rising resort West Coast area of Greater Cherntalay. Often referred to as Laguna, which is the namesake of the leading integrated resort, the development virtually rewrote the island’s map.
C9 Hotelworks latest market research has taken a dive into the key players and trends in the area and emerging micro bedroom community districts that are reflecting the highest level of real estate transaction activity. According to new data, there are five main boutique villa property developers who are amassing impressive levels of completed and sold-out projects.
These groups are led by Phuket Exclusive Development (Wallaya), AAP Architecture Properties and Development (Botanica), Pearl Island Property (Anchan), Attitude Club (Mono), and Bangtao Paradise Construction (Trichada). To date, they have amassed nearly 50 projects with over 1,100 units. The latter name in parenthesis is the developer’s flagship brand.
What has been impressive from a business standpoint is these groups have been above to evolve and grow pricing points over relatively short timelines. For some, who played in the THB15-20 million level, their developments now are in the price band of USD30-80 million. This of course represents a critical change in the affluence of incoming buyers.
Another key trend that C9 Hotelworks research reports are that many real estate buyers have moved to not only residential properties but into commercial units, that can be leased out to restaurants and bars, offices, and retail shops. One developer that is centric to this is Boon Yongsakul of Boat Pattana. The group has unleashed an innovative model of uplifting traditional Thai shophouse strata-titled units and gained enormous pricing gains by modernizing them together with amenities in the Boat Avenue micro-community. These recurring investment properties are being snapped up quickly by both Thai and foreign buyers.
Turning to the resort-grade condominium market, the past few years have seen this sector splinter into two segments. There remains a market for entry-level investment type units as can be seen by the strong take-up rates of lowest-priced properties at developments with median pricing at THB5 million.
On the opposite end are end-users taking up one and two-bedroom units with a median price range of THB9-15 million. This segment is either younger individuals or couples looking for more spacious living and empty-nest older couples who in some cases are trading down as their children move away, or want a second/holiday home. This trend has been demonstrated in demand for larger multi-bedroom units at Laguna Beachside and Skypark.
Taking a step back to access the longer-term growth of Phuket prime West Coast real estate, clearly, there is a move inland as there are strong barriers to entry for oceanfront and seaview land. Micro areas are continuing to witness growth but as land prices appreciate, new areas heading both further inland and North will see more development. A new set of international schools on the outskirts of Cherngtaly and retail lifestyle malls like the new Robinsons are setting the stage for urbanization and redevelopment of mid-rise buildings on main roads.
Speaking with Brennan Campbell, Chief Executive Officer of leading Thailand brokerage group FazWaz who says “the pandemic has disrupted the mass investment property trend and both domestic and macro-economic and political elements have been the trigger for higher levels of transaction activity and growth in property prices. We have never been this busy.”
Assessing market trends and data, C9 Hotelwork’s view of the West Coast property market remains favorable given the increasing numbers of end users and full-time and part-time residents. We have seen a shift in what was an overheated speculative marketplace into a more grounded and fundamentally sound island real estate sector. As the Thai baht is expected to breach the THB38 to USD1 rate in the fourth quarter of the year we expect strong inward levels of foreign investment and transaction activity.
One of Phuket’s leading international schools UWC has entered into a development deal for integrated living.
The school has subdivided a portion of its land adjacent to the campus and will have properties built by a Phuket real estate group TYSSEN VIP Development.
Branded as the Campus Villas, the 44-unit gated estate offers four types of units, teachers’ units, semi-detached houses, and townhomes. Homes are three and four-bedroom configurations.
Teachers’ units are targeted for investment buyers for rentals starting at THB8.3 million, with family homes aimed at school parents from THB6.2 to 8.3 million.
There are cross benefits for the usage of the sports club and a buy-back scheme for the properties.
Ownership has optional freehold and leasehold options.
TYSSEN Development is a local developer who has mostly developed properties in Phuket under the VIP brand.
For more details on the development, masterplan and unit plans CLICK
Global brand Radisson has returned to Phuket with a 179-key property in Kamala, owned by the Destination Group.
The Radisson Resort and Suites Phuket is a conversion of the former Swissotel, which had been managed by ACCOR.
It is an all-suite property with one, two and three bedroom units.
Nearby the hotel, the large-scale tourism attraction Phuket FantaSea is opening its new theme park Carnival Magic on 20th September 2022.
Sitting on a land area of 100 rai, the total investment cost of the two attractions is reportedly THB6.6 billion.
Two other upcoming international branded hotels in the Kamala pipeline are an MGallery by ACCOR and Movenpick.
Central Retail Group is set to open the THB1.1 billion Robinson Lifestyle Thalang mall this Thursday, the 25th of August.
The development has 45,000 square meters of retail gross floor area, 200 tenants, and parking for over 2000 cars.
Located at the strategic Heroines Monument on Thepkassatri Road, the area will see a large-scale underpass on the key North-South road across the island starting next year.
Central and their related groups continue to be significant investors in Phuket.
