In an effort to spur a targeted 7.5% economic growth target the National Assembly in Laos has passed legislation approving foreign enterprises who invest move then 2.5 billion kip (approximately US$294,000) the ability to lease land for 99 years and ownership along with right to sell buildings. The primary aim is to attract overseas Laotians along with foreigners to spur development in the country.
Tourism remains a key component to the economy with Luang Prabang garnering much attention especially with the recently opened Amantaka Resort. Viewing the real estate and property sector, clearly the new law will spur new projects. Reviewing the dialogue from the meeting of the assembly there remains much concern about relinquishing property rights as well as ensuring proper implementing guidelines and control remain vigilant.
Lao current is making economic reforms aimed at opening its own stock exchange next year and plans to become a member of the WTO. While the signs are encouraging, moving to a free market economy for the country will be a challenging and arduous task ahead.
Earlier in the week you might have read our story on controlling shareholder IFA's efforts to stabilize Raimon Land by taking out a large shareholding along with buying down Lehman's investments in The River project. Despite an uplift in many Thai property firms Q2 figures Raimon has gone from a mid year profit of over THB 2 million to a loss in excess of THB 200 million in 2009.
Independent industry analysts have commented that margins for the SET listed firm remain highly volatile and poor control of sales expenses together with hedging on steel commodities thus raising development costs were key reasons. Debt to equity ratios have continued to push higher which are of considerable concern. Looks like IFA's work continues to be a monumental task in trying to regain share investor confidence for the moment.
Despite a profound slump in the property market and capital flight of many overseas institutional investors in the sector, there appears to be little light at the end of the tunnel on changes to the existing land ownership law. Comments made this week by Prime Minister Abhisit Vejjajiva reinforced the ban on farm land under the existing Foreign Business Act have reiterated that Government policy and public sentiment remain entrenched and unmovable.
Triggering the farmland issue has been a growing rice farming industry where many of the growing Asian countries have turned from exporters to importers as a result of population growth. Not dissimilar to the FBA (foreign business act) scare a few years ago in the real estate trade, the alleged use of Thai nominees is becoming a hot enforcement issue.
Taking a step back and viewing the current high profile farm land and rice issue which have raised calls for protectionism in the country, its clear that the same arguments will apply to property land owning and form a very large obstacle to reforms in the foreseeable future.
In spite of the current challenges facing the property market and frayed economic climate the 77 story MahaNakhon project on Bangkok's Sathorn Road. Located near to the Infinity and new W hotel project between Golden Land and the Middle East group, this new development represents a similar venture with Thailand's Pace Development and Israel's Industrial Building Corporation.
The MahaNakhon which will be Thailand's tallest building will house an Edition Hotel, which is Marriott's new hip venture with legendary design hotel icon Ian Schrager, along with Ritz-Carlton luxury managed residences and condominiums targeting sales prices between 200,000 to 300,000 baht per square meter. This pricing looks to eclipse the former high just down Sathorn at the Sukhothai Residences. Project completion is pegged by 2012 at a total development cost of THB 5 billion.
Luxury Bangkok real estate looks to be headed the mixed use way with the recent Sukhothai and Metropolitan projects coming after existing hotels were up and running and now the St.Regis by Bill Heineke's Minor Group. Most of these developers rather focus on the value comparisons of Bangkok versus key Asian gateways such as Hong Kong and Singapore along with North America and Europe; while for the most part ignoring what has been a flat real estate market domestically. The results are yet to be in on the latest offering but in terms of blind ambition the peg certainly has been taken up a step.
Certainly this caught my eye as it has yours when I was reading the Phuket Gazette's Daily News last week the story on DASTA (Designated Areas for Sustainable Tourism Administration) who attended public hearings on the Ao Phuket mega project near Saphan Hin. Comments attributed to the local president of the Thalang Cultural Vilage who stated " 60% of the land on the island is currently owned by foreigners." And furthermore "before long we might see landless local people having to rent out places to live in from foreigners."
While clearly given the scale of the total land in Phuket which is roughly equal to the size of Singapore covering a reported 570 square kilometers it's virtually impossible for foreigners to own this amount of land. What is underscored is the growing divide between the 'haves' and the 'have not's" in a struggling economic debacle. Legally speaking foreigners are only allowed to either own investment properties such as hotels which qualify under the Board of Investments (BOI) scheme or else 49% of the gross floor area of a condominium project. While the use of nominee's and Thai companies does exist, it's simply does not cover the scale this massive.
