With minimal leveraging and a limited supply of prime development plots Phuket has been able to stem the global and regional rising tide of depreciating prices, at least for the moment. Industry watchers are now viewing closely the outcome of the bidding on the 150 rai Laem Ka Properties site which was to have been managed by international chain Four Seasons. With Jones Lang LaSalle Hotels brokering a sale with Lehman's liquidators there is keen interest to see at what price the premium site will transact at.
In past years appraisals of institutional properties on the island and its environs have had difficulty benchmarking comparable transactions though noteworthy ones included Hongkong and Shanghai Hotels site in Bangtao where the present Shangri La Resort is being developed, Thai Muang by Richard Li's Pacific Century Group and most recently Pacific Star's Ko Pilai acquisition.
Prior to the economic downturn large prime oceanfront sites for hotels and mixed use were widely regarded to have a value of 18-20 million baht per rai and there were only a few transactions at that level. A new yardstick may now be applied depending at what price Leam Ka would sell at, should indeed it be vended. For existing projects there has been limited relief in terms of lower construction costs and with land components already priced in, it's doubtful that the same volatility in pricing may occur as with raw land.
The Phuket alternative accommodation market of villas, condominiums and apartments is starting to reach a greater critical mass and becoming a competitor to established hotels. During this high season agents such as PIPS (Phuket Villa Rentals), Knight Frank, Shibumi, Phuket Marbella, Phuket.net, Phuket Villas and Homes and a number of other agents are reporting strong sustained demand for product.
Given the vast developments in internet booking engines the lions share of these bookings are coming online at a time when travelers are already to accustomed to purchasing other related items like airline tickets through web site and the LCC (low cost airline carrier) boom. When speaking to a number of global accommodation providers based in Asia we understand a number are already looking to either introduce new sites for this type of product or offer a category aimed directly at alternative products.
There remain some important statutory issues unresolved as much as many villa and condo projects cannot obtain hotels licenses since the Thai Hotel Act does not address these new hybrid models. Additionally at stake is taxation such as VAT, municipal rental tax and personal income tax for individual owners. A similar situation occurred a few years ago in Bangkok with the explosion of serviced apartments and the Hotel Act was broadened to cover these developments.
As a byproduct of the holiday residential property boom there remains a huge pipeline that will see sustained product come online over the next 2-3 years and as such look for the rental market to becoming a major segment in the property industry. It is yet to be seen how the hotel groups are going to come to grasps with this type of competition and is an interesting developing storyline.
The integrated resort development West Sands in Mai Khao will be launching a vacation ownership program by October of this year according to Marketing Director Barry King. With 121 rai the project plan has 450 residential and lifestyle units ranging from ocean front and pool villas along with resort condominiums. Waterworld the themed amusement attraction will open later in the year and an Outrigger branded resort with 433 keys is also in the works.
Vacation ownership continues to be a strong mover on the island and industry estimates put revenue turnover at between 1 to 1.5 billon baht a year. Laguna Holiday Club, Marriott Vacation Club and Absolute who has teamed up with David Lloyd on a number of projects are the largest players.
Given significantly price points the vacation ownership market is continuing to develop a growing market share in the overall residential property industry. RCI and Interval International remain the two most popular worldwide exchange players in use. Expectations are that fractionals are going to enter the Phuket market more widely as the residential sales market remains soft and new products are needed to stimulate sales.
Cherngtalay Municipality (Or Bor Tor) has initiated a comprehensive campaign on the collection of tax on leasehold and rental properties. Covering leased land, buildings, or apartments the amount is calculated at 12.5% a year on the annual lease or rental amount recorded in the subject agreements. This tax has been largely overlooked and not widely applied in the past, but given the rise in holiday rentals of villas and apartments as well as leased property sold to foreigners the tax is now being more widely applied.
Building and land tax applies to all municipalities in Phuket and throughout Thailand, and typically is targeted at rental type properties. Given the relative vagueness between the terms "rent" and "lease" in Thai, leasehold ownership falls into this category as well. With the growing number of properties being rented and competing with hotels on daily, weekly and longer term rentals, Municipalities are now looking to tap into this income stream.
When speaking to estate management groups and rental agencies the subject of the effective use of the tax in terms of quality services was brought up and certainly putting these funds to good use remains to be seen. In the meantime expect this issue to gain more attention as new tax bills start popping up throughout Phuket. The tax remains controversial from the standpoint that many foreigners investing in property have elected to go the legal route versus nominee and use leasehold as the ownership option, and under this tax there is a considerable cost over the initial 30 year term.
