Dreams die hard, even in a pandemic. But for thousands of Phuket property buyers who invested in the promise of a tropical dream with endless sunsets, the stone-cold reality of failure is just starting to hit home. Amidst a backdrop of rusting steel, decaying concrete, and empty construction sites lays the dark side of the island’s real estate trade.
To better understand the sheer size of the market, based on C9 Hotelworks latest research report shows there are currently 22 projects offering hotel-managed properties in Phuket with 6,529 units. As to how significant this is to the larger incoming pipeline of hotels, 55% of all new hotel developments have real estate components.
Digging deeper beyond the hotel-managed or branded condos and villas segment is an equally large number of pure residential developments that promote the promise of guaranteed returns or rental income. Taking these into account the market size swells to over 10,000 units.
Once we started visiting these projects, the fieldwork concluded that over 60% are currently on hold. The state of development includes many empty sites with fallen construction hoarding, blanked-out billboards, and empty skeletons of structures with no activity except stray soi dogs roaming the ruins, looking for their next meal.
Perhaps the most disturbing outcome of the site visits, and follow-up with development sales teams when there was someone who could be contacted, is the lack of certainty going forward. Phuket’s mass-market resort grade real estate sector is somewhat dependent on Chinese and Russian buyers. In 2019, 42% of overseas visitors came from these two source markets. Projects that are highly leveraged in single markets are the most impacted.
Today there are mounting cases of a sudden impact on projects who have defaulted on payments to contractors and there is a domino impact down the economic chain of sub-contractors and suppliers. Legal cases reportedly are rising and in cases of bankruptcy or liens by financial institutions or contractors, those at the end of the food chain are property buyers.
Or in more extreme cases, developers who funding off of purchasers’ payments, in this situation often it’s nobody home time.
Tragically the buck stops with the very single investors who enabled the development in the first place. And the truth is, all that is left are broken promises, empty bank accounts, and often little or no recourse. But, what you have to ask is, how did we get here?
Over the span of more than three decades, starting with the iconic Amanpuri in 1988 and later the flagship Banyan Tree, the concept of holiday home ownership in a five-star resort established Phuket as Southeast Asia’s leading leisure real estate marketplace. But similar to many success stories, once tourism and airlift access exploded, a mass-market boom took hold that created a slipstream for bigger, but not necessarily better investment property developments.Was this a new concept? Not at all. One only had to look at the towering behemoth skyscrapers along the sunburned palm-fringed beaches and coastlines in Hawaii or Spain that had flourished in the 1970s and 1980s. But in Southeast Asia, with its rocket-propelled economic rise, coupled with a growing number of cashed-up expatriates working in Hong Kong, Singapore, and other Asian gateways, the stage was set for what could best be coined ‘the good, the bad, and the broken-hearted.’
Fast forward to the early 2000s in a landscape where financial markets soared and easy money was on hand, Phuket’s holiday home property market burst wide-open. But, as early buyers mostly ended users or those looking at a later retirement or second home, the millennium brought in the speculators.
Again, nothing new here and you can look at most leisure real estate destinations when they go mainstream and one key learning from watching these markets rise and fall is that once volume-driven supply comes into the market, every manner of investment scheme comes out. And, so it did. While the island paused during the Global Financial Crisis (GFC) of 2008, there were failed projects in Phuket and a marked number of developer defaults that can best be remembered by a few remaining mid-rise vacant structures as you drive around coastal highways and byways.
Memory is a funny thing and people tend to forget quickly. With Asia leading the world in recovery after the GFC, a rising consumer class and developing mass markets in China and Russia drove tourism numbers up, up, and away. Suddenly tourism was the golden goose and everyone wanted in, at any cost. And that cost, become a commodity, going lower and lower as numbers grew.
For developers, the easy sell was small, smaller, and smallest units. With a recipe of low entry pricing points, they often compared their projects to nearby hotels where occupancy soared. Though in reality, despite the facilities, aspect, and quality having little in common, buyers leap headfirst into the dream. What sealed the deal was guaranteed returns of eight, nine, or ten percent. With bank interest rates going down, unrealistic expectations took over as the value proposition was hard to ignore.
