There remains a key link between what Government initiatives are in place to attract the foreign property investor and lucrative retirement market. One such market is Mauritius who initially launched aggressive schemes a few years ago in 2005. Integrated Resort Schemes (IRS) and lower investment Real Estate Schemes (RES) targeted different type of buyers with the former aimed at upscale villa and luxury properties while the later is more focused on the entry point condo/apartment segment.
One key perk of the market is that purchasers of homes over US$500,000 can again permanent residency though they need to be part of the IRS accredited projects. Tax advantages in the country are 15% income tax, while expenses can be deducted and no capital gains tax. The lower priced RES scheme has a minimum of US$300,000 though the permanent residency bonus is not available.
For retired persons those maintaining a US$40,000 minimum at local banks are allowed granted retirement visas. While Mauritius has been a widely used tax haven in recent times with double taxation treaties with many major jurisdictions including Thailand, the recent OECD actions look to jeopardize the sustained grow the tax sheltering. Thailand has remained mute during the present administration on the subject of foreign ownership and the likelihood of changes in legislation look to be remote in the near term.
Leading UK news tabloid the Mirror has reported that Chelsea football star Joe Cole invested into Hua Hin Country Club and now is demanding his money back as the project has remained an empty field for the past two years. Phuket has figured into the headline grabbing news as Cole has alleged that local development firm Lersuang is at fault and the Mirror claims that calls to the group's offices were not returned.
Lersuang is the developer of the stalled Turtle Cove, Tamarind Hills, Infinity Heights and Lersuang Village projects. There has been much local speculation in the market about the completion of the existing properties, though the company has continued to operate offices here on the island.
Press like this certainly is not a positive for the market and there have historically been few project defaults in the past. This looks to be a developing story as while the UK news have reported Joe Coles side of the story, there needs to be a balance on facts and certainly a statement from the Phuket group would be helpful.
Yesterday thephuketinsider.com spoke to Ian Spurdle Sales Director of Tawan Properties who confirmed that Tawan Views would complete by the end of this year. Phase 1 units are set to handover in October. With 24 units in the development and one of the key features being only one apartment per floor only 13 units are remaining for sale. A contemporary design has been crafted for the property by leading design firm K+K from Hong Kong.
It's interesting to note that three key demand generators which have enticed buyers into the location which are access to three high quality golf courses being Blue Canyon, Mission Hills and Laguna Phuket. Second is boating with the nearly Ao Po Grand Marina and last is access to the islands of Phang Nga Bay.
With aspects over Jumeirah Private Island Resort Tawan Views has locked into those fundamental drivers which are so important to property being excellent design, ocean views and proximity to attractions. The East Coast of Phuket remains a performing property market back of the success of Baan Yamu, Cape Yamu, Jumeirah, Sri Panwa and Outrigger Serenity Terraces over the past year.
Speaking to Richard Pope developer of Kata Rocks there are indeed signs of life in the property market in the southern part of the island. With 34 units, currently 16 have been sold the project is slated to open by the end of 2010. Construction timelines are commencing in Q2 this year and Original Vision are both the designers and project managers of the estate.
With a premium oceanfront location the development will operate as a boutique resort and have a bistro along with other high end amenities. Sales prices currently are broaching on the 150,000 per square meter mark with 1, 2, 3 and four bedroom units along with upscale penthouses. The project gained some profile with the sale of a unit to the host of Discovery Channel's Man vs. Wild Edward 'The Bear' Grylls. I suggested to Richard a possible storyline of dropped "The Bear" by helicopter into Soi Bangla at midnight only armed with a pair of copy Quicksilver board shorts and reflective ray bans. The tuk tuk driver's mafia certainly poses every bit a challenge as any situation he has ever experienced and just let him try to fend for a parking spot.
While often not mentioned in the same reverent tone as Surin, Millionaires Mile or Bangtao, Kata has seen great success over the past few years with high end condos such as The Heights, Kata Gardens, Aspasia and Accenta all selling at premium pricing. Oceanfront real estate remains much sought after and even in this market there are transactions on fundamentally strong offerings.
For many overseas investors purchasing apartments, and villas leasehold has been their only option due to foreign ownership restrictions in Thailand. While a 12.5% municipal tax on house and land has been in place, there previously was little enforcement due to limited manpower in the municipalities. Most Or Bor Tor's on the island are now taking serious steps in making assessments on developments and this is hitting real estate investors in their back pockets. I spoke to one of the leading tax advisors on property in Thailand Paul Ashburn of BDO Richfield in Bangkok who has this to say on the issue:
"Leasehold apartments are clearly subject to tax, even if there is a ownership structure above in which a foreign entity is connected and provides the lessees control of the owning company the nature of the foreign ownership law precludes this and ultimately the determination is that the property is held under lease.