The Greater Cherngtalay area in Phuket is set to see a new international-standard medical and wellness facility from leading Thai group BDMS (Bangkok Dusit Medical Services).
Located in the middle of the integrated resort development of Laguna Phuket at Canal Village, the offering is targeted at both a growing local and expatriate population and overseas visitors.
Opening early in 2023, services offered will include preventive cardiology, regenerative treatment, dermatology, aesthetic, mental health, and rehabilitation.
Greater Cherngtalay is undergoing a massive surge in development including the upcoming HOMA co-living complex, the ongoing expansion of the lifestyle-oriented Boat Avenue project, and a number of recently launched real estate projects.
A recent topic of discussion in Thailand’s real estate circles has been about how possible defaults in the condo hotel or investment sector can have a negative impact on the industry.
Based on our own two decades of experience with C9 Hotelworks in branded residences in Thailand and throughout Asia Pacific, I thought it might be helpful to give some guidance to prospective property buyers on how to avoid defaults, or illegitimate investment-type schemes. Here goes:
Who is the Developer?
A logical starting point is who is the developer of the project? Get beyond the website and look at fundamental questions. Have they completed other projects and are these successful? What is their track record? Is the company a public listed entity, a developer with multiple projects under one umbrella, or a one-off private limited company?
In Thailand a key trigger that further due diligence is needed is if the development is fronted by foreigners, then is there a significant Thai shareholder in the project, or is it a nominee structure? This is not to say that there are not good foreign real estate developers in Thailand but in the case of project default, recourse will often be restricted to who is the significant Thai partner. If a nominee structure is used, what guarantee can buyers have that they have the financial resources to complete the project? One of the biggest red flags is ensuring the developer has the financial capacity to complete or else that bank financing is in place. If not and they are looking to fund the project on sales cash flow, the risk factor for buyers is extremely high.
Guaranteed Returns, Too Good to Be True
For purchasers looking at condo hotels or investment-focused real estate, the development strategy of guaranteed returns is a sales turbocharger. Even experienced buyers who have worked out that projects are pricing in the returns as part of the sale price still often believe that they are mitigating risk by getting at least 30-40% of the total price under the guarantee? How wrong they end-up being.
First, buyers need to understand if the guarantee is backed by an escrow or trust account or simply a contractual obligation? They also need to know that most guarantees have a lifespan of two to five years, though in some extreme cases we have seen projects offering ten-year terms. COVID-19 has also been an acid test for many buyers as ‘Force Majeure has come into effect nullifying the guarantee or in some cases, simply non-payment by the developers.
Few initial guarantees later translate to longer-term returns of a similar yield. So often once the guarantee expires, actual returns often crash to a fraction of the initial number, and reality bites. A red flag for guaranteed returns is when there is no clear backing of the return by a financial instrument and an extended-term is promised. If it’s too good to be true if probably is. Buyers need to understand that when developers are using guarantees they are covering the amount by marking the property up or else are not prepared to back these returns up long term, in instances of negative cash flows.
Hotel License
Real estate in Thailand which is promising hotel-generated rental returns or rent to transient (daily) guests requires a hotel license. From our experience in the sector, we have seen so many different scenarios ranging from projects which vaguely promote hotel-type rentals and have no intention to obtain a hotel license, to those who often have no legal way to obtain one such as certain villa estates who do not meet legal requisites for a license.
Sadly, the Hotel Code in Thailand is often vague and the licensing of projects ends up with different interpretations depending on provinces and often municipalities. Condominiums as an example are allowed to obtain a hotel license assuming that 100% of the buyer’s consent to this and to issue a license requires a change of use of the project from residential to commercial, which can only be done on project completion.
In a nutshell, off-plan buyers are taking a risk if purchasing into a condominium hotel or branded residences if there is not a hotel license. In all fairness, developers cannot get licenses if still under construction. The best protection for buyers is to ensure the contract has a warranty that a hotel license will be obtained in a certain timeframe and if not pre-termination of the sale be allowed and a full refund made.
Hotel Operator
For buyers into rental managed properties under hotel schemes, they need to closely look at who is the operator. Is it the developer, has an international operator been appointed, or what is the plan? If there is a management company, buyers need access to the management agreement and this should be referenced in the sales and purchase agreement.
A key red flag is where the developer, who has no experience is set to operate the rental operation. There remains a risk for buyers in that most hotel management contracts have lifespans that will be shorter than the property itself so what happens after that? Also, if you are buying into a certain brand, and that company no longer is affiliated with the development, how returns and values may be downgraded. You have to also be prepared that at some point in the long term, the development can no longer be operated as a hotel due to age and changes in the market so what happens then, contractually to property owners?
Check the Land Title/s
An essential part of any purchase is to have a clear understanding of what land titles exist for the project. In Thailand Chanote titles are preferred but in certain cases Nor Sor Som Kor is accepted. First, understand if the developer owns the land the project is located on. Second, has the land been mortgaged and a bank lien registered with the land department.