With prime land plots in Phuket at a premium, or high barriers to entry, a new breed of condo-hotel developer gravitated to less prime inland areas but all the while touting their products were in line with the best resorts and endless returns. The island’s traditional hotel pipeline also soared as local and foreign investors wanted in on the party that wouldn’t end.
Then came the pandemic. The unthinkable happened. Tourism forgot their bulletproof vest and COVID-19 was a shot to the heart.
Today, the ghosts of the broken dreams of property buyers should haunt Phuket’s real estate industry and usher in a new era of responsibility. I have covered the real estate market for over twenty years and still get the messages from buyers before the GFC who still wonder, have they lost it all, is there any hope? Tragically, in most cases, there is absolutely no hope. The money is lost forever.
The message here is about the need for transparency, responsible brokering, more legislation, and a way forward for property buyers’ rights in cases of default. Much of this is why due diligence is needed and more education for buyers. A follow-up piece is coming shortly addressing guaranteed return hotel schemes and the basic areas that need to be looked at before buying so stay tuned.
The pandemic era of the past two years has brought a rising flow of new incoming residents to Phuket from both abroad and from Bangkok. What is clear is that the scales have been tipped, as rental demand has vastly exceeded supply in upscale and luxury properties.
Urban flight is the trigger that has driven Phuket’s once investment-focused property market in an entirely new direction. This dynamic shift has resulted in a dramatic return to real estate fundamentals.
In the backdrop of an inward rush for single-family homes, many developers have exhausted inventory and in the wake of new launches, have sold out at a rapid pace. One prime example is the Trichada branded estates in the prime Laguna-Cherngtalay area. The developer who amassed strong credentials with the successful Sai Taan project followed with three Trichada branded ones.
The group’s brand new pool villa project offering that has just come on the market is named Trichada Breeze. With eighteen three and four-bedroom resort-styled homes in its first phase, anxious buyers have snapped up five units in the first weeks after the soft launch. With prices that range between THB15-23 million (USD440,000-675,000), the homes are tapping into a soft spot in the market.
Speaking to real estate agents across the island, many renters are looking at the northwest areas of the island such as Kamala, Surin, Bangtao, Cherngtalay, Layan, and Yamu. Many renters who are moving to Phuket consider key demand generators like international schools as prime motivators with British International and UWC often cited due to their prestigious overseas affiliation and curriculums.
The surge in single-family homes has also been exceptional in the THB30-60 million (USD1-2 million) band as can be seen in a growing collection of projects by Botanica and Anchan. Both are leading examples of strong demonstrated success with buyers able to obtain premium rental levels and above-market capital appreciation. Resale demand due to the lack of new products in key areas has pushed owner gains higher.
Looking at key advice for prospective purchasers, early buys off-plan in a good location and experienced developers typically generate the highest appreciation. Four-bedroom single-family homes are in short supply and fit the profile of families who are relocating from Singapore, Hong Kong, and Bangkok. The latter is driven by a rising tide of multigenerational living and the need for working from home space or areas that buyers want to customize for their hobbies or lifestyle.
Major Phuket retail malls which have over 500,000 square meters in leased area space according to research by C9 Hotelworks are reporting a pick-up in customer demand. The increases are a combination of higher seasonal long-term stays by part-time residents, a spur upwards in domestic travelers which are Thais who are attracted to malls, and overall flow of visitors to the island as quarantine measures lessen.
Making business news has been the island’s second-largest mall Jungeylon in Patong with 200,000 square meters of space. They have embarked on a two-phase plan that will see interior spaces upgraded and reopened by the end of this year, and exterior facelift within next year. One key feature of the new Jungceylon will be a digital amusement attraction.
This comes at a time when Phuket is bracing for the opening soon of the largest amusement attraction Andamanda. This massive best-in-class park is being developed by Thailand’s Proud Real Estate Group which also owns and operates Vana Nava Waterpark in Hua Hin.