What is evident is that for the native Phuket islander a land grab is in play. Just drive around and see all of those gated estates, large pool villas, restaurants, shops, hotels, spas and a growing population of well heeled Fortuner driving farangs. True for the astute they understand most of these businesses lease their shops or properties from Thai's, provide jobs which plow money back into the economy and contribute a significant amount of VAT and local taxes back into Phuket.
The bottom line remains that for the gentleman who made these comments, from where he stands, this is how he understands what for many consider an unwelcome intrusion into sovereign land rights. While many in the property business proclaim an imminent change in foreign land ownership; it remains highly doubtful in the foreseeable future for exactly this reason. What's more important is to view these generalizations for what they are, not rail against locals and blast anti-foreign sentiment but to clearly continue to open the door to dialogue and understanding that indeed no one alone is an island. Diversity is good and healthy debate keeps the pulse going, letting us know we are still alive.
If you've been driving in Cherngtalay recently and could not help but notice the enormous signage advertising The Explorer Phuket then here is the scoop on what's it all about. Located on a prime site with 54 rai near to the entrance of Laguna the developer is Phuket based Phuket Asset Ltd. who have also recently completed Thepthanee near to Phuket town on Thepkassatri Road. An affiliated company also own and operates the Phuket Zoo.
The project is comprised of 29 shop houses starting at 15 million baht, 78 condominium units with entry of 8 million baht and approximately 54 pool villas at pricing which is expected to be in the range of 15 million baht but has not been set by the project sales office. Shop house units are already in the market with 16 of the 29 units reserved.
With pricing that is aimed at domestic and foreign buyers, clearly one of the advantages of being a Thai developer will be the ability to obtain financing for the project. A formal launch of the project is set over the next month or so.
Middle East institutional investor IFA Hotels and Resorts has increased its interest in Thai listed property developer Raimon Land by 14.92%, which effectively brings shareholding to 41.07%. During the economic downturn IFA has continued to put short term operating loans into the local firm as it regards longer term recovery fundamentals as strong. Two of the groups projects are located in Phuket with Kata Gardens which is sold out and The Heights holding only a few remaining unsold units. IFA has also established a permanent port for one of its Yacht Membership vessels which is part of a global scheme targeting high net worth individuals.
Recently Raimon who are developing a mega project in Bangkok 'The River' were able to acquire the defunct Lehman Brothers interest in the project through an acquisition. This current consolidation of the project has resulted in a syndicated refinancing of the project of 5 billon baht by a consortium of 3 leading Thai banks. In spite of a downturn the firm looks to be taking strong measures in ensuring its longer term financial health back of these actions.
Opening this October the 42 key Soneva Kiri luxury resort on Koh Kood is creating a buzz for many industry watchers. In addition to the hotel there are 20 four bedroom and 1 six bedroom residence priced from US$4.5 million up to $7.5 million which offer usage and rental yield programs by the hotel.
While the island getaway certainly creates an aura of privacy and a unique offering; access is mainly by private plane that takes an hour from Suvanabhumi to a nearby island and then speedboat. Operating costs will be significant so it remains to be seen how the offering will measure up in terms of financial returns. Both seasonality and overhead expenses will challenge the limited critical mass of the resort.
In the meantime branded hotel real estate remains thriving in Asia unlike other parts of the world, though the results are yet to be seen in terms of returns to investors for many of these smaller resorts in tertiary markets.
Roll back the clock a few years ago and Danang's China Beach was on the radar of virtually all of the regions hotel chains and institutional property developers. After a rocky road back of a major currency devaluation, hyper-inflation and the slow down of its economy Vietnam is again buzzing with activity in its residential sector.
The current success of Indochina Land's Hyatt Regency mixed use development where resort apartments have not sold just under 100 units in a short period after launch. Surprising many is the fact that most buyers have been Vietnamese nationals who tapped into unit offerings of 75 square meters with sales prices averaging US$2000-2500 dollars per square meter. The ability for locals to finance the units is one of the key demand drivers in what has been a very efficient take up rate.
Other resort destination such as Nga Trang, Phu Quoc and Phan Thiet represent just of few of many locations that hotel managed property developers are chasing deals in. While the Hyatt has been a great success story, there remains question's about the depth of the domestic investment market for secondary purchases. As for now a number of similar projects are spurring a quick entry to the market which currently is rising on favorable sentiment.