In the case where the project is a condominium and while 49% foreign ownership on freehold would not apply, those under the 51% lease entitlements would be subject to tax.
Villas and freestanding homes also would fall under this provision is the property is registered under a lease.
The tax calculation is based on 12.5% of annual rental value, or in the case of leasehold then the lease amount of the annual recognized lease.
Currently the Government has said they are currently looking at reforms and a revision to the tax law under which a wider scope of application would be made and increase in property tax calculations. "
Its interesting to note that gray area in interpation between rent and lease that no doubt look to caused confusion in the assessment process and the 12.5% tax by law should be applied to units being rented out by owners and agents. While the law states the tax does not apply for owner occupied units, the structure of leasehold nullifies this for foreign owners. As we talk the municipalities are now hitting the tax trail and we are starting to see the impact of the enforcement of this tax, which will look to also start viewing the short term and vacation rental market as well as long term lets.
The Global Section of the New York Times has published a harsh assessment of the state of play for property and hotel developments in Phuket. The article titled "Turmoil Stalls Vacation Home Boom" published on the 28th of April has referenced Shangri La, The Yamu, Four Seasons, Raimon Land's Amalfi, Lersuang and Jumeirah Private Island as either troubled or delayed projects. Even Gulu Lalvani who was quoted in the piece was decidedly downbeat on the current market.
While objectively the market is currently challenging the amount of construction activity and limited amount of developer defaults have proven the Phuket is still out trading most overseas markets. Additionally the lack of developers taking on significant leveraging which could incur defaults and possible bank repossession is not widely in effect so with flat demand the prospects of market recovery remain fundamentally solid.
A Beijing property exhibition has attracted 76 US property developers looking to move product despite the economic downturn and severely depressed domestic housing market. With more then 7000 prospective clients, over 500 of them signed reservations for units. The Chinese buyers said their primary motivation was for investment and also possible migration to the US at some later date.
One attractive aspect of the market is that financing in many cases is still available for international buyers. Unlike Thailand where limited leveraging is available and foreign ownership of units restricted to freehold condos or leasehold units. As more markets start to turn their eyes abroad to attract property players, the playing field is becoming more and more crowded and competitive. It remains unknown how the present Thai government is going to react to continued depression of the real estate sector but given declining domestic demand, the country needs to recognize the importance of foreign investment.
China's property market continues to see be an anomaly versus other regional competitors with the upscale W Residences selling 125 units during a weekend launch in Guangzhou. With average selling prices in the range of THB 140,000 per square meter, unit sizes range from 40 up to 120 square meters.
Domestic demand continues to be robust considering that two years ago the Chinese government put placed restrictions that only one unit a year could be bought by foreigners in order to lower speculation and cool down what was an overheated market.
The Residences will be managed by the W hotel; and Asia continues to see these type of projects launch despite a sharp decline in the North American condo-hotel and mixed use sector. Two developments of Starwood's boutique W brand are underway in Bangkok and Koh Samui; where the later has seen sluggish demand for the residential component.
The state of play in Phuket's property market has shown a defined flattening of new property launches in the 1st Quarter of 2009 and is expected to remain static through at least mid year. For resort grade properties the only new launch of note was Surin's The Quarter. There remain positive and negative aspects when viewing the fundamentals with no new product out there, the existing supply and take up rates of launched product should improve; but at the same time new launches give profile to the market internationally which helps stimulate sales.
On a wider scale there looks to be a profound impact on large institutional developments with possible price adjustments on land values looming in the market (important note this applies to primarily large pieces of premium land 25-150 rai parcels), which will have a knock on effect from lower appraised values. With this comes less leveraging from banks and with decreased debt to equity ratios then internal rates of return shrink. For Thai investors this will be acceptable in a down-market but for international institutional investors who price in political and currency risk, going under 20% IRR's make investment in the countries property market a non starter.
Viewing this the expectation is that more domestic players will be involved in Phuket's short to medium term market which is a shift from what was once a sector which saw greater foreign investors/developers. One market that will most likely outperform the wider industry is resale's which provide some insulation from development risk and price sees greater flexibility. As of yet the Government has offered little in the way of stimulus to foreign investors in the property market though there are some rumblings that reforms are currently under consideration.