While the global pandemic has raged across the world, many island destination’s across Southeast Asia have shown remarkable traction in luxury real estate. From Phuket, to Koh Samui and down to Bali similar pushing upward in demand are now the norm. Let’s take a quick look at the Top 5 Trends in Phuket in a real estate update –
Domestication
During the pandemic Phuket has experienced an influx of wealthy elite Thai villa buyers from conglomerates and family offices. As word of mouth spread in Hi-So Bangkok circles, this spurred friends, other family or acquaintances to also buy villas. Layan Beach has become an epicenter of this new luxury push with branded developments tagged to Anantara and Avadina coming into the limelight. A similar push has been from high-net-worth Thai tech entrepreneurs and even connected to their foreign counterparts. Urban flight of Bangkokians is on the rise, given the impact of the ongoing pandemic, rising pollution, and emotional change in values towards a more healthy, balanced lifestyle.
Big, Bigger, Biggest
In broad terms, the gross floor area of luxury villas has doubled over the past decade. Mindful of the fact that tropical properties often have massive outdoor covered and outdoor areas, this also is growing but the key movement is in more interior spaces. This all comes at an interesting juncture when Thailand’s construction costs are currently escalating to levels above 10% and with steel and petrol pricing moving up, will only grow more expensive. But at the luxury level where during the pandemic multi-generational living is making a comeback and work from home is now the new norm. This is expected to only continue. It’s important to also see the relative affordability of ultra-luxury in Phuket when buyers are coming from Singapore, Hong Kong or London so while the sizes might be eye-popping, the terms of reference for owners are far beyond Phuket.
It’s Not Just About the Beach
The perception about Phuket luxury villas is most often considered to be factored on two things. The first is West Coast locations, most often from Kalim, through Kamala up to Surin, Layan and onto Nai Thon. Second is elevations and what might be best termed ‘cliffhangers’
Of course, the reality is that you can go to the East Coast and Cape Yamu area where over 80 multimillion-dollar villas have been developed and sold or down to Panwa which after Sri Panwa helped form the ultra-luxury market is starting to see new projects starting to sell. Inland popularity is also moving upwards as can be seen by the entry of the wellness-themed community Tri Vananda or the rapid escalation of pricing points in new projects for developers such as Botanica and Anchan brands who now are pushing up prices beyond USD2 million and above. This shift is only going to continue given high barriers to entry for prime west coast land parcels.
A Degree of Separation
All too often luxury real estate developers are possessed by products versus people. Over the past two decades, there has been a direct connection in Phuket’s most expensive projects between the developer’s nationality, connections, and background. A number of micro precinct-type communities have evolved. One case in point is Allan Zeman and the two Andara branded developments on Kamala’s Millionaires Mile whose heavy influence in Hong Kong and Mainland China drove sales momentum. For all the hype on luxury brand marketing, ultimately word of mouth is often the biggest influencer for sales.
Lost in Space
There is little doubt the lowering of the age barrier of luxury home buyers and changes in pandemic lifestyle is creating a higher degree of customization for villas. These can be seen everywhere from flexible spaces that are sold to buyers who can customize in-villa spas, fitness areas, theatres up to art collections, meditation zones, and more robust working areas. Another evolution is developers leaving a portion of the GFA (gross floor area) as cold shell space, whereby they still earn development margins but allow buyers to design more substantial areas. Expect more custom designs, a greater focus on interior spaces, and changes in villa configuration for multi-generational living or friends and family stays.
To sum it all up, Phuket remains a strongly demonstrated luxury leisure market and this is expected to continue its journey forward but the above points out to decide changes in products and buyers in Phuket 3.0.
Thailand’s Raimon Land is developing 14 stand-alone luxury Rosewood branded residences on Phuket’s West Coast at Kamala.
The Rosewood ultra villas have 4-6 bedrooms and are located in a private gated luxury estate. There is no hotel as part of the project.
Kamala is an upscale island destination and is well known for its Millionaire’s Mile with notable multi-million dollar estates such as Andara and Laem Son.
Sales will commence this year and project completion is set for 2024.
In the wake of the global pandemic, Phuket’s luxury villa market has continued to be red hot with an influx of overseas high-net-worth individuals and elite Thai buyers from Bangkok.