One absolute red flag for the project that has been a recurring issue is titles have liens on them by non-institutional lenders referred to “Kai Fak”. These liens are legal in Thailand but interest rates are at premiums compared to banks and buyers should consider if a developer had to go to private parties to obtain funding, can they complete a project of scale?
Lastly, where there are complex hotels and hotel residences, underlying land titles should be separately subdivided Hotels often will have mortgages or loans in place on a long-term basis and if the residences are on the same title, in case of a default, the bank will have first recourse over the property. A right of way should be put in place so if a hotel goes into bankruptcy, residential buyers have legal access to their property.
Making Sense of Payments
Thailand’s real estate payment regime is fragmented and there are different market practices between freehold condominium type properties and leasehold. One of the most used payment schedules for resort properties is those linked to construction milestones – down payment, foundation, structure, or lock up as an example.
Buyers need to be closely monitoring construction updates and have physical checks to see if the billings match the work progress. The worst cases for buyers are when they have paid 100% of the unit in advance for a discount and carry the entire risk of non-completion or where no construction occurs or will ever start. A red flag here is developers who are promoting substantial cash discounts for full payment as they are likely financing from presales and may default. As for how buyers can best manage the payment cycle risk, keep down payments low, check on construction progress and ask for proof of build permits and construction contracts.
How to Read Developer Rental Projections
For non-hospitality professionals, understanding hotel projections can be confusing. In the first place, if you are buying into a condominium hotel or branded residence ask for rental return projections and supporting documents. This is an investment, and you need to expect more details documentation than just a ten-year forecast that shows returns going up, up, and away.
Where red flags start to come up are on projections that show high occupancy and rental rates from year one onward. New hotels take time to stabilize and compete, they typically have a two to four-year trend to stabilize.
If a developer is comparing returns in the early years to the overall market this is flawed and returns will suffer. Another is when they compare rates to those offered on Agoda or online. For hotels, achieved rental rates are many times 30-40% below those online so again another reality check.
The best way to evaluate returns is to consult a hospitality professional or at least talk to someone you know in the hotel industry to vet the projection. But at the end of the day look at the fine print and understand the projections will unlikely be backed by a contractual warranty so there is no recourse when returns fall short. The second is to make sure the legal sales documentation has a clear management contract between owners and the developer which is comprehensive.
Freehold vs. Leasehold
For anyone looking at buying Thai property, it’s important to understand the difference between freehold and leasehold. If not clear, get advise on due diligence. For condo hotels or condominiums, this falls under a different legal code – the Condominium Act. For the buyer, this is a more structured approach to the owner’s rights once the project is completed and registered. But on the other side of the scale, hotel operations need to occupancy titled areas under the developer/owner and there is still a requirement for a juristic person (building/owners management). One of the inherent risks for buyers in a hotel scheme and also for management groups is that long-term tenure is not guaranteed and once the owner’s body is formed, a majority of buyers can vote out the operator. Banks interestingly prefer lending to freehold property given the ability to hold land titles.
The other type of ownership is leasehold which may be an apartment or villa. These types of properties are under the Land Development Act, which is more developer-friendly. While long-term hotel management may be secured by owners easier, there is often less immediate legal recourse for developers who default. Owner’s recourse and rights as formal bodies depend on the initial bylaws and article of association, unlike condominiums where there are statutory bodies and processes.
One significant red flag is understanding if the project is leasehold, who is the landowner and how can buyers institutionalize this. In so many cases when individuals are used as landowners, in instances of death, family disputes, and financial problems, underlying land in leasehold projects has been mortgaged or “Kai Fak”. This individual approach puts unit owners at risk. The best way to prevent this is a trust or institutionalize the land-owning entity.
Re-sales
Most buyers at some point want to at least understand can they resell a property? For condo hotels or those operating as hospitality-managed residences, they may find the secondary market limited. If returns are poor, prospective buyers may look closely at historical yields. Another aspect is, that some end-users or owner-occupiers don’t want a hotel operation in their condo building or estate as it’s often noisy and transient.
Common area changes are typically higher so this often puts off the resale market. The bottom line will be while brands might elevate this type of real estate, it also has limitations on re-sales and if things go very wrong on rental returns, it could make an asset virtually unsaleable.
Legal Documentation
Our first advice for buyers is to hire a lawyer. But take more steps and go beyond that. Do your research on who you hire, make sure they have experience in hotel residences and condo hotels. Draft a brief and check the boxes. Don’t expect to as little as possible on hiring a professional.
But beyond that, remember aside from the contacts and legal due diligence you need to do your checks on the items above. Make an informed decision, obsess over details, and question everything, as it’s your money on the line.
So there you have it, these are the Top 10 Best Ways To Avoid Condo Hotel Property Investment Pitfalls, but by no means is it exhaustive. The condo hotel and branded residences sector is a global industry and like any, you have the good, the bad, and the ugly. There are many examples of long-term success for buyers but sadly there are cases where rip-offs have occurred and default with buyers losing their investments.