Continued pressure by both the US and EU on the exchange of tax information by OECD
(Organization for Economic Co-operation and Development) standards looks to make a dent in the use of offshore companies formed in tax havens. Recent jurisdictions looking to see implementation over the short term include Hong Kong, Singapore, Isle of Man, Caymen Islands and Lichtenstein. The former had been included on the list of uncooperative tax havens with Andorra and Monaco.
Leaders of the G20 late last year agreed this to be a priority issue in addressing international cross border tax evasion. In the past many offshore purchasers of luxury residential and resort properties had used SPV's (specific project vehicles) or companies set up for the purpose of holding single assets. Must of the recent pressure on the offshore havens initially came with the rise in terrorism and money laundering.
In Thailand which has many dual taxation treaties there remain many beneficial advantages to a well structured and planned set-up, but professional tax advice should always be sought when making these types of decisions.
High profile Director of Marketing Anthony Franklin has left the TGR Group who is developing Jumeirah Private Island and ultra high end residential villas. With one of the most successful luxury residential sales and marketing campaigns in recent years, the project has announced they intend to complete their show villa in April/May of this year. With a marina capable of playing home to super yachts and the hotel branded by Jumeirah from Dubai who are renowned for their Burj landmark property, residential sales have been robust despite a worldwide recession. In its recent update from the developers no announcement has been made on progress on the hotel component.
Talking to Scott Gorsuch Managing Director of Leisure Design Group who's worked on star studded The Yamu and Phuket Pavilions the subject of what's in a name came up?
What is in a name, with all the developments springing up all over the island in the past few years, Phuket has a panoply of perplexing appellations, monikers and sobriquets, all designed to entice, impress and ultimate sell us a place to say for one night or forever.
Does the name help the sale?
"Potentially a lot. I continue to be amazed at how little thought many project owners put into the few words that will ultimately form their brand identity. "
What do you mean?
"A successful project name should have 3 qualities: It must be memorable. It should differentiate the product from other similar or competing development. And finally it should impart a tone that is consistent with the desired brand attributes."
Any practical suggestions for developers on the island?
"Sure. Avoid anything endning in ava, ana, or ata. Or ara, sara, dara, or tara because no one will be able to tell the difference between your project and the 30 others on the island that sound exactly the same. I would avoid naming your development after any Thai fruits, Thai flowers, Thai spices, or Thai trees because it's been done to death. I'd avoid names like lakeview, hillview, woodlawn as they sound like nursing homes. Finally nothing with tranquility unless you are selling cemetery plots."
Okay, what's your personal Top 5 Great Names in Phuket?
"Twin Palms, Indigo Pearl, Oxygen, Bluepoint and Coolwater"
High profile developer Raimon Land is set to obtain a short term loan of THB 395 million at an annual interest rate of 10% from one of its primary shareholders IFA Hotels and Resorts. In a notice to the Stock Exchange of Thailand the key terms and conditions have been disclosed in a connected transaction and that no collateral has been posted for the bridge loan.
Raimon Land has developed Kata Gardens, The Heights and is yet the launch the Amalfi project in Phuket. The stated purpose of the loan in the notice posted on the company website is the repayment of debt and working capital for projects current under development. Shares in the company are currently trading at twenty satang.
While Thailand's residential market has been hard hit by the current economic downturn, this announcement restores a certain degree of confidence in recognition of overseas investors such as IFA towards improvements in market recovery.
Thailand's National Environmental Board has drafted a revision to the existing Environmental Quality Act, and have submitted it for Gazetting and subsequent implementation. While the current Act aims to control a wide range of property development along with hotel and condominiums there have been recurring abuses in the past. New amendments expand the exiting requirement for hotels or residential developments above 80 rooms to apply for an EIA to more specific language which includes an "or" provision if the gross floor area exceeds 4,000 square meters. High rise projects are also addressed covering any building 23 meters high or a gross floor area of 10,000 square meters and above.
Given the considerably longer and more expensive process of obtaining EIA permits versus the less complex and relatively easy EIE permit, developers have been circumventing the law by applying for EIE permits and showing less then 80 rooms, though gross floor areas which in actual terms are in excess of the 80 room threshold. It's been a timeline fast track commonly used for eager property developers who wish to tighten up lead-time getting into the ground.
As Thailand's real estate market continues to develop into a more internationally benchmarked regulatory process the new amendment is clearly a positive step in the right direction.