Japan’s alpine real estate land values have continued to rise for much of the pandemic, highlighted by the expansion of a growing Greater Niseko catchment area. We have seen developers now pushing out of the prime Hirafu area, taking a longer-term view of areas such as Hanazono and Annupuri.
There remains one clear trend in most resort areas the geography tends to change over time and as markets mature, luxury, mass-market, and niche products tend to diversify. You have to look no further than Richard Li’s Hanazono development with the Park Hyatt that now has seen considerable new products start to cluster in the area and even the upcoming Capella hotel and residences are betting big on the location.
Looking further at other alpine tourism markets in Hokkaido, C9 Hotelworks recently researched the hotel, tourism, and property market in Furano. Known as a two-season area, with summers dominated by domestic travelers lured by the spectacular lavender fields and more family-oriented winter skiers from overseas.
Recently, more developers from Niseko have started the development cycle in Furano, highlighted by the Fenix resort condominium. The area currently lacked branded hotels but we expect this to change and eventually the highly seasonal market will move upwards, driven by lower underlying land values and destination appeal.
Niseko and Furano remain distinctly different but yet, much of what appealed to overseas buyers in the 1990s remains showcased in Furano.
To download C9 Hotelworks new Furano Tourism & Property Review report CLICK
C9 Hotelworks and Delivering Asia Communications have organized a timely Bangkok-focused virtual business event on Tuesday 23rd November, 3:00 pm Bangkok Time | 4:00 pm Singapore/Hong Kong.
In the lead-up to the global pandemic, Bangkok was the world’s top destination attracting over twenty-two million travelers. Thailand’s international reopening on the first of November and Test & Go initiative with 63 countries now eligible for entry is an absolute gamechanger.
Join us for a fast, and furious forty-five-minute dive into how tourism and hotels are performing in this new marketplace. Our unique set of speakers will be presenting critical insights, facts, and perspectives that are relevant not only to Thailand but as a guide for other Asian markets in this new hospitality journey without maps.
Listen to six focused experts that are uniquely presented as our segments cover –The Data The Hotel Operator, The Hotel Owner, The General Manager, A Human Resources Perspective, and a Restauranteur.
This is part of a continuing series of virtual hospitality events from C9 Hotelworks and Delivering Asia Communications which is intended to create forward-looking conversations, promote a critical rethink of the industry, and offer learnings across a wide variety of subjects.
Speakers
- Jesper Palmqvist (The Data)– Area Director Asia Pacific, STR
- Markland Blaiklock (The Hotel Operator) – Deputy CEO, Centara Hotels & Resorts
- Sunny Bajaj (The Hotel Owner) – Managing Director, Amburaya Hotels
- Nopparat Aumpa (The General Manager) – SAVP/General Manager, Banyan Tree Bangkok
- Killian Donoghue (Human Resources) – General Manager, Le Meridien Bangkok
- Rohit Sachdev (The Restauranteur) – Chief Executive Officer, SOHO Hospitality
Co – Moderators
- David Johnson– CEO, Delivering Asia Communications
- Bill Barnett – Managing Director, C9 Hotelworks
Let’s talk real estate Phuket and one key fact is that tourism is a key driver of demand for the island’s resort grade property sector.
We had a chance to catch up with Stuart Reading who leads Banyan Tree and Laguna Phuket’s property group.
Some of the highlights of the conversation centered on how deals have been closing during the pandemic, what Russian property buyers are looking for, and surprisingly how the Indian market is starting to see traction translating into sales.
A new signing by Siamese and Kew Green management is for two new Bangkok properties, the mixed-use 300-key Cassia by Banyan Tree Rama 9 and a 220-key Cassia by Banyan Tree Ram Intra.
Banyan Tree has also recently opened an award-winning resort in Krabi, which has been developed by AWC.
Meanwhile, the Siamese/Kew Green Thailand partnership aside from the two Banyan Tree properties has four projects coming up under Wyndham Hotels and Resorts and one with IHG’s (InterContinental Hotels Group) Crowne Plaza brand.
It’s understood Banyan Tree is looking to expand their Skypark and Dhawa brands on a wider scale as real estate-led hospitality models.
